The Sky is Falling! Or is it?

[blueskies]

So, I've been struck my how these huge catastrophic financial events are unfolding right now in the US, and how, around my neck of the woods, noone's talking about it. Are people talking about this in your area? What are they saying?

[Biciclista]

let's see. I went to a plant nursery today and the guy said that at plant warehouses they have immense numbers of plants that are not getting sold.
When i met my Italian tutor, she said no one is booking private lessons and the language classes are much smaller this year.
And when I tried to sell my car for blue book ($10,000 for a 4 door sedan) Someone made an offer for $5000. You've heard about all the unsold SUV's and Pickuptrucks.
houses are vacant all over the country.

I'd say things are REALLY bad and getting worse!

[Flur]

I used to work for Merrill Lynch and have quite a few friends working in the financial markets, so I hear about it a lot. People in that line of work are afraid for their jobs and are under a lot of stress because everything is so unpredictable (for traders, this makes it REALLY hard for them to do their jobs!).

I'm personally not all that worried about it. I'm very bullish on the market and in my experience that's typical for people my age (30-35) who work in the financial markets. Every dip in the market is a buying opportunity, a chance to get stocks for good long-term companies cheap. Now is the time to invest in the best and hold your cards for the return trip up.

[Zen]

I'd say the general populace isn't talking about bank bail outs because they don't understand them.

What they do understand is the gov't bails out big banks but not small businesses and it's impossible to fill up their gas tanks.
They understand they have to change their grocery shopping habits.

I think they're just hoping things get straightened out because there's nothing else they can do about it.

[Biciclista]

very well said ZEN!

I'd say the general populace isn't talking about bank bail outs because they don't understand them.

What they do understand is the gov't bails out big banks but not small businesses and it's impossible to fill up their gas tanks.
They understand they have to change their grocery shopping habits.

I think they're just hoping things get straightened out because there's nothing else they can do about it.

[blueskies]

I agree, Zen, that a large number of people have no knowledge of basic economics.

I wanted to put the size of this bail-out in perspective for myself--- how much is $700,000,000,000? The answer is that it is equal to more than 25% of the total US government revenues for 2007!
So, our congress is being asked (and seems willing!) to give the Secretary of the Treasury authority to spend the equivalent of 25% of all tax money raised last year to buy up "at any time, upon terms and conditions and at prices determined by the Secretary, sell, or enter into securities loans, repurchase transactions or other financial transactions in regard to, any mortgage-related asset purchased under this Act."

We are going to buying bad debt at an extraordinary volume!

Further, the bill specifically provides for no review:

"Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency."

I am deeply troubled.

[Pax]

I agree, Zen, that a large number of people have no knowledge of basic economics...

So true, myself included. I know I just bought a house and have more debt than I've ever had in my life right now. I know my mom has it tough with an unsold home in FL and being stuck with the motorhome my dad wanted (payments on both). I know that if my honey and I can keep our jobs we'll be okay and will be able to help our moms...and that's pretty much all I know about economics.

I wish we weren't bailing out the banks, but with my limited understanding I think it means we might not end up in a depression which would cost many many people their jobs?

[Pax]

I just wrote my Senator and Congressional Representative, I want them to just STOP and take a breath before they "fix" the financial crisis. It's moving way too fast and being propelled by the same greedy idiots who got us into the crisis in the first place. Arrrrgggghhhh!

[Zen]

Good for you!
You're right, we do need to slow down and think things through before printing up money and throwing out the window.

I know it won't fix anything but I'd like to see some of these golden parachute boys be held accountable.

[Pax]

Good for you!
You're right, we do need to slow down and think things through before printing up money and throwing out the window.

I know it won't fix anything but I'd like to see some of these golden parachute boys be held accountable.

The very idea that we give that kind of power with ZERO oversight to Paulsen is mind boggling.

[blueskies]

Not meaning to go all doom & gloom on everyone. Just feeling concerned about the state of the nation & planet that we are leaving for our young people...

[smilingcat]

hmmm...

The financial market has painted themselves into a corner.

Another nice way to put it is the feds and the treasury are caught between a rock and a hard place. And this is being very nice.

BTW, its not $700billion. The feds have pumped in over $600billion already and they are adding another $700B. This round of infusion will be more like $1trillion.

nope credit is really tight and everyone is sort of waiting for the shoe to fall off.

Most people are under the assumption that the federal reserve is part of the US govt. Well, its not...

I'm sure Mr. Silver being in the banking industry can say a few words. Maybe like me, he doesn't want to say too much.

I'm not saying much cause I already got into a huge drag out argument with a person who has demonstrated his complete lack of understanding how and why RTC was created to this latest bailout plan. I'm sort of expecting the federal reserve to issue a $500 note and a $1,000 note in not to distant future. These two denomination was available about 80 years ago... I think...

Lastly, I'm not counting on my social security at this point.

smilingcat

[Zen]

... I'm sort of expecting the federal reserve to issue a $500 note and a $1,000 note in not to distant future.

And one of these bills will have my photo on it

[Mr. Bloom]

I'm sure Mr. Silver being in the banking industry can say a few words. Maybe like me, he doesn't want to say too much.

A correction and clarification: Don't confuse banks and investments banks...they're very different. I'm a banker and have a long term relationship orientation...I manage risk and submit to substantial regulatory oversight. Investment bankers are "transactionally" (aka "what's in it for them") oriented and they sell risk to someone willing to buy it...they tend to be unregulated although the products they sell may be regulated.

The fact is that the government created this problem nearly 20 years ago. There was a time when homeownership required equity and a lot of documentation to qualify. It was the GOVERNMENT who imposed the expectation on the industry of making home ownership a right and not a privilege...and the investment bankers found new ways to enable the political mandate by packaging and selling the risk to unsuspecting (but sophisticated) investors...who threw more money into the game...loosening risk and oversight...and voile - the bubble pops.

I disagree with some...the time to ACT is NOW. It's not investment bankers that they're bailing out, it's MAIN STREET America. The largest institutions are so, so, so intertwined that a liquidity crisis could be epic in it's impact and it will be years in correction...and it will permeate all areas of this economy.

So, what am I doing personally? Nothing much is different. I sold some mutual funds to raise our "cash" position to 50% of our portfolio, but I've not sold a single stock..because I like the stocks we own. I am keeping all cash in FDIC insured deposits (go to FDIC.gov for advice on how to get more than $100,000 in coverage or look for one of the banks that subscribes to the CDARS program).

Some may say "what if the FDIC fails?". It won't, because the government can print money...This would be incredibly inflationary, so if this happened, the best thing you could do would be to buy tangible assets immediately...things like cars, collectibles, and real estate...

Long term, this will materially reduce our flexibility. America's not the growth engine of the world anymore. Our influence and impact will reduce...and it's time for us to recognize that and adjust our global behavior accordingly.

In the end, I have no crystal ball. But, don't panic, don't overreact, don't think this is political. It is real. Be sober, be careful, be conservative. Expect volatility in the markets, and if you don't have tolerance for volatility, consider your options. I do not fear a tornado, but if I see one, I better respect its power

Just a humble opinion from the trenches...

[VeloVT]

I think Mr. Silver pretty much has it right.

I'm a little scared though. This is huge.

Also there is a part of me that worries that "the plan", which (although I have not studied it in great depth and cannot claim deep understanding of it) currently includes commitments to foreign banks that have invested in bad American debt, will end up not being able to avoid something that looks a whole lot like debt monetization...