Markets Plunge

But wait… I thought that we had to pass the bailout RIGHT NOW to prevent a CRISIS and that the bailout was the ONLY way to prevent an economic downturn?

LONDON - Asian and European stock markets plunged Monday as government bank bailouts in the U.S. and Europe failed to alleviate fears that the global financial crisis would depress world economic growth.

Or could it be that the bailout wasn’t really the right thing to do?

1. Or could it be that the bailout wasn’t really the right thing to do?

   But look how cheap oil is?

   Posted by on October 06, 2008 at 0807 hrs




2. The beauty of the bailout is political.  No matter how bad things get, no matter how much the bailout made things worse, politicians will be claiming the bailout prevented things from being even worse.

   Posted by on October 06, 2008 at 0851 hrs




3. BBB,

   no matter how much the bailout made things worse

   How worse? Deeper? Duration?

   Disregard the increase of tax payer debt.

   Posted by on October 06, 2008 at 0943 hrs




4. I’m not a big fan of the bailout, but I imagine the markets are also processing the news of low consumer confidence and big job losses.

   Posted by on October 06, 2008 at 1003 hrs




5. Actually, most EU banks are far more vulnerable than US banks because of the way they’re organized. Because they could push some of their liabilities off on subsidiaries they were able to far more highly leverage themselves than the equivalent American banks.

   For example, Barclays has a leverage ratio of about 60 and liabilities at 140% of UK GDP, and Deutschebank is around 50 with liabilites of 90% of German GDP. If they get a run on their assets or their assets get hit they’re much more vulnerable. There’s been an asset deflation here in the US, but there’s also been a big real estate implosion in parts of the EU, too.

   Now do you see why the Europeans are worried sick about a loss of confidence in their banks and have been trying to jawbone their way to safety? Why Merkel felt she had to put deposit insurance out there? A run on Deutschbank would be disastrous for Germany. 

   Is the bailout the right way to go? I don’t know. But I’ll point you to an analysis of the start of the Great Depression by Marc Weiss and ask if you see any similarities to today:
   

   Debt-to-equity ratios were changing dramatically as people were borrowing much larger amounts relative to the total purchase prices and to their incomes and savings. However, much of this financing consisted of a crazy quilt of land contracts, second and third mortgages, high interest rates and loan fees, short terms, balloon payments, and various other high risk practices that crashed like a house of cards when the commercial banks suffered a liquidity crisis after 1929 and real estate plummeted in value as market demand began to disappear. By 1933 nearly half of all home mortgages were in default and there were a thousand foreclosures a day. In the wake of this panic of defaults and foreclosures, the federal government intervened to structurally transform the rules of the financial game.

   Posted by on October 06, 2008 at 1022 hrs




6. US Bailout was only the first step. I think the rest of the EU is going to have to back their banks as well.

   This isn’t an easy problem - I think the chickens are finally coming home to roost. You just can’t continue to have the debt loads you have out there without some repercussions.

   I’m glad I pulled everything out of the market last year....

   Posted by on October 06, 2008 at 1033 hrs




7. pjr:

   1.  We will be subsidizing unproductive portions of the economy at the expense of productive portions.

   2.  We will be continuing the artificial inflation of asset prices.  This will make the recession longer and deeper as it prevents people from knowing what the real price should be and causes further uncertainty.

   3.  We are essentially adding money to the economy with no real economic growth associated with it.  This is certain to have an inflationary effect on the economy.

   The bailout is what I call Drunkenomics: The belief that it is both possible and desirable to avoid a hangover through perpetual drunkeness.

   Posted by on October 06, 2008 at 1131 hrs




8. pjr, there are two reasons oil is cheap:

   1) Demand is cooling with the crisis kicking in.
   2) The dollar is rising because the crisis is spreading to Asia and Europe.

