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Bailout Bill Passes - Markets Plunge

Friday, October 3, 2008, 2:54 PM

Well, once again, an overwhelming majority of the American populace was overridden by the DC politicians.

The last time that happened didn't turn out so well, as I recall.  In fact, it is still not working out so well.  It's called Iraq.

At any rate, the full-court press to pass this thing was phenomenal to witness.

Quote:
WASHINGTON — The House of Representatives gave final approval on Friday to the $700 billion bailout for the financial system, reversing course to authorize what may be the most expensive government intervention in history.

At 1:21 p.m., applause and cheers echoed through the House chamber as the number of “aye” votes crossed the threshold needed for passage with just seconds remaining in the official 15-minute voting period. The vote was 263 to 171.

And in a sign of the urgency surrounding the package, Congressional staff rushed the newly printed legislation into a news conference where Democratic leaders gathered after the vote and Speaker Nancy Pelosi, Democrat of California, signed it, at exactly 2 p.m.

Earlier, Ms. Pelosi said the measure was essential to “begin to shape the financial stability of our country and the economic security of our people.”

Link (NYT)

Throughout the process, there was never any doubt in my mind that it would be passed.  I was a little bit surprised at the three-pager that Paulson tried to ram through, both for its brevity and for its blunt attempt to seize unlimited power.

Lessons were learned, and plenty of pork was padded throughout the 400+ page final bill so that enough politicians got enough from it to pass it.

The one thing we never got was a good explanation for why it was needed at all, or why a different approach that better shielded the taxpayers was never considered.

This next quote captures the emotion of fear that was used to slam this thing through.

Quote:
“Nobody in East Tennessee hates the fact more than me that I am going to vote ‘yes’ today after voting ‘no’ on Monday,” Representative Zach Wamp, a Republican, said in a speech on the House floor.

“Monday I cast a blue-collar vote for the American people,” he said. “Today I am going to cast a red, white and blue-collar vote with my hand over my heart for this country, because things are really bad and we don’t have any choice. We’re out of choices and our backs are up against the wall.”

And after all of this, how did the markets respond?

Badly.  Very badly.  This chart of S&P 500 futures (Central Time) is my favorite way to keep an eye on the stock market, because it leads it by seconds to minutes.

The Dow is off 153 as I write this.

Already Wall Street is saying, "Not enough!" And, mark my words, it will be back for more before the year is even up.

This was the greatest looting operation ever in our history.  Keep a journal.  These are historic times.

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16 Comments

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
“If (1913) the American

“If (1913) the American people ever allow private banks (The "Federal" Reserve & Fractional Reserve Banking) to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless (2006-2008) on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”
- Thomas Jefferson, Letter to Treasury Secretary Albert Gallatin (1802) 

If a nation expects to be ignorant and free, in a civilization, it expects what never was and what never will be.

- Thomas Jefferson

“Lenin was right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.” 

They just fixed a symptom - they didn't fix the problem.

I'm all for spending money - if it goes towards fixing the underlying problem. I'd have been behind a plan to spend 700 billion dollars on creating a strong banking system and a strong currency or creating alternate energy so we can keep trillions here instead of sending it to the Middle East.

Oh well. On the positive side, this will sure as hell solve the environmental aspect of our constant ecomoic unsutainable growth and the direct impact that nutty growth has on our planet. It should halt the the insanity of turning our echo system into a buck. No bucks - less gas, no bucks -less crops, no bucks - less well we get it...

blackrott's picture
blackrott
Status: Member (Offline)
Joined: Aug 2 2008
Posts: 20
Under the Guise of Urgency

“Every collectivist revolution rides in on a Trojan horse of ‘Emergency’.  It was the tactic of Lenin, Hitler and Mussolini.”

 

Herbert Hoover (1874-1964) 31st President of the U.S.

Memoirs: The Great Depression, 1929-1941, p. 484 – 1945

Need I say more?

 

Here is another good one that might apply. 

 

“Today the path to total dictatorship in the United States can be laid by strictly legal means, unseen and unheard by the Congress, the President, or the people.  Outwardly, we have a Constitutional government.  We have something within our government… representing another form of government which believes our Constitution, is outmoded and is sure that it is the wining side… All the strange developments in foreign policy agreements may be traced to this group who are going to make us over to suit their pleasure,”

 

William E. Jenner

(1908-1985) U.S. Senator, Indiana (R)

Speech on the senate floor – February 23, 1954

 

cpendle3's picture
cpendle3
Status: Member (Offline)
Joined: Sep 17 2008
Posts: 3
Frustration

I'm chairman of the board of a 130 million dollar credit union. I have spent the better part of the last 10 days trying to get the point across that this bail out was a disaster and I even tried to focus my comments specifically on the fact it didn't do any thing to fix the problem of no accountability and it did not create new regulations to keep it from happening again.  I raised concerns that the first report back to congress was two months after Paulson will have left office-holy crap !  Imagine what will get lost in the change of administrations? 

