Bailout Could Deepen Crisis, CBO Chief Says

Bailout Could Deepen Crisis, CBO Chief Says

www.washingtonpost.com

Asset sales may lead to write-downs, insolvencies, Orszag tells Congress.

The director of the Congressional Budget Office said yesterday that the proposed Wall Street bailout could actually worsen the current financial crisis.

During testimony before the House Budget Committee, Peter R. Orszag -- Congress's top bookkeeper -- said the bailout could expose the way companies are stowing toxic assets on their books, leading to greater problems.

"Ironically, the intervention could even trigger additional failures of large institutions, because some institutions may be carrying troubled assets on their books at inflated values," Orszag said in his testimony. "Establishing clearer prices might reveal those institutions to be insolvent."

(visit the link for the full news article)

This is what I am terrified of... but I am not so much concerned about the big boys as opposed to us who really don't count for much when considering these matters aka the average person.

What I see happening is that the credit crunch is going to keep wages to stagante for the forseeable future and the cost oil high... This high oil prices and credit crunch will fuel even further inflation and then what happens is that loans previously considered safe will start failing because people will not be able to keep up financially and the downward spiral will continue.

www.washingtonpost.com
(visit the link for the full news article)

In my opinion, it is kind of a crapshoot if it would be worse to bail out these companies or let them die.

On one hand, if you let them die, there is going to be HUGE consequences to the economy. Never mind the thousands of people suddenly out of work, what about the mortgaged and securities held by these companies. Who would buy them? What happens to everyone's insurance policies? Letting the big boys die could lead to a very crappy year+ for Americans.

On the other hand, if we bail them out, we're just propping up a system that doesn't work. It starts with 700B in taxpayer money, then what? Assuming an average $250,000 mortgage (in new development areas of my fair Southeast city that is wildly underestimating) this will only cover 2.8 million mortgages, give or take. Glossing over the specifics of what will be bought when, what happens to us when that money is all used up? Then they go in for another 700B, then another, all thanks to us, the loyal taxpayer. Looking at it this way, we could be looking at a decade+ of this crap before anything levels out.

I'm not even going to touch the gross illegality (says me) of allowing such a monolithic government organization have such broad powers without any civilian oversight.

I really am surprised that this thread is not more active... we really need to discuss what will happen, what the reprocussions will (or might) be if this doesn't work.

Hi Grover -

I have noticed that you are very active with this topic and I applaud your dedication. These are scary times indeed!

I think the reason this thread hasn't received more notice or activity is because even the Fed and Treasury have zero idea where this thing will go. If they don't know, then how can we. Here is the best perspective I have seen.

Either way, things are grim.

Marc Faber, editor & publisher of 'The Gloom, Boom & Doom Report', told CNBC's Asia Squawk Box on Friday, he doubts that $700 billion would make any difference when you consider the size of U.S. credit markets. "Looking at the size of the credit market in the United States, the equities market, the housing market and then looking at the size of the credit default swap market, which is around $62 trillion now, and the world wide derivatives market which is now $1,300 trillion dollars, I very much doubt that $700 billion would make any difference at all. In fact, I think it's a bad proposal in the sense that it will distort market pricing," Faber said.

1300 TRILLION DOLLARS! And if I am not mistaken, the derivative market has been the real culprit here because people have been lending without any leverage and that is bought and sold in the form of derivatives.

"The problem is that too much money was lent against homes at inflated asset values. In other words that means at the peak of the market, people went and lent them 120 percent against the value of the home. And that is the problem -- the leverage in the system," Faber said.

He added that the current bailout plan proposed by the Treasury and the U.S. Federal Reserve does not address this leverage problem in the markets.

Source

700 Billion to fix a 1300 TRILLION dollar liability. You do the math...

Besides the fact that I am a concerned voter, I also live on a limited and set income (30% VA disability and Social Security disability) and the current inflation is already hurting... I joke, but I really don't want to move into a culvert because of a bunch of greedy self serving a--holes.

I just started another thread 10 ways to bailout wall street without soaking the taxpayer which I hope will generate some serious debate.

www.abovetopsecret.com...

[edit on 26-9-2008 by grover]

I was reading also that, like you said the price will be inflated and the "toxic debt" could over pay.

So how the fed in their bail out give away will not be overpaying for "securities" that their value is much less that what is listed?

Isn't this another way that bankers or financial institution will due to scam the Fed and the tax payer?

