America's Financial Mess

[Thomas M. Miovas Jr.]

[Note to moderators: Something might be wrong with the text editing on the edit board to post messages. This is my forth attempt to post my message]

Under the title "Greenspan has no Free Market Philosophy" The Ayn Rand Center for Individual Rights just had a press release against Alan Greenspan -- I get the notices before they post them to their website (an advantage subscribers have).

But according to Dr. Yaron Brook, executive director of the Ayn Rand Center for Individual Rights, “any belief Greenspan ever had in truly free markets was abandoned long ago. While Greenspan long ago wrote in favor of a truly free market in banking, including the gold standard that such markets always adopt, he then proceeded to work for two decades as leader and chief advocate of the Federal Reserve, which continually inflates the money supply and manipulates interest rates.

[it is my understanding that Ayn Rand had a lot of hopes for him being in the government, but he dashed those hopes by not advocating individual rights and free banking while in office.]

Edited October 24, 2008 by Thomas M. Miovas Jr.

[Thomas M. Miovas Jr.]

Now they want to bail out insurance companies, considering them financial institutions because of their exposure to mortgages.

Sources told FOX Business Network that the assistance to insurance companies could be between $50 billion and $100 billion, and would be in the form of buying distressed assets. A formal announcement on the aid may not come until after the election on Nov. 4.

The government has also put up a website detailing their activities regarding the bail out.

Separately the U.S. Department of Commerce announced Friday it launched a Web site, www.economicrecovery.gov , which is a resource for the latest information about economic issues and what the government is doing to improve the economy.

Of course, in a free society or capitalism, the government wouldn't have anything to do with the economy, aside from preventing force and fraud.

[Thomas M. Miovas Jr.]

Global socialism is in the works in the form of regulating financial institutions around the world by the IMF.

Speaking at the close of a two-day Asia-Europe Meeting in China's capital, the leaders called for new rules for guiding the global economy and a leading role for the International Monetary Fund in aiding crisis-stricken countries.

And later:

"Leaders agreed that the IMF should play a critical role in assisting countries seriously affected by the crisis, upon their request," it said.

Participants also agreed to "undertake effective and comprehensive reform of the international monetary and financial systems," the statement said.

Global regulations don't sound like a good way to spur economic growth, but it is a means of grabbing global power.

[Thomas M. Miovas Jr.]

Global socialism is in the works in the form of regulating financial institutions around the world by the IMF.

And naturally, as a modern non-principles Republican, Bush wants to go along with them.

WASHINGTON (Reuters) – President George W. Bush, who will host a global summit on the financial crisis next month, said on Saturday that agreeing on common principles to reform regulators would be essential to preventing another disaster.

So much for the sovereignty of the United States and burgeoning global "capitalism".

[Thomas M. Miovas Jr.]

Well, it looks like they can't decide what to do with that $700 billion dollars Congress decided to give Paulson, they keep changing their minds about what to do with it.

As the crisis worsens, the government's reaction keeps changing. Lawmakers in both parties are starting to gripe that the bailout is turning out to be far different from what the Bush administration sold to Congress.

Further it stresses that strings where not attached in order to encourage voluntary compliance (uh...right) with the money being doled out. Seems like every major industry wants a part of it, since it is basically a large loan.

Earlier reports said that BB&T were going to use it for mergers and acquisitions, so now they might put string on it, saying that can't be done. But who knows, it's no one's money, being public, and so long as they are giving it away with no rules attached, it can be used for whatever you want to do with it as a company.

By the way, the report also states that none of the money has changed hands, yet, so there can be no claim that the EESA bail out is doing any good at all. But with them bickering and wanting strings attached, it sure ain't building confidence like it is supposed to be doing.

[dadmonson]

Can other countries help the U.S. out at all? Do you think they will try? China wouldn't want the U.S. to go down the tube I don't think.

