Capitol Hill Blue Forums Political Issues Finance, the economy & Economics How will the financial crisis develop?

Ardy, you assume the proposed mega-bailout will avoid the "very deep" I am less sanguine about that.

I admit I am far from savvy in matters financial, so I may just be trying to apply common sense to something only experts can understand.

I agree that in the short term, the bailout will avoid a very costly depression that would have wide impacts on all but the very rich.

But the bailout does not engage with the real problem in my opinion. That problem is fantasy financing, a digital game available to all but in which only a very few can ever win. The rest of the players provide the fodder which is consumed at will and when needed.

Debt is the problem we are trying our best to avoid. But it will not ultimately go away. At some point we must face the fact that the underpinnings of the economy, both US and worldwide, are unstable and fundamentally flawed. You cannot simply increasingly print money and not have that come back to bite you in the ass big time.

This bailout will possibly, and I repeat possibly avoid a meltdown in the near term. But it really exacerbates what I consider to be the real problem. Sort of like solving a cavein by digging yourself in deeper.

Others often understand your weaknesses better than you yourself do. I am not too proud to learn from those who may not like me. That is why I read Pravda, Al Jazeera and Der Spiegel to find out what is happening in America, and western sources to find out what is happening in the Middle East, Russia and China. Naturally, one must be discriminating in accepting what is reliable.
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You are quite right, Phil.

No matter how excellent the bail-out might be, the loss in value of the US dollar and its end as the standard of international currency are unavoidable. The US has no choice but print vast amounts of money ---- or the sophisticated equivalent. The dollar will be worth much less, and destabilizing inflation is inevitable.

P.S. The bail-out will not be excellent, of course.
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Just to be clear...
I am not entirely sanguine about the mega bail out.
I do think that... even with the problems... it is a better option than "letting the chips fall where they may"

Also, it is reasonable to keep the following in mind. The amount of the bailout is not necessarily buying entirely worthless assets. The assets are illiquid, which is causing a big problem. And there is the further problem that all assets of this type now have to be marked down on bank books to current "fire sale" prices... which may not be accurate in terms of the true value.

If... and I know it is a big if.... if the real-estate slide can be halted at about this level... then those assets will have a value of roughly 70% of the face value... and although that is a big loss, it is still manageable and also less than a total loss.

And then beyond that, there is the over all cost benefit analysis of taking a 30% loss on a big number (questionable real estate loans) vs taking a 50% loss on a tremendously larger number (the entire economy)

Well, we will see how it turns out. I remain convinced that Armageddon will be averted. The ship will be damaged, but remain floating. And that option will be better than allowing the ship to sink in order to prove a point about the culpability of the crew and ship owners/builders.

Straw man. I don't see anyone here taking that position. Maybe I missed it, but certainly I am not. I am not opposed entirely to the bailout, but without substantial safeguards to the public, severe restrictions on anyone profiting from this except the government itself, and so concrete steps taken to reduce both public and private debt, I think it is not worth a tinker's dam.

Yes, but Phil, this proposal is now going to the congress and it is their responsibility to shape exactly those details in this whole thing.

By the way, I heard an analysis of the AIG bailout... at in truth, it sounds like a good deal for the govenment... it was no give away. The government gets 80% of a very valuable company... and is charging 10% interest on the loan.

Also, just because the govenment "buys" the illiquid assets does not mean that the Government has to pay full face value... unless of course one takes the example of the GOP structured drug plan that prohibited govenment negotriation. It is obviously clear that this benifit offered to the financial industry should come at a price... as would be the case if some private source of finance should offer to rescue them from their distress.

There is absolutely, positively no way to put lipstick on this.
It's a 100% bailout of a totally out of control financial system, run by people who live in a different world.
First of all, the bailout will be at the very least 1.5 trillion, and likely more than 3 Trillion... because no one... not even the people who created the Credit Derivative Swaps, has an inkling of how much was siphoned out of the economy, and how deeply intertwined are the security guarantees that were made to balloon the hedge funds. Anyone who thought that wise investing allowed hedge funds to charge 20% fees, while they were making 30% value increases for their client.. still believes in Santa Claus.

Second... and much more important, the initial bail out, is just the first of four hits that the taxpayer will take.

The first hit IS the US Debt.

The second,will be the huge loss of jobs, as the economy deflates, and the erosion of the personal asset value.

The third, will be the new hit to the treasury, as the cost of borrowing money (for the Government) increases to unknown heights. Who can tell?.. 10%, 20% or even more.

Fourth... Hyperinflation... possibly as much a 100%.

Now all of these things interact, and won't necessarily be piled on on one, but you can easily see the steps that will combine to produce our newfound poverty.

The irritation is that non of these losses will affect the "Fat Cats", as they turn to new financial instruments (and the creativity here is unlimited) to bleed more money into their fortunes.

It's too early to say the form of the next insult, but do not doubt that it will be there.

Kevin Phillips has been and is right in "Bad Money" and despite his past optimism about the resilience of America, he now sees no solutions. Phillips on the Bill Moyers Journal

The final result of all of this turmoil will be war. There is no other possible way out... and the result of a new war, may be very suspect. War is always he final result of a failed government... the only way to keep the heat away from the people who caused the catastrophe in the first place. All wars rise from this.

Recognizing this now, and being prepared by not developing false hope, may be easier on the psyche... and not expecting anything from politicians from either party will be more realistic than hoping for significant change.

The network of politics and money is simply too strong, to be changed by any attempt to reform.

Change will eventually occur, but only bit my bit, and agonizingly slow.

Sometimes, the challenge of "Okay, if you complain about everything, what would YOU do to change the outcome?" just doesn't work... when there is no way to FIX it.

I saw that Kevin Phillips interview and was quite unnverved by what he said.

Let's suppose for a moment that you are almost certainly correct: there is no way to "fix" the current situation. Still, is there even a tiny possibly that you could be wrong and that actually there is some hope? What is the downside from someone at least "trying " to do something?

Ultimately, I want radical changes to our economic system. I want to dismantle the consumerism, debt and dominate culture that we live in. I think it is unhealthful to humans and the cause of most of the conflict in the world.

I think debting is the tool by which we are all kept captive and enslaved. I think it prevents most people from seeing the nature of their own enslavement so that any hope for accomplishing what I think is necessary highly unlikely.

I do not seek to punish anyone. Nor do I want to be an enabler to those who are caught up in a form of addiction. So far I have pulled myself from the debt system. It means I live a life with fewer things, but more happiness.

Now, in my opinion the current financial meltdown only proves my point. People caught in it want someone else to cover their addictive behavior, just as a drunk wants his wife (or reverse) to cover their behavior.

To carry that analogy further, with a drunk I might be willing to loan that person the money to go into rehab if I became convinced there was a reasonable chance of separating that person from alcohol forever.

In this situation I am concerned that nothing will be done to break the power of debt and financial gambling. Face it, that is what this all is, gambling. We just have fancy words for it. I would not hand someone addicted to gambling my credit card and i would rather not do so to big scale gamblers either.

Again, if I could see a long range plan to break consumerism and allow people to throw off the oppression of having to buy at the cost of their family and health, I would be more inclined to listen.

I see none of that at all. Everyone at that level, Bush, Obama, McCain are just trying to make it all right and avoid the pain that often occurs in a withdrawal. Unfortunately, I see no way to where I think we need to go without substantial pain. I do not seek the pain, but to me it will be necessary no matter what is done now.

Ponzi schemes just always come crashing down at one point.