My credit union has money to lend.  We have good liquidity and we have a capital ratio of 10.41.  We have offered no fee VISA card and our interest rate is between 9.9 and 14.9 not the 28 plus % offered by the major institutions.  We have conservative policies.  We rarely loan out greater than 80% loan to value.  Our loan officers work on the relationships with our members and sometimes our best action is no action-telling people and showing people they can not afford a particular property or a car doesn't always make us the most popular but I'll tell you what-we are getting fan mail and thank you letters instead of hate mail and death threats.

 

Thank you for your information I read it with great openness and have been sharing a great deal with my children of 23 and 21.  I can only imagine what they will face after I'm long gone.

I am a commercial fisherman from Maine-thats a whole other story but I founded and ran an orgainzation called Northwest Atlantic Marine Alliance.  While meeting with collegues in Nova Scotia Canada we asked why they had resorted to civil disobedience-one man looked me in the eye and said, "for the first time in modern histroy our children are not our future... we are theirs... we must stand up for what is right and just"

Pretty moving stuff from a working stiff.

cpendle3's picture
cpendle3
Status: Member (Offline)
Joined: Sep 17 2008
Posts: 3
Thanks for the Thomas Jefferson quote
I was looking for it today but struck out.  I passed it on to my fellow CU Board members.
Judithkitty's picture
Judithkitty
Status: Member (Offline)
Joined: Jul 8 2008
Posts: 11
Question

Chris, I'm a new subscriber to your site and I've been looking for a site like this. Thank you for making it more understandable. Can you explain why the markets plunged after the bailout was signed? Why wouldn't they go up, because Wall Street got what it wanted, right? How do you know that Wall Street is saying $700B is "not enough"?  I am so wanting clarity. Thank you for reading all this.

JK

.

Already Wall Street is saying, "Not enough!" And, mark my words, it will be back for more before the year is even up.

Dragline's picture
Dragline
Status: Bronze Member (Offline)
Joined: Sep 10 2008
Posts: 54
Question

I am not Chris and don't claim any special qualifications, but it seems to me that the anyone who was "buying" on the bailout realized it was pretty much a done deal after the Senate passed a modified bill.  So what you saw was a "buy on the rumor, sell on the news" phenomenon.  It was probably magnified by speculators.  Nobody really wants to invest in U.S. stocks right now unless they see a long term bargain or a short term gain based on government action.  People within 5 years of retirement are cashing out on every rally.

I thought the more interesting action was the reversal in the dollar.  No baliout = frozen credit and higher value to the dollar. The bailout represents more money in the system, which should depress the dollar against other currencies (and gold long term).  Watch for reduced interest rates to do the same.  All this money pumping will offset the deflationary effects of banks refusing to lend and the investment bank consolidation, and will eventually inflate nominal values of stocks and other dollar-based assets, because the real value of the dollar will be decreased.

 

 

 

jeffgerritsen's picture
jeffgerritsen
Status: Member (Offline)
Joined: Aug 10 2008
Posts: 10
Back to the future...

Hum....

Guess what, president Hoover did the same thing back in 1931.  It didn't work then and 99.99999 percent chance it won't work now!  One only needs to pruse the 1929 - 1932 New York Times headlines archive to see what is in store for us!

It won't be pretty to say the least.

Mr.PR's picture
Mr.PR
Status: Member (Offline)
Joined: Oct 3 2008
Posts: 4
more background, less markets

As a German reader I started to be a daily visiter of this site with the "Crash Course" like many others. I admire the way you teach all this complex stuff. Let me tell you: I have my Master in philosophy and economics and I have never before watched such a great explanation. At university and even in the PhD courses nobody asked such profound questions. So thank you very much for this.

On Wednesday I watched the whole night long your the discussions of your Senate. It was a comme il faut part of politics. They slasher where convincing and powerful. I congratulate you for this man and the way of your political system. It is much better than in Germany (no way a German politican would ever say he made a mistake...). Well If the results of this process are good or bad, I dont know. Therefor I would like to ask if you can explain the bad implications of this bill.