Edited October 26, 2008 by dadmonson

[gags]

Can other countries help the U.S. out at all? Do you think they will try? China wouldn't want the U.S. to go down the tube I don't think.

As bad as things seem to be here, they are either worse or getting worse in other countries.

http://www.telegraph.co.uk/finance/comment...s-meltdown.html

http://www.telegraph.co.uk/finance/comment...is-spreads.html

The world's addiction to unbacked paper money is coming back to bite us all in the ass with a vengeance.

[Thomas M. Miovas Jr.]

Banks are now being reminded that their operations are governed by Federal rules and regulations and they are being ordered to loan money by the White House.

WASHINGTON – An impatient White House served notice Tuesday on banks and other financial companies receiving billions of dollars in federal help to quit hoarding the money and start making more loans.

"We're trying to do is get banks to do what they are supposed to do, which is support the system that we have in America. And banks exist to lend money," White House press secretary Dana Perino said.

So, there are definitely implicit strings attached to the bail-out money as prescribed by the authority of the Feds and the EESA.

[Greebo]

Banks are now being reminded that their operations are governed by Federal rules and regulations and they are being ordered to loan money by the White House.

WASHINGTON – An impatient White House served notice Tuesday on banks and other financial companies receiving billions of dollars in federal help to quit hoarding the money and start making more loans.

"We're trying to do is get banks to do what they are supposed to do, which is support the system that we have in America. And banks exist to lend money," White House press secretary Dana Perino said.

So, there are definitely implicit strings attached to the bail-out money as prescribed by the authority of the Feds and the EESA.

But it was deregulation that caused this mess...

[gags]

Banks are now being reminded that their operations are governed by Federal rules and regulations and they are being ordered to loan money by the White House.

WASHINGTON – An impatient White House served notice Tuesday on banks and other financial companies receiving billions of dollars in federal help to quit hoarding the money and start making more loans.

"We're trying to do is get banks to do what they are supposed to do, which is support the system that we have in America. And banks exist to lend money," White House press secretary Dana Perino said.

So, there are definitely implicit strings attached to the bail-out money as prescribed by the authority of the Feds and the EESA.

This morning I talked to a friend who works for a small community bank here in the Detroit area. His bank has less than $1 billion of total assets. He said that the Feds have told them that they need to accept up to an additional $1 billion and that they should begin making loans with it. They've also been told that if they don't take the money, they will lose their FDIC insurance on checking and savings accounts. This guy is a loan officer and he said that they don't have enough credit-worthy customers to lend the money. He also said that they haven't put any explicit strings on the cash, other than to declare that loans should be made. I suppose they could give all of the employees a bonus and declare a big dividend for their shareholders. Hmmm....anybody want to set up a bank?

[Thomas M. Miovas Jr.]

Well, consumer spending is way down, according to this report and the Feds are "hitting the accelerator" trying to spur not only more consumer spending but more loans and will try to prevent foreclosures. Don't know if the Federal Reserve can actually spur the economy or not, but if they can and they do, what does that hold for our future? Another boom then bust cycle, most probably.

[gags]

This whole thing is moving so quickly now, nobody can control it. Banks in Europe are in major trouble, the Russians are burning through their currency reserves at unprecedented speed, the emerging market countries are raising their interest rates massively in order to stop runs on their currencies, the Japanese are acting to reduce the appreciation of their currency and put their own stimulus plan in place, etc.... Unfortunately, the general public is completely unaware of the long-term implications of the actions being taken to solve this crisis. Art Laffer has a recent op ed in the WSJ where he said that the age of prosperity is over. I think he could be right.

http://online.wsj.com/article/SB122506830024970697.html

[Clawg]

Well, what it comes down to is that they destroy wealth selectively (the only power the government has) in order to prevent the destruction of more wealth. Maybe.

[Steve D'Ippolito]

If they (the statists) think they are somehow cutting the economic equivalent of firebreaks for a forest fire, they are *unbelievably* delusional.

[Thomas M. Miovas Jr.]

