"OK If We Can’t Borrow $700 Billion, We’ll Just Print $630 Billion!"
Or so our financial wizards seem to be saying. Here’s a Bloomberg article title we haven’t seen before: “Fed Pumps Further $630 Billion into Financial System.” (HT2EPJ)
House Rejects Bailout Plan!!
This is great stuff. First the Democrats let the offshore ban expire, and now they don’t ram through the Paulson Plan. Will wonders never cease?
I still think some version of this is going to happen, but I admit that I thought it was a done deal after the Sunday announcements.
Remarks from a Wall Street Big Gun
My buddy on Wall Street wrote to me in an email saying:
I have been catching myself thinking the last few weeks…”I will never invest in a financial institution.”
Why? It seems that if they are insolvent the government just seizes them. If other kinds of companies go bankrupt there are still contracts, property rights and sufficient bankruptcy law/courts.
But, wow, did they ever wipeout Washington Mutual. The debtholders got zero.
Amongst the many unknown ramifications of this bailout, it could really damage people’s willingness to invest in financial institutions (including lending to them).
This is what I have been saying for weeks.
Again, folks, the verb used by the lapdog financial press is “seize” when it describes what the government regulators do to these troubled institutions. And also, no one is going to sell dubious assets to private buyers, since they will get such a better offer from Hank Paulson in short order.
Given this environment, what investor in his right mind would get into the financial sector?
Inside Fed Baseball, from Bill Barnett
I am on a discussion list of Austrian economists, and Bill Barnett (economics professor at Loyola University in New Orleans, when it’s not underwater) posted the following, which I reprint with his permission:
The Fed’s consolidated balance sheet…and its data on reserves and the monetary base…reveal several interesting points, not limited to the following: The Fed’s balance sheet expanded by some $294B (not M) over the last two weeks; that is, by approximately 1/3 (no misprint – 31.4%).
The big items on the asset side are repos (-$40B), “Other loans” (+$238B) and “Other assets” (+$86B); on the liability side, rev. repos (+$47B), deposits of depository institution (+$63B), and, the real kicker, UST deposits in its “supplementary financing account” an account that appears for the first time, as far as I know, certainly it hasn’t been there in the last two years, to the best of my knowledge (+$160B). This boggles the mind.
As to the monetary base, total depository institution reserves more than doubled during the last two weeks from $47B to $110B, but the base, according to H.3 table 1, only increased by $7B. Seems to me that something is wrong with that, as the cash in circulation would have had to decline by some $56B, and yet it only went up by some $2B, according to H4 table 4.
At any rate, excess reserves went up by more than 3,000% from $2.2B to $69B. Moreover, the banks and S&Ls are carrying some $15B in “surplus vault cash” that is not included in excess reserves. Altogether, some $83B they could lend out if they had capital AND were not afraid of bank runs.
Bill
"Mad Money" Senior Writer Wants Credit for Bailout
Aww, no fair! Paulson’s getting all the credit for the Great Bank Robbery of 2008! So says one of Jim Cramer’s henchmen. (Note: I no longer read or listen to Cramer AT ALL, but this is a loophole since I’m not quoting him directly.) Anyway listen to this guy:
I know we’ve spent every night talking about the Paulson bailout plan (or Invest In America Plan as we call it) ever since the rumors about it started last week, but to be fair, we’ve actually been talking about this plan, or something like it for months. Ever since March, if not earlier, Jim’s been calling for the government to buy mortgages and mortgage-backed paper, and starting around July 16 he called for the creation of a Mortgage Resolution Trust almost every show. If we were the kind of egomaniacal people who demanded credit for every idea we pushed that eventually got adopted or at least proposed, we wouldn’t have room for anything else on the show.
But just to be clear, this has been on your TV screen for months, and it should’ve been on someone’s radar. Jim is a cable TV host and he’s been pushing a plan similar to Paulson’s for months, but Congress was blindsided by this? Come on. So for people who act like Paulson’s plan came out of nowhere, even though we’ve been suggesting the government do this for months, come on! If there’s any fault, it’s with the administration for waiting so long before putting this plan forward. Lehman…and AIG…had to go down, not to mention Fannie…and Freddie…before they were scared enough to realize that, yes, we have a big, systemic problem.
Funny that an administration so sold on preemptive war has been so incapable of taking preemptive action when it comes to the economy.
Don’t you love that last line? It’s akin to Bill Kristol saying, “We were saying for years that the US should invade Iraq. It’s too bad the World Trade Centers had to come down before people took our warnings of WMD seriously.”
Incidentally, as I write the S&P500 is down more than 3.5%, and the credit markets are worse than they were last week.
Monday Monday…Can We Trust This Day?
I am very anxious to see what happens to the stock market and gold/silver prices today, now that the Great Bank Robbery of 2008 has gone through. Let’s suppose the market tanks more than 3% this week, and another big institution goes under. Would the government say, “Hmm, I guess our bailout didn’t work after all, never mind”? Or would they ask for twice as much money?
Snapshot of Free Advice Reader Profile
Wow it’s already been more than a month since the Little Blog That Could opened up shop. I’m proud to say that in this brief time, we’ve overseen the biggest theft in world history. But snap out of it, guys, we still have the whole second half!
Anyway, I was browsing the stats from my Top Secret Demography Flux Capacitor, and noticed something interesting:
COUNTRY————VIEWS—–AVG TIME ON SITE
=============================================
United States….317,900………00:02:02
Canada…………18,300………00:02:12
Australia……….6,000………00:03:36
United Kingdom…..4,700………00:00:55
Belgium…………2,700………00:02:02
Germany…………2,500………00:00:27
France………….1,500………00:01:06
Brazil………….1,500………00:00:43
Poland………….1,400………00:00:44
Netherlands……..1,400………00:00:23
=============================================
(Note: I have adjusted the numbers in one and only one of the columns above. Also, I have tried twice to format the column margins, and even switched to periods instead of spaces. I have no idea why the columns aren’t flush, because they ought to be, in a parallel universe where I understand computers.)
So I think our thousands from the U.S., Canada, Australia, and Belgium should take a bow. You are very deep thinkers, and really absorb the material. (Or maybe it just takes you a long time to “get” deadpan jokes.)
On the other hand, some of you other people… What’s the story, people in Netherlands? (BTW is it *the* Netherlands? And if so, is that really necessary? It’s not like somebody says, “Hi I’m Bjorderben, and I’m from Netherlands” and then the other guy says, “Do you mean you’re from THEE Netherlands?!”)
Economist Robert Murphy Endorses the Bailout (!!)
From this Boston Herald column:
Not even economists and financial experts could agree on the plan’s wisdom and probability of success, if the $700 billion package is approved.
Some say the bailout could easily cost more than $1 trillion.
Peter Cohan, a venture capitalist and president of Peter Cohan & Associates in Marlboro, said Paulson’s proposal is a “terrible idea” because it calls for buying up bad mortgage assets without really helping companies recover.
…
But Robert Murphy, an economist…said buying up bad assets of Wall Street firms will help firms get out from under the toxic securities that have already claimed Bear Stearns, Lehman Brothers, Merrill Lynch and American International Group.
In the words of Austin Powers, “Really baby, that’s not my quote.”
(Note they are referring to a different Murphy; they aren’t misquoting me.)
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