Why the Bailout Is Bad

NEW -> Contingent Buyer Assistance Program
I'm curious as to where you guys are getting your data for the borrowing at the FED? I'm being serious, do you have a link to the FED's website that I am not aware of, or am I confusing which FED source they are borrowing from?



According to the Friday WSJ, lending through the primary-dealer credit facility reached a record $105.66 billion on Wednesday after hitting $59.78 billion a week ago. I'm too lazy to find the link right now, but it was on page A8 of the WSJ on Friday, and it was a small clip in case you missed it. After seeing that it makes me believe they are using the FED, and maxing it out.



On a side note: I checked out some MBS pools this week, and OMG it has become horrendous. I know... I know... I have been saying that for years now, but some of the 2006 subprime vintages are getting close to 50% total delinquency rates. The good news are the 30 and 60 day lates are slowing down considerably. I know this sounds weird coming from me, but being a buyer of subprime MBS pools right now could be a good thing as long as you don't have to take on the ones in foreclosure. I am not saying that it would be a great idea, but the risk at the moment has been lowered. What the future holds for these pools is another story.
 
Are countries in the business of solving problems? Just like a big corporation, the #1 business goal is to spend money, not save, not make.

When and where should the US spend money is where the politicians come in. Sure, they talk talk talk to persuade, but that's just talk.

As for what it's going to bring, you're not going to know because the implementation of the money is when the corruption begins.

It remains to be seen on what or who it will help.



And your analogy of the toilet flushing was funny. But imagine if you had to fix it with 1000 people working with you? How many different

ideas would you have on how to fix it? You could possibly all just walk away and say, let's get $200 and hire a plumber and let him worry about it.

That's basically what the government/big corporation does. We got you the money, our job is done...





[quote author="awgee" date=1222518540]Do we all understand yet that the banks unwillingness to use the term auction facilities which have a 28 day term, and many extensions to come, is the banks way of saying that this is not a liquidity problem? The banks have cheap and easy facilities available for liquidity. The banks are blackmailing the public and the politicians by saying that if you do not give us money and relieve of us our bad paper, we will cause financial turmoil.



This is not as complicated as Paulson and company would have you believe. If the Jones family has too much debt and can not make all their payments and the Jones family starts screaming that if you don't lend them some more money and forgive their previous bad debts, they will no longer make any payments, what do you do if you are the lender? And what do you do if you do not have the money to loan the Jones yourself, and in order to loan the Jones some more money, you will have to promise that your children will pay for the money you borrow in order to loan it to the Jones?



When the Jones stop paying, it will hurt. It will hurt because you have been counting on the Jones payments for a few years now and use their payments to make your own payments and house payment and so on. But, do you think it will hurt any less, if you borrow from your children's future and loan their future to the Jones? Do you realize that it is inevitable that at some point the Jones will stop paying? You can postpone the pain, but the longer you postpone, the worse the ultimate pain will be and the more money you will have to borrow to loan to the Jones. The Jones are blackmailing you with pain now, so what are you going to do?



Yes, it will hurt. And it will be a financial catastrophe, but there are only two options. Mega pain now, or more than mega pain later, and quite possibly pain for your children and your children's children.



There is no way out without the pain. And it will be bad. Many people will be hurt.



The only way to avoid a credit crisis is with more credit. But, more credit only postpones the crisis and makes the end result worse. This is not the first time in history this has happened. This is nothing new. We are not more financially sophisticated. We are just a generation which has not experienced a massive credit crisis, which makes us more ignorant than sophisticated.



Can you cure a heroin addiction with more heroin?</blockquote>
 
[quote author="graphrix" date=1222531443]I'm curious as to where you guys are getting your data for the borrowing at the FED? I'm being serious, do you have a link to the FED's website that I am not aware of, or am I confusing which FED source they are borrowing from?



According to the Friday WSJ, lending through the primary-dealer credit facility reached a record $105.66 billion on Wednesday after hitting $59.78 billion a week ago. I'm too lazy to find the link right now, but it was on page A8 of the WSJ on Friday, and it was a small clip in case you missed it. After seeing that it makes me believe they are using the FED, and maxing it out.



