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September 24, 2008
  • The McCain camp is terrified of the upcoming debates because they know Obama is going to look clued in and presidential, and the media have already picked up the narrative about the entire ticket being out of touch on the economy -- so anything he gets wrong will be immediately stacked up against the actual facts in print and TV commentary. As a result they're postponing their campaign because of the economic crisis. What a crock.
  • David Letterman agrees with me.


2 Comments | #6726

Comments

  1. Fred wrote:

    I wasn't so stupid as to get a mortgage that I couldn't afford. Nobody was so stupid as to give me a mortgage that I couldn't pay back.

    Why must taxpayer dollars be used to pay for the stupidity of others? That would amount to rewarding the idiots that made those stupid decisions.

    What ever happened to personal responsibility?

    Posted on 2008-09-24 20:08:50

  2. Geoff wrote:

    https://self-evident.org has a lot of good insight into the current financial situation. The short of it is that the investment and commercial banks act as counterparty to a lot of derivative trades (options, futures contracts, etc). If they go bankrupt, investors can't get to their money/assets.

    If one goes, it's bad - investors get stuck holding contracts they can't exercise, and the TRILLIONS of dollars in assets the company holds is frozen. If several go at once, it will be a financial disaster more catastrophic to the US economy than 1929.

    In essense, if there's nobody to loan money, then nobody buys anything on credit. Big purchases like cars go first. Detroit cuts production and lay off employees. Unemployment goes up. Medium purchases like TVs or furniture drops off. Manufacturers lay off more employees and close plants. Unemployment goes up again. A large number of unemployed are willing to take jobs at drastically reduced salaries just to have work. That pushes wages down, and the ability of those remaining to purchase anything, which further reduces manufacturing and services, further escalating the problem.

    The above is a worst case scenario, certainly. And I don't think giving $100b to Citigroup solves anything. But getting bad debt off corporate books so business can return to usual is the key to keeping the economy from completely going in the toilet.

    If the government buys the bad debt (eg. bad loans) and collects what it can, $700b is likely to end up being $300-400b in taxpayer dollars. The current discussion is for the gov't to get warrants for shares on losses, so if it buys $100b in debt from WaMu, manages to sell/collect $40b, then it gets $60b in equity (stock) from WaMu. Eventually it sells that stake and hopefully breaks even (assuming WaMu doesn't still declare bankruptcy).

    The Resolution Trust Company was an excellent example of solving this issue during the 80's S&L crisis. In fact, despite being a "bailout", the gov't actually MADE money by the time the RTC was closed in the 90s. Just so long as executives don't get golden parachutes for this, it might not be such a bad thing.

    Posted on 2008-09-25 12:24:30

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