   Posted by on October 06, 2008 at 1355 hrs




9. I didn’t want to retire anyway.

   Posted by Steve on October 06, 2008 at 1445 hrs




10. Come on Democrats! Save us one more time!!

    Posted by on October 06, 2008 at 1454 hrs




11. Just a thought, was brought up in discussion today about the baby boomer generation beginning to remove their money from stocks and into less risky invenstments.  There have been theorys that this could lead to a significant drop in the market, but many thought that as long as everyone didn’t jump at the same time, it would be minimal.  Well, wondering if the current conditions are causing a lot of baby boomers to move their money ASAP.

    Posted by on October 06, 2008 at 1514 hrs




12. I had that same thought, Crainer.  Eventually we will come to that point anyways.  Buying stocks to sell at a later date does carry the assumption of a buyer at a later date, although many of those pdeddling stocks don’t realize that.

    Posted by on October 06, 2008 at 1527 hrs




13. I’ve decided that right here, and right now, - on Boots and Sabers - I am going to coin a term that I’m quite certain no one has ever used before when describing this situation. 

    Rollercoaster.

    Posted by on October 06, 2008 at 1609 hrs




14. I don’t know, but with “Mad Money” Cramer saying to pull money that you might need in the next 5 years out of the market you can bet a big chunk of folks did, especially with the conditions as they are.

    The key issue here is whether we get inflation from this recovery scheme. That’s a critical issue, and if inflation takes off then we’re all screwed. That’s about the only positive thing about the crisis spreading—less chance of inflation.

    Posted by on October 06, 2008 at 1610 hrs




15. Eh, the kids didn’t really need to go to college anyway.

    Posted by on October 06, 2008 at 1728 hrs




16. No matter how bad things get, no matter how much the bailout made things worse, politicians will be claiming the bailout prevented things from being even worse.

    Funny, I was just thinking the same thing about most of Bush’s national security agenda.  No real proof of stopping anything that wouldn’t have been stopped anyway.  Just a lot of conjecture by Republicans and orders to believe them when they say it would’ve been worse without them.

    Posted by Recess Supervisor on October 06, 2008 at 2054 hrs




17. Curiouser and CURIOUSER....

    http://www.atimes.com/atimes/Global_Economy/JJ04Dj01.html

    The belief that it is both possible and desirable to avoid a hangover through perpetual drunkeness.

    Provided you have an infinite amount of booze.

    1) Demand is cooling with the crisis kicking in.

    That’s part of it, but demand has been down before the current mess (TARP) was really on the general public’s radar screen.

    Demand destruction seems to have begun with the lofty prices earlier this year. Will it come back?

    Posted by on October 07, 2008 at 0919 hrs




18. No, it will not come back in the short term.  The recession is necessary and inevitable (and probably already here).

    Posted by on October 07, 2008 at 0921 hrs




19. ...McCain would have this election sewn up if he had just come out against the bailout.

    its wildly unpopular with the general public.  It would have passed anyway, but it would have given him miles and miles of leverage to chastize the ‘big spenders’ and the showering of the wall street rich.  I mean THINK of how hard McCain could be pounding this bailout on TV?  Television commercials showing Bush along with pominent democrats like Nancy P all filling the airwaves with the incessant FEAR MONGERING that ran wild over the last 2 weeks.  John McCain would have won in a landslide if he’d have just come out against it.

    Either he’s not intelligent enough, had some big political donors he needed to take care of, or he fell victim to the fear-mongering too.

    Were going to have a shit economy while wall street gets bailed out.  This is the very thing that democrats would usually decry.

    Instead, McCain will lose this election.  The polls have already moved, and there isn’t anything in less than a months time that will stem the momentum. 

    I guess its just proof of what we hear over and over.  Republicans talk about small government but they don’t do anything about it.

    Critical error.  McCains campaign can look back on the week of September 22nd as the week they gave up an election.

    Posted by on October 07, 2008 at 0930 hrs




20. Were going to have a shit economy while wall street gets bailed out.

    You think this is all about Wall Street?

    Posted by on October 07, 2008 at 0944 hrs




21. No, it will not come back in the short term.

    Let’s say short term is 3-5 years.

