Tuesday Open Thread
Meltdown edition -- in the wake of the stock market plummeting almost 800 points yesterday we look into why the bailout failed and prepare (Wednesday) for renewed efforts, perhaps with a modified plan. Both Obama
and McCain
are suggesting the FDIC insure up to $250,000 in deposits, perhaps making these remarks at the request of admin officials or Bush directly in what I take to be an attempt to prevent any sort of panicky runs on banks.
In other "news," the LA Times addresses the rumor that Biden will step aside for Hillary after the debate. Today is Rosh Hashanah
, the Jewish New Year. Open thread.
Submitted by Brendan on Tue, 2008-09-30 08:33
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forget about politics...
For a minute, let's forget about all this distant stuff going on in Washington and think about how we should respond to the crisis personally...
If there is no bailout, and the big banks fail, does that open up any opportunities?
It seems like it would open up opportunities for small banks with solid finances, soverign wealth funds, and anyone else with cash on hand who could move into the business of providing capital to those who can invest it. Maybe now is the time for renters to buy homes (if they have cash on hand and can get a loan).
Alternatively, will there be any new risks?
Stock ownership seems to be a losing proposition right now (though you sure can get a good deal at the moment). House prices may drop a bit in the short run, but they are probably on the low-side for long-term considerations. Is there much risk of inflation for those holding cash?
"You have seen how a man was made a slave; you shall see how a slave was made a man." --Frederick Douglas
It's opens plenty of opportunities
both good and bad.
On the positive side,
1. Houses will be super cheap
2. People with Gold Investments will do well.
3. As long as the dollar doesn't collapse, T-Bills aren't too bad.
4. People with a lot of debt but not a lot of savings will become more liquid more quickly.
On the negative side,
1. Hyperinflation (worse case scenario) could kill people's savings and causes prices to skyrocket which bad for wages since there's always a lag between inflation prices and wage adjustments.
It's is a fascinating question.....
Will this be the birth of smaller community co-op banks? Or is that what a credit union is already.
I am guessing that folks will be less likely to take big risks in the short term future.
It is the economy, stupid.
financial co-ops
I think a credit union is the standardized/regulated version of a co-op bank.
I could see how a credit crunch would help them (though I'm not knowledgeable enough to say anything in particular).
Another practice that could take off is purchases done on credit from the seller. Something like a LET system
or RipplePay 
could do well in a credit crunch, but I don't think that the infrastructure currently exists.
"You have seen how a man was made a slave; you shall see how a slave was made a man." --Frederick Douglas
Who keeps more than 100k in a bank account?
I heard that a slow-bank run was involved in one bank's demise (WaMu?)...but it makes me wonder why people need insurance for > 100k.
My bank account isn't anywhere near 100k , and I don't expect it to get to 100k regardless of how well my finances are. A good chunk of my savings currently goes into retirement funds. As my wealth increases, I expect much of it to go into a house, and a bunch to go into stocks or other investment vehicles.
I'd typically consider 100k in a bank to represent a major missed investment opportunity.
I can understand how a business might require the liquidity associated with a bank account >100k, but I don't see any reason that this should be considered normal.
"You have seen how a man was made a slave; you shall see how a slave was made a man." --Frederick Douglas
I dunno, but I bet the same people
who keep >$100k earning only a few percent in a bank account are the ones most likely to be concerned about the safety of their money and to pull it if they worry about their bank being able to cover deposits.
Come, my friends. 'Tis not too late to seek a newer world -- Tennyson
government bonds
It sounds reasonable that risk-adverse people would keep massive amounts of money in bank accounts -- but only if they hadn't really considered their risk exposure.
They'd probably have more security with Treasury bonds than with a bank account.
"You have seen how a man was made a slave; you shall see how a slave was made a man." --Frederick Douglas
But
if you have more than $100,000 in a bank, the bank isn't the safest place in the world for it. You'd be much better off taking the excess and putting it in government bonds. If your bonds aren't safe then your $100,000 sure isn't either.
I never broke the law; I am the law! --
George W. BushJudge DreddI'm listening to...
Treasury bonds
are funds in a treasury bond immediately available without penalty?
I came. I saw. I posted.
Veni, Vidi, Bitchy.
No
But if you think you'll need access to your funds in short notice, you can always buy T-bills that mature in as little as a week.