If they (the statists) think they are somehow cutting the economic equivalent of firebreaks for a forest fire, they are *unbelievably* delusional.

Right. I think they are adding fuel to the fire. With the command to the banks to loan, loan, loan, regardless of the current risks, they are making it nearly impossible for banks to loan as they normally would with the appropriate risk factors calculated in. And all the central banks lowering interest rates will also encourage more risky loans. Not only that, but they are propping up bad decisions. I don't know that the first nine banks to get the bail-out money would be out of business without it, since they are supposedly healthy, but giving it to unsound banks and propping up bad mortgage loans will on put a penny in the fuse box -- and may wind up burning up vast sections of the economy when those transfer of funds comes home to roost. And besides all of that, if the banks are going to be forbidden to take risks (according to the bureaucrats), then innovation may well hurt in the long run, because someone has to fund new enterprises or they won't exist. With the government watching them like a hawk, they are less likely to take rational risks for the commanded tack of saving the housing market. If the housing crises was brought about by a higher supply of homes, how do they propose to stop that by ordering the banks to issue loans to businesses that might be in the housing market? It's just run amok bureaucracy, which does not bode well for the future.

[Thomas M. Miovas Jr.]

Healthy banks are beginning to rebel against the bail-out, saying that they don't need nor want the bail out given the uncertainties of what they are supposed to do with the government funds.

"Most importantly they have no way to know what other requirements may be placed on their institutions after the fact," he said. "Proposals have included tight restrictions on pay and bonuses, prohibiting dividends, and explicit lending requirements. It is completely unfair to ask thousands of banks across the country ... when the impact of the program on those banks is unknown."

[Thomas M. Miovas Jr.]

Amit Ghate has an interesting op-ed called Let Them Fail In which he argues that capitalism permits entire industries to fail in order to make room for improvements.

Overlooked here is that in a free market business failures are not just normal, they’re crucial for the best products and ideas to emerge. Most restaurants fail in their first three years because customers have other preferences. Many mom-and-pop grocers go out of business because Walmart offers better selection and lower prices. Even whole industries--think typewriters, 8-tracks and horses and buggies--vanish because new inventions and competitors arise.

And he extends the argument for banks and other financial institutions that take a greater risk than they should have. He doesn't explicitly mention mortgage backed securities, but certainly one way for financial institutions to have learned their lesson of what to use to back securities is that they shouldn't use volitile commodities.

Conversely, when the government tries to “manage” the economy--when the consequences of risky behavior are shifted from self-interested actors to taxpayers, as was done by the creation of the Fed and its various insurance programs, or when weak financial firms are propped up rather than being allowed to fail--people take on risks they would not otherwise. Banks are less careful, depositors no longer evaluate their institutions, and risks are concealed and amplified until they become catastrophic.

[gags]

The government's management of this entire bailout continues to grow in its absurdity. This morning I heard that the feds will have soon kicked $150 billion into AIG. How can this approach possibly have not been far more expensive than simply letting the company fail and having its assets split up through the bankruptcy system?

Also, in another bizarre twist, "The Federal Reserve is refusing to identify the recipients of almost $2 trillion of emergency loans from American taxpayers or the troubled assets the central bank is accepting as collateral."

Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson said in September they would comply with congressional demands for transparency in a $700 billion bailout of the banking system. Two months later, as the Fed lends far more than that in separate rescue programs that didn't require approval by Congress, Americans have no idea where their money is going or what securities the banks are pledging in return.

Given that the Fed won't release this data, the effect is to cause markets to sieze up because the lack of information necessarily causes paralysis. According to Congressman Barney Frank: "the Fed shouldn't reveal the assets it holds or how it values them because of ``delicacy with respect to pricing.'' He said such disclosure would ``give people clues to what your pricing is and what they might be able to sell us and what your estimates are.'' He wouldn't say why he thought that information would be problematic."