On a side note: I checked out some MBS pools this week, and OMG it has become horrendous. I know... I know... I have been saying that for years now, but some of the 2006 subprime vintages are getting close to 50% total delinquency rates. The good news are the 30 and 60 day lates are slowing down considerably. I know this sounds weird coming from me, but being a buyer of subprime MBS pools right now could be a good thing as long as you don't have to take on the ones in foreclosure. I am not saying that it would be a great idea, but the risk at the moment has been lowered. What the future holds for these pools is another story.</blockquote>


Sorry, I am not willing to look up sources right now, but my understanding is that the Fed injected more than $1 trillion last week. The Fed can not "max out". Wayne Angell, former Federal Reserve Governor on CNBC last week, "The Fed's balance sheet is unlimited." The Fed can print up as much currency as it wants, but it is limited on how it gets that currency into the market. It does not loan the currency it prints. The Fed loans Treasury notes, and it gets those notes from the Treasury Dept., and the Treasury Dept needs Congressional approval to raise the national debt. After approval, the Treasury Dept. electronically prints the notes, sells the notes to the Fed for the currency that the Fed has electronically printed, and uses the currency to pay interest, pay bills and buy stuff. On a more practical basis, the Fed is limited to how much money it prints by the confidence T-note buyers have in the USD. If they print so much that investors get nervous owning Treasury notes, the investors start selling those notes and the laws of supply and demand kick in and the USD is devalued.



So, the Fed is not limited as to how much money it prints, and it is limited. Nice tightorpe B-52 Ben has to walk, eh?



My favorite quote for 2008:



<i>"Most illiquid bond assets are illiquid because they are not worth anything."</i> Ron Paul



Isn't it amazing how uncomplicated the truth is?
 
[quote author="FairEconomist" date=1222569364]My understanding is that the 28 day term auctions ARE being maxed out.</blockquote>


The term auction facilities can not be "maxed out". The maximum amounts are set by the Fed, and can be changed by the Fed any time it wants. such as today.



<a href="http://www.bloomberg.com/apps/news?pid=20601087&sid=a9MTZEgukPLY&refer=home">TAF's are NOT maxed out and never will be</a>
 
[quote author="awgee" date=1222518540]Do we all understand yet that the banks unwillingness to use the term auction facilities which have a 28 day term, and many extensions to come, is the banks way of saying that this is not a liquidity problem? The banks have cheap and easy facilities available for liquidity. The banks are blackmailing the public and the politicians by saying that if you do not give us money and relieve of us our bad paper, we will cause financial turmoil.



This is not as complicated as Paulson and company would have you believe. If the Jones family has too much debt and can not make all their payments and the Jones family starts screaming that if you don't lend them some more money and forgive their previous bad debts, they will no longer make any payments, what do you do if you are the lender? And what do you do if you do not have the money to loan the Jones yourself, and in order to loan the Jones some more money, you will have to promise that your children will pay for the money you borrow in order to loan it to the Jones?



When the Jones stop paying, it will hurt. It will hurt because you have been counting on the Jones payments for a few years now and use their payments to make your own payments and house payment and so on. But, do you think it will hurt any less, if you borrow from your children's future and loan their future to the Jones? Do you realize that it is inevitable that at some point the Jones will stop paying? You can postpone the pain, but the longer you postpone, the worse the ultimate pain will be and the more money you will have to borrow to loan to the Jones. The Jones are blackmailing you with pain now, so what are you going to do?



Yes, it will hurt. And it will be a financial catastrophe, but there are only two options. Mega pain now, or more than mega pain later, and quite possibly pain for your children and your children's children.



There is no way out without the pain. And it will be bad. Many people will be hurt.



The only way to avoid a credit crisis is with more credit. But, more credit only postpones the crisis and makes the end result worse. This is not the first time in history this has happened. This is nothing new. We are not more financially sophisticated. We are just a generation which has not experienced a massive credit crisis, which makes us more ignorant than sophisticated.



Can you cure a heroin addiction with more heroin?</blockquote>


Amen.
 
Here is another example of how government intervention, although well meaning, is doing more harm than good. The Dow would not have given up 777 points today if the SEC had not made financial stock short selling illegal. I am a short seller when I trade, and if I was trading these days, I would have covered most shorts in my portfolio when the market hit 400 down, and every single short would have been covered by the time it was down 500. And every other short seller would have been doing the same, which would have put a floor in the Dow at about 350 or 400 down. The Dow lost a few hundred more points than it had to because the government in it's wisdom made financial stock short selling illegal. Great timing Cox! And the funny thing, every short seller I know saw this coming.
 
[quote author="awgee" date=1222767969]Here is another example of how government intervention, although well meaning, is doing more harm than good. The Dow would not have given up 777 points today if the SEC had not made financial stock short selling illegal. I am a short seller when I trade, and if I was trading these days, I would have covered most shorts in my portfolio when the market hit 400 down, and every single short would have been covered by the time it was down 500. And every other short seller would have been doing the same, which would have put a floor in the Dow at about 350 or 400 down. The Dow lost a few hundred more points than it had to because the government in it's wisdom made financial stock short selling illegal. Great timing Cox! And the funny thing, every short seller I know saw this coming.</blockquote>


Of course, if shorts in financials were legal, we'd probably have been down more on previous trading days so the 350-400 down today would have put us right around the same place.
 