No wonder the Fed doesn't want anybody breathing down their neck.

And were does all this money will come from? it will come from our friends the Chinese, Japan and any other nation that buy our debt.

So the truth is that is not tax payer money waiting in a vault to pay for this, what tax payer will be paying is for the interest of the debt as it will be added to the national debt.



[edit on 26-9-2008 by marg6043]

I am not an expert on the economy, but I have a very bad feeling about this bailout. I believe Ron Paul- he has been all on week talking about in a free market we should let the market correct itself. It would suck for a year or two.

But I feel like this bailout is delaying the inevitable. If the economy is going to collapse I would rather deal with this like one would a taking off a bandaid- just rip it off quickly.

I am beginning to believe the bailout is little more than a last gasp raid on the piggy bank before the guard changes... in short another ripoff. It also suggests that the powerbrokers and greedy pigs think Obama is going to win which accounts for the grab now.

Someone mentioned something key earlier in the post when they referred to "the credit crunch".

What is the credit crunch?

It is the contraction of the money supply, or the availbility of loans made by central banks.

Commerical and high street banks are so over-leveraged that they cannot function without these loans, which are made and renewed on a short term basis. During the last month the central bank as contracted the money supply by over $100 billion, it has done this by not renewing these short term loans.

The bailout is effectively a pay-off to the central bank (private institution, deceivingly bearing the name Federal) in order to convince them to start renewing these loans again. They are holding the country over a barrel, unfortunately 99% of Americans just don't realise it, because the media is not making it clear (due to vested corporate interest).

Even if the bailout is granted, how long before they do it again? Immediately I suspect, this bailout will solve nothing, merely make the problem worse.

Refer - see the other threads on removing the Federal Reserve. This is where the real problem lies.

This only shows how our nation that is not longer a "wealth producer" depends on "loans" and "credit" ot survive.

Now isn't the credit bubble about to burst or it already busted with the financial institutions crash, of this is going to be perpetuated by more money that we actually don't have and will be taking it on "credit" to support yes our own "credit bubble"

It makes no sense and is not going to end very pretty either.

reply to post by grover

This is what I am terrified of . . but I am not so much concerned about the big boys as opposed to us who really don't count for much when considering these matters aka the average person.

What I see happening is that the credit crunch is going to keep wages to stagnate for the foreseeable future and the cost oil high. This high oil prices and credit crunch will fuel even further inflation and then what happens is that loans previously considered safe will start failing because people will not be able to keep up financially and the downward spiral will continue.

I agree. So why the RUSH to a FIX? Assuming someone is responsible for the current state of affairs, why would we want to let those self same who committed egregious errors of judgment now do the FIXING? That does not make any sense at all.

And let me add this. I think McCain’s real intent over missing tonight’s debate was to KEEP Palin out of next week’s debate. He has a plausible excuse for his supporters - not for us detractors - that they will eat it up.

Big John can’t come because he is down in W-DC fixing this mess!

George W Bush is WORSE than a GODLESS Communist!

Posted by Grover: I am beginning to believe the bailout is little more than a last gasp raid on the piggy bank before the guard changes . . . in short another ripoff. It also suggests that the powerbrokers and greedy pigs think Obama is going to win which accounts for the grab now.

posted by marg6043
I was reading also that, like you said the price will be inflated and the "toxic debt" could over pay. So how the fed in their bail out give away will not be overpaying for "securities" that their value is much less that what is listed? Isn't this another way that bankers or financial institution will do to scam the Fed and the tax payer?

No wonder the Fed doesn't want anybody breathing down their neck. And were does all this money will come from? it will come from the Chinese, Japan and any other nation that buy our debt.

So the truth is that is not tax payer money waiting in a vault to pay for this, what tax payer will be paying is for the interest of the debt as it will be added to the national debt.

With NO bailout WE CAN MAKE IT!

The Stock Market Crashed in September, 1929. President Hoover was psychologically incapable of proposing government intervention into the world of PRIVATE ENTERPRISE. That was sacrosanct. The next Election was not held until November, 1932. The newly elected president did not take office until MARCH 4, 1933. For THREE YEARS SIX MONTHS the United States survived. WE CAN DO IT AGAIN!

Vote NO on the BAILOUT!

