Something that hasn't been discussed much here is that European banks have had nearly as many write-offs for bad debt as U.S. banks have. I don't remember the exact numbers, but it's like 390b$us for U.S. banks and 360b$us for European banks. U.S. banks and real estate markets have had all the press because we have had so many spectacular bank failures, but European banks are feeling the same pain, and not simply because they are counter-parties to U.S. banks.
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Even if the bailout writes off all the toxic debt, where is the capital going to come from to get the credit tap turned back on? That's why the House GOP pushed for a suspension of cap gains. That could have very likely freed up the money to recapitalize the market.
Think about the genesis of this whole deal. Paulson comes out with a bailout using tax money. The Dems, rather than look at other alternatives instead started tweaking the Paulson proposal, without any apparent effort to find a non-taxpayer alternative. The House GOP comes out with a market based alternative which Paulson and the Dems declared DOA. After all, it's all the market's fault according to the politicians.
So now, we have a "solution" that while it addresses solvency, doesn't really do anything to loosen up the credit market, which at this point, is dragging down the economy. The only real way to get money flowing again, from what I'm reading, is to get private capital back in the market. And I don't see that happening anytime soon, if all we do is prop up the weak sisters out there, rather than let them sink low enough to be attractive to takeover.
It seems, that all the bailout will do, is put off the now inevitable "hard landing" a little longer. It's like trying to stop drug use by going after the users (Wall St), instead of the dealers (government). While it sounds good politically to go after Wall St for taking the drugs, they completely avoid the political danger of admitting their role as the dealers of the drugs.
What's really pernicious though is this will further entrench the bailout mentality that helped cause the problem. Not just on a business level, but individual as well. For not only are they buying up the ill-advised loans. With the mortgage relief provisions, they'll basically be paying the ill-advised loans as well.
Yet, the only provision, fortunately not included, to address the lending practices that created the problem, was to set aside money to continue it!
They've crafted a nice little package to get them through the election. I seriously doubt if they've done as much to help the taxpayers they claim to be protecting.
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John
Ontario 32 - Aria
Free, is the heart, that lives not, in fear.
Full, is the spirit, that thinks not, of falling.
True, is the soul, that hesitates not, to give.
Alive, is the one, that believes, in love. JCP
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Bold prediction of the day: House GOP votes no on bailout.
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John
Ontario 32 - Aria
Free, is the heart, that lives not, in fear.
Full, is the spirit, that thinks not, of falling.
True, is the soul, that hesitates not, to give.
Alive, is the one, that believes, in love. JCP
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And now Wachovia has been gobbled up by Citi. Gee whiz, could it be that the market can work?
If I were McCain, I'd be thinking about getting in front of a microphone and camera, with a copy of the House GOP plan and saying, We don't have to spend your money to fix this. We just need to get out of the way.
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John
Ontario 32 - Aria
Free, is the heart, that lives not, in fear.
Full, is the spirit, that thinks not, of falling.
True, is the soul, that hesitates not, to give.
Alive, is the one, that believes, in love. JCP
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Gee John,
How could Citibank gobble up Wachovia, there is (according to Rick) no money in the system, no one has ANY cash or solvency.
I don't know about your prediction, I think it will pass with one or two votes to spare. Politicians are canny enough to pre-poll and allocate who votes for and against it depending on their voters and how tough a re-election would be.
To them, it's that kind of game.
Should be an interesting week in the equity markets. I suspect it's going to be the usual case of buy the rumor, sell the news. Normally with the VIX so high and the markets putting in what looks like a "W" bottom I'd be thinking long, and that might in hindsight end up being the wise course of action, but I'm not interested. My intuition is telling me to stay out, this bottom looks like junk to me.
Wild ass guess (I'd never bet much on this) - they buy it with enthusiasm, then immediately sell it back to 1170 spy, and then it's anybodies guess. If it frightens enough people and they take out the 1150 lows there could be real trouble. Hopefully it just ends up being the usual "W" and they buy it, because there is an abyss on the other side of 1150. The best thing would be if they just started buying it at the open tomorrow and never looked back, that's what everyone wants, but when everyone wants something they rarely get it.
I thought that bottom looked a bit contrived. Now they've sold it back to 1170 spy and it's anybodies guess I think. Will they take out the 1150'ish lows and really sell it ? Or is it time for a huge bounce ? Or will it just dead cat bounce ?
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Last edited by wind_magic; 09-29-2008 at 11:03 AM.
Reason: speeln
windy - I'm not savvy with all the jargon, but I dont think the market is going anywhere but down at this point. Far from reassuring the market, I think the Bailout will have just the opposite effect.
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John
Ontario 32 - Aria
Free, is the heart, that lives not, in fear.
Full, is the spirit, that thinks not, of falling.
True, is the soul, that hesitates not, to give.
Alive, is the one, that believes, in love. JCP
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I'm sure Rick will enjoy this from the House hearings in 04:
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John
Ontario 32 - Aria
Free, is the heart, that lives not, in fear.
Full, is the spirit, that thinks not, of falling.
True, is the soul, that hesitates not, to give.
Alive, is the one, that believes, in love. JCP
Music on the Wind - To view links or images in signatures your post count must be 10 or greater. You currently have 0 posts.
windy - I'm not savvy with all the jargon, but I dont think the market is going anywhere but down at this point. Far from reassuring the market, I think the Bailout will have just the opposite effect.
Dead cat bounce is a term traders use and comes from the phrase "Even a dead cat will bounce if it falls from a great enough height".
They are almost back into the 1150's ...
VIX nearly 40 ...
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What are you pretending not to know ?
Free, is the heart, that lives not, in fear.
Full, is the spirit, that thinks not, of falling.
True, is the soul, that hesitates not, to give.
Alive, is the one, that believes, in love. JCP
Music on the Wind - To view links or images in signatures your post count must be 10 or greater. You currently have 0 posts.
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