[quote author="ipoplaya" date=1222768731][quote author="awgee" date=1222767969]Here is another example of how government intervention, although well meaning, is doing more harm than good. The Dow would not have given up 777 points today if the SEC had not made financial stock short selling illegal. I am a short seller when I trade, and if I was trading these days, I would have covered most shorts in my portfolio when the market hit 400 down, and every single short would have been covered by the time it was down 500. And every other short seller would have been doing the same, which would have put a floor in the Dow at about 350 or 400 down. The Dow lost a few hundred more points than it had to because the government in it's wisdom made financial stock short selling illegal. Great timing Cox! And the funny thing, every short seller I know saw this coming.</blockquote>


Of course, if shorts in financials were legal, we'd probably have been down more on previous trading days so the 350-400 down today would have put us right around the same place.</blockquote>


Not necessarily. Short sellers usually sell into strength and buy on weakness. It isn't short sellers that make stocks go down (contrary to what the general public believes) short sellers merely position themselves so when others drive the price down they can profit by it. I would note one major exception to that would be naked short sellers who sell in order to drive prices down and induce a panic. That particular form of short selling should be banned.
 
I agree with awgee and IR on this one. Even those 250-350 point down days probably wouldn't have ended as badly had their been the typical short covering rally. So even with today's drop and the previous drops, the covering of shorts would have kept us up higher. I am not used to it either. I sold my puts on Citi once they hit my profit target, but since no shorts come in to cover, I should have let it ride a lot longer. While the premium for options is higher right now, it seems if you let it ride for a while they will go into the green. It's like time decay has been killed by the short ban. Strange times, very strange times.
 
Admittedly I'm not much of a short seller or understand the normal behaviors of those that make it a regular practice. I'll defer to your collective wisdom. During the tech recession, I couldn't get myself to short until way too late in the game... I had become conditioned by the easy and quick IPO money, i.e. the "market never goes down" mentality. I still can't completely purge myself of that optimistic orientation where the market is concerned. It took a lot just to get to the point where I was willing to go all cash.
 
I'm not one for conspiracy theories (because so many people have big mouths and blow it), but I got a little chill up my spine when I read this at <a href="http://www.nakedcapitalism.com/2008/10/takes-on-new-porked-up-bailout-bill.html">Naked Capitalism</a>:



<blockquote>And from another reader who worked in the financial markets and now has a ringside seat:



The main concern is keeping the Fed autonomous, independent and the " lender of last resort". It is not the money, it is the administration of the money. The Treasury's rescue, to take from legal custody by force, is wrong. The Treasury's choices with whom they will do business is telling. Carlyle executives moving into powerful positions at Freddie Mac, Wachovia and on and on. This does not bode well...</blockquote>


Carlyle . . . <a href="http://en.wikipedia.org/wiki/Carlyle_group">Carlyle</a> . . . Who was it that was involved with them?
 
[quote author="EvaLSeraphim" date=1222944436]Carlyle . . . <a href="http://en.wikipedia.org/wiki/Carlyle_group">Carlyle</a> . . . Who was it that was involved with them?</blockquote>
CalPERS? Or were you referring to Clinton's head of the SEC, Arthur Levitt? Or those communistic Canadians?



I think you are letting the ghosts of past political conspiracy theories get the best of you, Eva.
 
[quote author="ipoplaya" date=1222768731][quote author="awgee" date=1222767969]Here is another example of how government intervention, although well meaning, is doing more harm than good. The Dow would not have given up 777 points today if the SEC had not made financial stock short selling illegal. I am a short seller when I trade, and if I was trading these days, I would have covered most shorts in my portfolio when the market hit 400 down, and every single short would have been covered by the time it was down 500. And every other short seller would have been doing the same, which would have put a floor in the Dow at about 350 or 400 down. The Dow lost a few hundred more points than it had to because the government in it's wisdom made financial stock short selling illegal. Great timing Cox! And the funny thing, every short seller I know saw this coming.</blockquote>


Of course, if shorts in financials were legal, we'd probably have been down more on previous trading days so the 350-400 down today would have put us right around the same place.</blockquote>


Eric Janszen, iTulip

<i>"Politicians forget that a short seller is a buyer albeit at a lower price. Take him away and in a market panic there are no buyers at all. A market can in theory then fall to zero. You've been warned."</i>
 
So, ya still think Paulson is just trying to help the country?



<a href="http://www.bloomberg.com/apps/news?pid=20601039&sid=aMaWyNFImi4o&refer=home">Paulson's altruism</a>
 
Over at The Big Picture, Barry highlights a NYT article saying that the person who advocated most for the removal of the leveraging rules by the SEC was none other than . . . Hank Paulson.
 
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