[edit on 9/27/2008 by donwhite]

Originally posted by grover
What I see happening is that the credit crunch is going to keep wages to stagante for the forseeable future and the cost oil high... This high oil prices and credit crunch will fuel even further inflation and then what happens is that loans previously considered safe will start failing because people will not be able to keep up financially and the downward spiral will continue.

It's called stagflation - when inflation and interest rates rise while economic activity slows. It happened in the late 70's/early 80's, and I also believe it is happening now.

The solution was for Paul Volker, the then Fed Chairman to crunch the economy and drag it down, which was the beginning of the end for our manufacturing sector, and the economic cleansing which made the later Reagan boom possible. Today's Fed will face the same choice - deep recession or delay the inevitable. Since they have been delaying the inevitable for some time now, and they appear to want to continue, it seems that we may have that to look forward to sometime during the next president's administration.

the bailout will only change the direction of the economy,
it can make things worse for some, ergo a crisis,

but for others the Troubled Asset Relief Program TARP will be just another 'installment' of the Great Society scheme which has been active since LB Johnson.



i submit, the housing bubble was another government driven social engineering program,
how so....

first the housing programs, to extend easy access to the unqualified, to get a piece-of-the-american-dream Pie, by 'owning' a home...
the section 8 housing & HUD were beside themselves about housing,
old projects were crumbling and a replacement shelter service was needed.
the minorities, the disadvantaged, single moms, working poor, they all were being given the special 'Great Society' treatment.

secondly, the masses had to be 'stroked', because of all the illegal aliens that were changing the character of society itself... a way had to created for citizens to be given special treatment over and above the illegals who were accessing the formerly sancrosanct domains of the Great-Society-culture such as food-stamps, ER doctoring, WIC, free-lunch & school centered babysitting in the guise of the many social-programs like night basket-ball, et al.

So the housing bubble began, & grew...
finally the middle classes wanted part of the largesse, the lenders complied and 3rd-4th home mortgages were fairly easily gotten, then the blue collar class got in on the action with the 'flipping' houses. condos, etc


but it all started with the govt programs to boost the 'poor' into home ownership.



where the bailout of the last round of Great-Socirty folly goes, i can't say for sure.
perhaps the USA will adopt a China model of capitalism, for those the central planners consider instrumental in maintaing a grow element in the economy, and the masses living at a rationed and meager subsistance model.
free(dom) is being redefined

The question of who lent us the money is a good one.
What if the Country, say China, foreclosed on us.
Could Chinese soldiers come marching into the U.S. by the millions and evict every borrower from their homes ?

Originally posted by Ravinsomniac
The question of who lent us the money is a good one.
What if the Country, say China, foreclosed on us.
Could Chinese soldiers come marching into the U.S. by the millions and evict every borrower from their homes ?

They could try. Foreign troops performing military actions on US soil is a "line in the sand" for a great many people.

reply to post by Grumble

It's called stagflation - when inflation and interest rates rise while economic activity slows. It happened in the late 70's/early 80's, and I also believe it is happening now.

I know what it was called. But I want to know what is it? “Stagnant - Inflation” is a contradiction! Stagnant meaning very low or no growth (even negative) in the economy. Inflation means more dollars are chasing fewer goods and services. Perhaps it was an economic anomaly that occurs as an inescapable part of the process when an economy moves from a manufacturing economy into a service economy? A singularity? One time only. That sea change in our economy was going on in that time frame. (I have always denied the viability or long term sustainability of a service economy on a large scale. Liechtenstein OK, US Not).

I understand the magic formula - economy-wise - to be “inflation at 2% and the rise in productivity higher, say 2.5% or 3%.” As long as the numbers remain in the low single digits and the inflation is not over 3% and improved productivity is somewhat more, life is happy. So I understand it to be.

The solution was to crunch the economy and drag it down, which was the beginning of the end for our manufacturing sector, and the economic cleansing which made the later Reagan boom possible.

Remember the statistician’s warning - correlation is not (necessarily) causation. It could be coincidence. Or serendipity. Or indeed, it could be causation. I challenge the assertion “that [stagflation followed by the crunch] was the beginning of the end for our manufacturing sector.” This plausible but oversimplified explanation ignores China. The Peoples Congress - the triennial ruling body in China - gave the go-ahead in 1977 to introduce large amounts of private capital into their economy under strict controls.

I believe this is the most frequently given date (1977) for the rise of China as an industrial or manufacturing global power although it is hard to put an exact date on this world changing phenomenon.