    Long term?

    Posted by on October 07, 2008 at 0951 hrs




22. You think this is all about Wall Street?

    You know for years lefties have called across the board tax cuts trickle down economics and said it wouldn’t work.

    Now we take NOT a tax cut, (which would make everyones labors and endeavors pay higher returns for them) but a flat out GIFT to multi-billion dollar firms that the taxpayers are going to pay for via tax increases to take away their bad investments, and lefties are clammoring behind it as needed to help the little guy????  Where is your logic there?  Across the board tax cuts where a bad thing… “trickle down"… But 700 Billion dollars of subsidizing the losses of wall street banks is what the rest of us need?  Spare me.

    Posted by on October 07, 2008 at 1010 hrs




23. Actually, the “left” is unhappy about the bailout, too.

    Posted by on October 07, 2008 at 1016 hrs




24. So your case is what?

    The tax cut’s of current administration have accomplished what?

    But 700 Billion dollars of subsidizing the losses of wall street banks is what the rest of us need?

    That’s called trickle up.

    Remind me whose idea TARP was again?

    xxp, aren’t you getting confused with with your blame game yet?

    Posted by on October 07, 2008 at 1031 hrs




25. Remind me whose idea TARP was again?

    xxp, aren’t you getting confused with with your blame game yet?

    You think I’m voting for either of these ass-clowns?

    Posted by on October 07, 2008 at 1058 hrs




26. Demand will rebound in 3-5 years only if prices are allowed to fall and we don’t start subsidizing additional unproductive portions of the economy.  In all likelihood we will see every effort made to prevent a fall in prices and substantial efforts to subsidize the unproductive parts of the economy.

    Neither McCain nor Obama have shown even a glimmer of enonomic insight that they would be willing to act upon.  Given this, we are probably looking at a one term president.

    Posted by on October 07, 2008 at 1110 hrs




27. You think I’m voting for either of these ass-clowns?

    You just seem more generous with your criticism of the left, with the current exception of;

    Either he’s not intelligent enough, had some big political donors he needed to take care of, or he fell victim to the fear-mongering too.

    Do I have have to pick one?

    Posted by on October 07, 2008 at 1124 hrs




28. Ah, the real reason we needed to pass the “bailout”.

    http://abcnews.go.com/Blotter/story?id=5973452&page;=1

    Thanks AIG.

    Posted by on October 07, 2008 at 1722 hrs




29. I’m surprised no one has commented yet…

    How about now…

    http://money.cnn.com/2008/10/08/news/companies/aig/inde x.htm?cnn=yes

    AIG asks for another $38 Billion from the Fed, after what I linked to in #28.  Brass balls, honestly.

    Posted by on October 08, 2008 at 1757 hrs




30. Jason,

    I already did here.

    http://www.bootsandsabers.com/index.php/weblog/permalin k/the_bailout_passes_the_house/

    I would be really interested to hear some anecdotal evidence about how, or if, anybody’s day to day life in this small corner of the world has been affected.

    No sob stories on missteps in the investment world, please.

    Posted by on October 09, 2008 at 1543 hrs




31. No real proof of stopping anything that wouldn’t have been stopped anyway.  Just a lot of conjecture by Republicans and orders to believe them when they say it would’ve been worse without them.
    Real Estate Templates

    Posted by Real Estate Templates on October 11, 2008 at 2227 hrs




32. I can see why the Europeans are worried sick about a loss of confidence in their banks and have been trying to jawbone their way to safety? Why Merkel felt she had to put deposit insurance out there? A run on Deutschbank would be disastrous for Germany. 
    Texas Hill Country Ranches

    Posted by Hill Country Ranch Land on October 23, 2008 at 0031 hrs




33. This will make the recession longer and deeper as it prevents people from knowing what the real price should be and causes further uncertainty.
    Hill Country Lots, Land & Homes

    Posted by Hill Country Ranches & Homes on October 24, 2008 at 0421 hrs