I never broke the law; I am the law! --
George W. BushJudge DreddI'm listening to...
What's the point of deposit insurance?
I see two purposes to (Federal) deposit insurance:
Raising the limit to $250k may help with the first goal (a little), but I wouldn't consider it to have much bearing on the second goal.
Also, I wonder if raising the limit might ultimately destabilize the financial system. If one of the problems here is that these banks are "too big to fail" (or "too connected to fail", as the Economist phrases it), then shouldn't we avoid anything that would encourage banks to get bigger?
Wouldn't we be better off if large depositers diversified and kept multiple accounts in multiple banks? Does deposit insurance encourage bank consolidation?
Also, I think I heard that Britian's deposit insurance doesn't cover larger banks. Is that a way of discouraging consolidation and "too big to fail"-itis?
I'll be looking for information on these points as I have time...
"You have seen how a man was made a slave; you shall see how a slave was made a man." --Frederick Douglas
Bunnies and Fear
The Politics of Fear
The test was extremely limited though, only 46 white Nebraskians, who's biggest fear was a blue chip middle linebacker making a verbal commitment to Oklahoma.
In our society, people are rewarded for pretending to be certain about things they're clearly not certain about. -- Sam Harris,
Science paper on fear
Having read just that article and the abstract, there seems to be very little information with which to draw any conclusions except "hey, isn't this a neat idea." Papers in high profile journals (like Science) often don't accomplish anything more than pointing out how you would go about investigating an interesting set of questions.
The straw-man at the beginning of the abstract made me flinch:
From my own experience, I recall how I was more "physiologically responsive to threat(s)" for a while after I was mugged I didn't experience any meaningful change in my political/social attitudes during that time, but it would be interesting if this line of study could be used to investigate the conventional wisdom that "a conservative is a liberal who has been mugged".
"You have seen how a man was made a slave; you shall see how a slave was made a man." --Frederick Douglas
Some stock market perspective
from reason
I'm not saying it's good but let's keep things in perspective. We've seen much, much worse.
See graph
there are reasons why the media is trying to induce panic
like using the Point Drop instead of the much more relevant percentage drop.
The reasons are not pretty.
"To discuss evil in a manner implying neutrality, is to sanction it." AR
I know, I know.
I just wanted to point out the clarification.
Overall, I'm ambivalent to non-opinionated over the bailout.
I'm also a bit skeptical that the bailout will change the long run outcome while fearing the long term additional damage it could do to market functions. I also fear the worse-case scenarios...but at the same time, like I said, I'm worried that the bailout attempt will not work.
why would the media try to induce panic?
Your cryptic comment leaves me confused. Now I have to guess what you mean, and argue with my own guesses about what you mean...
"You have seen how a man was made a slave; you shall see how a slave was made a man." --Frederick Douglas
I think number one is correct
News Media love eye-balls.
I just have a question
MSNBC has a huge headline on the frontpage:
"Anger reaches boiling point on main st."
Then they have a photo of 5 protesters in pink.
Where are they getting this nonsense, and is asking a couple of people here and there accurately describe this huge anger sweeping the nation?
Are they trying to create their own storm by throwing provocative garbage on their frontpage?
"To discuss evil in a manner implying neutrality, is to sanction it." AR
An hour well spent
at Blogging Heads'
latest addition of Free Will with Economist and Former Freddie Mac employee Arnold Kling.
He explains the sober anatomy of the current bubble and crisis.
If anything it will give you a ponderous and therapeutic headache. Highly recommended.
Best and Worst Case Scenarios
Tyler Cowen
Brad at The Liberty Papers
Brad's are at the end of his post.
Both sound similar. I tend to feel that they are both right though I think Tyler omitted the hyperinflation risk of the dollar being dropped as the reserve currency. But that, I think, is implied by the China Bubble bursting.
I think the best case scenarios without the bailout would be an immensely favorable outcome. It preserves the integrity of the system without hurting its good side while possibly causing a reassessment of its bad side. A relief.
Some people find the humor in any crisis.
for example
Monorail's aren't $#^^
Monorails are the greatest idea.
In our society, people are rewarded for pretending to be certain about things they're clearly not certain about. -- Sam Harris,
Lulz
"The fact that you think they are worth more than anyone will buy them for is what makes them bad assets."
Isn't that the truth.
I never broke the law; I am the law! --
George W. BushJudge DreddI'm listening to...
