Going lower and lower

Well, when you thought that things couldn’t possibly get worse, it did!

Last week, things got so bad for WaMu that government interjected and took things over… and then was sold to Morgan Chase!  Yikes.  And today, we learn that same fate was applied to another bank that I had thought was doing so well, Wachovia!  They got sold to Citi Bank.  Still, WaMu’s CEO, only after 3 weeks of working, got away with $18 million in payout!  What the fudge?!

Not only that, we are bailing out three of our largest auto makers with $25 billion loan.  Most (rich) people still want the government to bail out the troubled financial corps (for me, corpse) with $700 billion!  What are you freakin’ insane?!

Sure not bailing them out will hurt.  But things will have to get worse before they get better!  This was all brought to us by our own stupid greed.  We have to face the facts.  If the government is the parent, and the financial corps are the kids, it’s time to stop bailing them out.  Let them learn.  Otherwise, things will never improve in the long run.

11 Replies to “Going lower and lower”

  1. peter and mike. for the love. have you seen the market’s reaction? $1.2 trillion dollars of market value were wiped out of the system yest. $1.2trillion. aside from the money you have in cash sitting in the bank, has most likely been put to work and is affected by marktet movements. LIBOR is up 4.3%.. this libor rate is unheard of. the banks that have survived wont work if the overnite rate doens’t come back in check. today you hear about banks being in trouble and consolidating and folding. you will soon hear about mom and pops and large companies alike. no one will have money to expand or even operate normally. businesses will contract. which means jobs will contract. so say housing values fall to what insanely cheap levels. unless you have the cash to buy it outright, you will pay out the wazoo to borrow if you can even get the borrow. and most won’t. which means, even if the asset is below fair value, bc there is no credit in the system, you will not get the loan, and the houses will fall further. there were far more foreclosures bc there’s no demand side of the equation. and there isn’t even a mechanism to purchase if there were demand. THIS is/will be a SYSTEMIC ISSUE. it’s not about fat cats and taxpayers. now is not the time to try and “punish” wall street by not being in favor of this bill. the taxpayer will pay anyways with high unemployment. not only bc of a delayed economic recovery, but from unemployment other social welfare programs. or fine. write a blog entry on what you think “it getting worse before it gets better” looks like. i really think it’s nastier than you think. i really think ppl (the general public) will suffer and are not better served at ALL. and “lessons” are learned just the same. it’s not even like these banks after this bailout are coming out unscathed. the bailout is just to get our system to survive and not have our economy crumble, not saving these institutions persay. look. unless both of you guys have lots of savings in cash and don’t forsee yourself needing anytype of help or cushion in the next couple of years (like say your car breaks down and you have a large cost outlay you weren’t expecting) you will be effed by this sometime in the future. or you will pay like 20% in short term borrowing to get that isht fixed. maybe more. dood. it’s bad. and i honestly think you need to think about the issue differently. i don’t say this bc i’m in finance and i want my peers to profit. i say this bc fr an economic perspective it will be heinous.

  2. Jo,

    I agree with you. One of the things I don’t like about this is the fact that people are saying that this is all about the rich guy in Wall Street. Well, Wall Street is Main Street and Main Street is Wall Street. Heck, when my father wanted to install some new pumps for his gas station, where do you think he got the money for it? He had to get it financed. When other businesses want to expand by building a warehouse or get a bigger fleet of trucks or buy more servers or put some satellites up – they all need to get it financed. In other words, they need to borrow money. This is the issue: people are hesitant to lend money because they have these poisoned assets and they need the money reserves so that their balance sheets do not look that bad. And when businesses cannot get these loans, they cannot expand and if they cannot expand, they will not hire people – some of whom are the very poor which you, Peter, say you are a proponent of.

  3. BTW about these CEO pay that you talk about, in particular the golden parachutes that you do not like.

    Do you know why CEO pay is like that? Because corporations want to attract the best and brightest to manage them. Good management makes a world of difference – in fact, good management is much much more important than good regulation. Regulation by its very reactionary nature (not to mention its unintended side affects) cannot replace management.

    AIG is a perfect example – from what I read, they had a very effective CEO, until Eliot Spitzer (the former governor of NY) strong-armed him out and now where is AIG?

    On a side note, from what I read, AIG is an interesting company – with many lines of business, some of which do not deal with insurance and many that are still profitable. Heck, one has a direct relation to the company that you work for, Peter. AIG has an airplane leasing business and guess whose planes they lease to airlines? That’s right, Boeing. I think that business of AIG has the largest commercial Boeing fleet.