`Unclog the Market'

Revealing how the Fed values collateral could help thaw frozen credit markets, said Ron D'Vari, chief executive officer of NewOak Capital LLC in New York and the former head of structured finance at BlackRock Inc. "I'd love to hear the methodology, how the Fed priced the assets,'' D'Vari said. "That would unclog the market very quickly.''

Here's a link to the Bloomberg article, if you'd like to read it yourself: http://www.bloomberg.com/apps/news?pid=206...p;refer=finance#

[Thomas M. Miovas Jr.]

Also, in another bizarre twist, "The Federal Reserve is refusing to identify the recipients of almost $2 trillion of emergency loans from American taxpayers or the troubled assets the central bank is accepting as collateral."

Fox News is now joining in to find out what happened to that $2 trillion.

So Fox Business has begun actions to force the U.S. government and the Federal Reserve to share information about all these bailouts with you. If in 20 days the Treasury Department has not responded to our Freedom of Information requests, we are going to sue the Treasury for that information. The government and the Fed have no right to keep this information from you, the very people who are being forced to pay for these bailouts.

All of this secrecy of who gets what and on what terms and how much they are paying for the troubled assets is confusing the markets. Besides, $2 trillion is a huge amount of money, and one has to wonder where it came from, and what this may do to the currency.

[gags]

These sorts of headlines are depressing:

"Lobbyists Swarm the Treasury for Piece of Bailout Pie" http://www.nytimes.com/2008/11/12/business...amp;oref=slogin

"World business leaders back more regulation: survey" http://www.reuters.com/article/ousiv/idUSTRE4AB00F20081112

I hate quoting Lenin, but he may have had a point when he said "The Capitalists will sell us the rope with which we will hang them."

[Thomas M. Miovas Jr.]

While sanction of the victim is very morally frustrating, I think it is more frustrating that the government has decided not to use the bail out money the way they lobbied Congress for the funds.

WASHINGTON – Treasury Secretary Henry Paulson said Wednesday the $700 billion government rescue program will not be used to purchase troubled assets as originally planned.

....

He announced a new goal for the program to support financial markets, which supply consumer credit in such areas as credit card debt, auto loans and student loans.

I guess the troubled assets are being bought by the Federal Reserve in that $2 trillion dollar deal. Anybody have any idea how much that is when compared to the entire economy of the United States?

From Wikipedia:

The economy of the United States is the largest national economy in the world.^[7] Its gross domestic product (GDP) was estimated as $13.8 trillion in 2007.^[8] The U.S. economy maintains a high level of output per person (GDP per capita, $46,000 in 2007, ranked at around number ten in the world).

So, more than 1/10th of the entire economy is going to this buying of bad assets!

[Thomas M. Miovas Jr.]

Meanwhile, President Bush is giving a lot of mixed signals regarding the "free market" saying it is not to blame for the financial meltdown but doesn't come out and say that it was due to regulations.

"The crisis was not a failure of the free market system," Bush said. "And the answer is not to try to reinvent that system."

Bush's case against excessive government intervention comes as some critics think his administration already is doing just that. The federal dollars being spent or put on the line to rebuild the nation's financial system could easily run into the trillions. Already the Bush administration has enacted a $700 financial rescue package, backed the purchase of investment bank Bear Stearns, bought stock in leading banks, engineered a government takeover of mortgage giants Fannie Mae and Freddie Mac, guaranteed money market fund holdings and funneled billions to stabilize troubled insurance giant American International Group.

In other words, he doesn't have a principled stance for capitalism, but that isn't news to this forum.

[IchorFigure]

Every time he opens his weasly chimpanzee mouth on TV I get the urge to throw a tomato. If only his successor were any better.

[K-Mac]

Now cities are chiming in...Detroit, Philadelphia and Phoenix have asked for bailouts in recent days. Freddie of course, too.

[KevinDW78]

Now cities are chiming in...Detroit, Philadelphia and Phoenix have asked for bailouts in recent days.

My bidet needs a bailout. Give me money!