If all that above be so, then the state of our own economy had not much to do with the decline in our manufacturing capacity. The ruination of our manufacturing base was really brought on by the unrestrained FLIGHT of capital from the US to China and other anti-union low wage countries. Rather than modernize at home, it was cheaper to take your money abroad. In one easy step you solved your union problem, your pension problem, your health care costs, your product liability problem, your OSHA problems and your EPA problems. No health inspectors looking at your toilets. No pesky zoning enforcers haranguing you about excessive noise. And your TAX problems were in the past. It was a NO BRAINER to go to China or Malaysia or Bangladesh. Sweet Jesus! We do love China.

This new era of globalization is symbolized by the birth of the Wal-Mart system of ‘on-time” inventory delivery. That in turn made possible first by the adoption of sea-going cargo containers; followed by the demise of a highly structured tightly regulated top down over-the-road trucking industry dominated by a half dozen carriers into the go anywhere anytime independent trucker-owner of today. (Is this paragraph coherent of is it discombobulated? Help me!)

Today's Fed will face the same choice - deep recession or delay the inevitable. Since they have been delaying the inevitable for some time now, and they appear to want to continue, it seems that we may have that to look forward to sometime during the next president's administration.

By all means. Even though we have been pushed into this QUICK FIX by Bernacke, Paulson and George Bush - him threatening your 401(k) etc - it - the FIX - cannot possibly be completed by January 20, 2009.

We are a bankrupt country. Can you imagine putting the THREE MEN most responsible for this fiscal comedy in charge of the FIX? Sweet Jesus, Come Quick!

But it also means that whoever is our next president, he starts his term of office ANOTHER $700 BILLION IN THE HOLE. And for that George Bush gets ALL the credit. He started in 2001 with a Federal surplus and a balanced budget.

Bush43 has succeeded in doubling the National Debt to $10 t. and we have $3 - 5 trillion in Freddie Mac and Fannie Mae out there waiting to be cashed. Not to remind of the $1 t. it will cost anyone to get out of Iraq and Afghan. After declaring "Total Victory" in the "War on Terror!"

[edit on 9/28/2008 by donwhite]

reply to post by marg6043

This only shows how our nation that is not longer a "wealth producer" depends on "loans" and "credit" ot survive. Now isn't the credit bubble about to burst or it already busted with the financial institutions crash, or this is going to be perpetuated by more money that we actually don't have and will be taking it on "credit" to support yes our own "credit bubble" It makes no sense and is not going to end very pretty either . . “

Hi, M43, glad to hear from you again. I agree with you. I have argued that wealth must be something tangible. Something you can hold in your hand. Something you can measure. Weigh.

It is inconceivable to me how shuffling papers can create wealth.

This fiscal comedy has got to be the BIGGEST and GLITZIEST Ponzi scheme ever hustled off on the long suffering public. P. T. Barnum sure had it right, “There is a sucker born every minute.” We have been bilked out of $700 billion by crooks extra-ordinaire! How much insider trading has taken place in the last 6 months? This will go down in history as the LARGEST raid on the US Treasury since the British struck in W-DC in the War of 1812-1814. See Note 1.

That said, you ask “so how’s it working?” It works because America is worth about $55 t. I mean all of everything. If put up for sale, America would bring about $55 t. We already owe $10 t. Probably to be $15 t. by 2012. But which if we “cash out” today means we would have $45 t. net to show for our troubles. It is hard to see the difference in $45 t. and $55 t. But believe me, there is one, it is exactly $10 t. America is somewhat like a fat lazy walrus, we are LIVING OFF OUR FAT.

Note 1. " . . the British attack on Washington was in retaliation for the U.S. invasion and attack on Canada's capital city York, Upper Canada (now Toronto, Ontario, Canada), in 1813 in which U.S. forces looted and burned the city, including the Parliament Buildings of Upper Canada."
en.wikipedia.org...

[edit on 9/28/2008 by donwhite]

reply to post by grover


I will throw this out here for you to chew on a bit Grover..
Do you think this could lead us into the North American Union? And allow them to press their new currency the Amero upon us?

I mean we are honestly caught in a classic catch 22 here..

Short and sweet here.. Think about that for a little bit and tell me what you think? NAU, and the Amero will come and save the day?
As like bail out plan C or D?

What are the chances of that being put into place if our system fails..?

Thanks for the thread and your dedication to this issue.. Im right here with you man, every step of the way..
But wanted to throw that thought out to you..