  4. My point was not that we need or do not need a government rescue of banks. My point was that this notion of the rich vs rest of us, wall street vs main street, big corporations vs little guys, etc is moot. We are all in it together and we all had a role in causing this mess (and to make it clear, I am not talking about ‘we’ as individuals as in you, Peter or me, Dan). What happens to one affects the other. It’s like saying, this is only gonna drain the water from their side of the same pool that we are all swimming in.

  5. While I understand that we are “all in it together”, I also want to say that the markets (Main & Wall St) need a major reset. And yes, we will go thru some sort of shocks and would need major readjustments but it needs to be done. Markets have become majorly bloated in the past 20 years and it just needs to be reset to where it REALLY should be.

    Government backedFannie & Freddie didn’t fare well. So why are we repeating the same mistake?! I know I am not well-versed in economics and investments. I don’t deny that, but certain things are being repeated in history. Another major thing I want changed is limiting speculation on oil prices and demands. I believe that was one of the earlier onsets to get this nightmare rolling…

    My 2 cents. Or one…

  6. 1) the article was written by a financial mathmatics person. so yah. since the contracts were derivative contracts on real assets, they are not the real assets themselves. touche, but that doens’t mean their faltering doesn’t have major consequence on the broader market (which we are obviously seeing and feeling). and the other guy. well he was an econ prof at UIC. c’mon now.
    2) oil specs can yah effect px’s in the near term. but really over the LT, px’s are/were effected by LT macro global demand changes.
    3) fannie/freddie. still relatively recent. success or failure, the issue crippling companies and causing the markets to be where they are is a CREDIT issue.
    4) shocks to they system have multifold consequences. there is a way to come back down more normal historical levels, without crashing/resetting which could/will have longer term effects/recoveries. even with the bailout we will go thru the painful process of the necessary deleveraging.
    5) we already have the auto and airline industry teetering to make their business model work. do you want every industry to fold… it’s not like the financial markets will be the only ones that rationalize/consolidate.
    6) in the future, peter if you need to borrow money and the banks won’t let you.. and if i have money. i’ll let you borrow. but not without saying a big fat i told you so.
    7) resettin the economy. it’s not just like a computer and rebooting..
    7) dabs to dp. i got ur back too!

  7. Again, the rescue legislation is not my main concern here. The best thing to do may actually be for the government to do nothing.

    Like you, I am a little apprehensive of the same guys in Washington, such as Senator Chris Dodd and Representative Barney Frank, that had a hand in creating this sub-prime mess are being counted on to craft legislation to fix it. It’s like visiting the same doctor for a heart ailment after he botched a bypass operation on you earlier. At least the CEO’s of these banks will resign – can’t say the same thing for these congressmen that get re-elected ad infinitum. Anyway, what I am really really against is this populists type of sentiment of us vs those fat cats – you know, the two Americas type of thing. I was feeling that tone in the posts and so that is why I have been writing all of this. I apologize if that was not the case. If the best possible solution happens to help us out, but happens to help out the fat cats even more, while any other option ends up hurting everyone, then I can live with that solution.

    Anyway, the closest analogy of what the administration is trying to do is the resolution trust corp. that was used to deal with the savings and loan crisis of the 80’s. Heck, if you thought bank failures are bad now, you should have seen it then.

    Also, I did not know you had such a strong libertarian streak in you, Peter. Pretty soon you will be for legalization of drugs and prostitution and all of that. 😉

  8. Hey I like libertarians. I have a strong libertarian streak in me too. If it was just couple of banks failing, I would not blink an eye. Heck, I think in normal circumstances 50-90 banks fail a year anyways. However, this is a credit issue – it may be something systemic that will affect everyone.

    The lending of money to automakers I am not too happy about as I do not think that was a systemic issue like the credit issue. Nissan, Toyota, BMW, Mercedes, Honda, Hyundai all have plants in the US and though they may be hurting, they are not in the dire straits that GM, Ford and Chrysler are in, because they were a lot smarter than the big 3 (though again, the government had a role in creating issues for these guys too). I mean, why does GM have Chevy, GMC, Saturn, Pontiac, Buick, Cadillac, Hummer, Saab, etc, etc, etc all running? Why did these big 3 negotiate suicidal pensions with their labor?

    Anyway, I need to stop commenting in this blog and start posting more on my own blog. I have couple of things in mind I want to post about on my own, but I am spending too much time here. I am starting to forget what I want to say. 🙂

  9. “6) in the future, peter if you need to borrow money and the banks won’t let you.. and if i have money. i’ll let you borrow. but not without saying a big fat i told you so.”


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