Ron Paul
"Don't Destroy the dollar"
The gentleman from Texas has spoken.
In our society, people are rewarded for pretending to be certain about things they're clearly not certain about. -- Sam Harris,
Been speaking
for years.
Pirates Killed by Pirates?
Somali pirates killed in Ukraine ship shootout
The was an apparent shootout among the Pirates, the Pirates deny there was Pirate on Pirate crime.
In our society, people are rewarded for pretending to be certain about things they're clearly not certain about. -- Sam Harris,
Look at it logically
who fits the following criteria:
1) Can surreptitiously board a hijacked vessel with no one noticing
2) can disguise themselves to look like fellow pirates, and
3) Hate pirates
Clearly the work of Ninja.
I came. I saw. I posted.
Veni, Vidi, Bitchy.
I'd say
that f*ing with the Ukes was a very bad move on the part of the pirates.
Sic semper tyrannis
"Bail on the Bail Out"
Says Harvard Economist Jeff Miron
.
I like his instincts. I also happen to them. I think he has the right broad overall view of the problem. But at this point in the crisis, is it enough to do what he says or is it too late to do the right thing without more problems? My fear is the correction and the truth it will force on markets will cause a lot of harm and risk more comprehensive interventions and "solutions" that make the initial bailout proposal seem timid by comparison.
He also says that credit markets are freezing up precisely because they are waiting to react to pending government policy....what he calls "strategic behavior".
I agree with him. But people simply don't know if a worst case scenario can be avoided at this point...with or without bailout. That's what bothers me.
The nasty role of ratings agencies in the busted housing market
An Expert-Induced Bubble
At least according to David M. Levy and Sandra J. Peart, don't blame Peloisi, the House Republicans, Bush43, or some guy with a lisp, blame mostly the experts for relying on "rating shopping" that had been done.
In our society, people are rewarded for pretending to be certain about things they're clearly not certain about. -- Sam Harris,
The constant and steady price appreciation of houses
from the bubble emboldened this practice.
That doesn't make it OK but it did contribute.
Favorable signals and trends through artificial inducement abound in this mess.
Now one could argue that regulators should have been on this before it happened. There's a case to be made there.
Arnold Kling in that Blogging Heads video I posted says that INCREASING capital requirements on lenders and Fannie and Freddie in particular could have sent a ripple of reality through the system. And while Kling is right, that would have been harder to pinpoint and accomplish in real time....although Greenspan of all people (idiot) even stated in 2004 in a congressional hearing that he was worried about the debt that Fannie and Freddie were being allowed to leverage and that something should be done to make them shore up their holdings. I still say the easier route is to not encourage excessive risk taking and not driving bullish behavior. Nip the leak at the source instead of chasing the excessive water. Seems more fool-proof.
Ah priorities...
sinfest
I came. I saw. I posted.
Veni, Vidi, Bitchy.
RNC ad, was cut, sent out before package failed yesterday.
The Republican National Committee's new advertisement critical of the the Wall Street "bailout" was produced and sent to television stations in key states before the package failed,
officials at two stations said. Kae Buck of WLNS in Lansing said her station received the at at 7:55 a.m. Monday. Luanne Russell of Pittsburgh's WTAE said her station received it at 10:49 Monday morning.
"Wall Street Squanders our money. And Washington is forced to bail them out with -- you guessed it -- our money. Can it get any worse?" asks the ad's narrator, as the words "BAILOUT WITH OUR MONEY" cross the screen. (The answer: Obama's plans would make it worse.)
Sooo...Republicans wanted Democrats to pass this bill so they could beat them over the head with it in the election. I'd seen several sites say that the Democrats were Charlie Brown kicking a football held by the Repubs Lucy:
"For days, it has been obvious what the GOP dream scenario was- have the bailout pass, but with predominantly Democratic support, dub it the the Bush/Pelosi/Reid/Obama bailout, and then run against it. This is the plan that Gingrich and Ruffini and the other next generation Republicans have been salivating over."
They turned out to be right. Couple that with the original 3 page draft of the bill demanded by dubya & I think the RNC just got plain stupid greedy. They figured they could go to the trough huge one last time during the bush43 reign & then use the Democratic "saving of Wall Street" as a knife to stick in the foolish Democratic backs.
It makes perfect sense. A tiger can not change it's stripes.