Maybe: allow me to say that I don´t believe that in market reactions to such decisions is any truth. There could be other explantions for that decline. Who knows? You have excellent resources for your position, you do not need such short term marked based explantion. It weakens your message, I think.

pbhola's picture
pbhola
Status: Member (Offline)
Joined: Oct 3 2008
Posts: 1
Crash Course

This crash course is a compelling reason everyone should have internet access. Chris is simply a genius in the way he presents the ideas. The material is evenly paced and the analogies used to build parallels between the ideas are astounding. I am so exicited about this link that I sent it to people that hunger for some understanding of how this world works. I have book-marked this site - now I have found a better way to spend my time.

rlee's picture
rlee
Status: Silver Member (Offline)
Joined: Sep 18 2008
Posts: 148
waiting for next big "need"

Well, they did what they said they were going to do!  You've got to give those beltway boys and girls credit for one thing, they sure do stick with it until the job was done!

I agree that the handouts have just begun, and that the banks are truly in control of this government and frankly, others as well.  Conspiracies aside, the facts are what they are.  The next president, whoever it may be, will spend his first few hours picking out stationary, and doing the usual 'meet-and-greet' around the office.  After a few meaningless meetings with equally meaningless staff members, they will sit down with the people who run this great nation and told what they will do, what they will say, and the way that the next chapter in their lives will be lived - or else.

By the way, the lending crisis appears to be over!  I just watched a wonderful TV commercial  from one of our nations most trusted lenders: WaMu.  Did you know that you can now get a loan from them by applying online in just SECONDS! No, Really - truth is stranger than fiction folks.  All Hail the Amero!

Bob 

Judithkitty's picture
Judithkitty
Status: Member (Offline)
Joined: Jul 8 2008
Posts: 11
Value of gold long term

Curiouser and curiouser! Thank you Dragline for a conclusion that makes sense to me. Now, why do you say that the price of gold would be depressed against other currencies long term?

Are you predicting that the number of dollars required to buy stocks and gold will increase, but the actual buying power per dollar will decrease?

 

Azorean's picture
Azorean
Status: Member (Offline)
Joined: Oct 4 2008
Posts: 1
public debt vs bailout

Hello,

This is my first comment here, and, first of all, I want to say thank you to Chris and is team, and to all the users who try to explain and discover more about the economy and world function.

I´m very ignorant about economy, and that's why I ask anyone who can answer this simple question:

What's the relation between the public debt of US and the $700 billion bailout?

I suppose that's not very good for a country to have a public debt, but that debt can be an indicator of wealth too, because only families with money can have a debt.

Between 29 August 2008 and 2 October 2008, the last mouth actually, the US total public debt grew $503 billion, almost the same amount of the $700 billion bailout. Just for the last month!

source:

http://www.treasurydirect.gov/NP/BPDLogin?application=np

 

My final question is: Whats the point of a $700 billion rescue plan, if the public debt grew almost the same amount on the past month?

This question make any sense, or not at all?

 

Thank you very much and sorry about my bad English!

Regards from Portugal Smile

 

machinehead's picture
machinehead
Status: Diamond Member (Offline)
Joined: Mar 18 2008
Posts: 1077
Prudence punished

"We have conservative policies ... we are getting fan mail." -cpendle3

What saddens me is that those who have followed admirable, prudent policies -- such as cpendles' credit union -- are going to be taxed heavily to bail out the speculators who laid on a "heads we win; tails the global financial system blows up" bet. They scarfed up huge bonuses on the first leg of the bet; now the other leg (bailout) is activated.

A similar "punishment of the prudent" will occur to us as individuals. Those who followed the antiquated policy of saving -- deferred gratification -- will see substantial portions of their income and wealth confiscated in the future and transferred to the negative-net worth needy who have been on a decade-long spree of spending, speculation and peculation.

Depending on how profound the changes one is willing to make, there surely are ways to mitigate the coming plunder and predation of the prudent. Radical political malfeasance -- an unprecedented Corpgov looting spree -- necessitates a radical rethink of everything. Some of our most treasured assumptions, engrained in childhood, are toast.

"Hi, I'm from Washington, and I'm here to pauperize you." Cry

srbarbour's picture
srbarbour
Status: Silver Member (Offline)
Joined: Aug 23 2008
Posts: 148
Quote:What's the relation

[quote]What's the relation between the public debt of US and the $700 billion bailout?[/quote]

The money for the 'bailout' comes directly from government funds (its an act of congress), and therefore is tagged directly onto the debt.

Of greater concern than how this effects the national debt though, is how it effects next year's deficit.   It is going to be very difficult to raise the $700 billion + $500 billion (expected) + Spoilage (costs of the fed's liquidity moves) + Freddie and Fannie (est. $250+ billion over the next year)  ~= $2 trillion over the next year.  

It is very very questionable that the United States would be able to sell that much debt.   Not only because of the atmosphere over 2009, nor the doubts of the United State's ability to pay, but because of the sheer size as compared to the world economy.

As a side note, I'd point out that the bailout is not really $700 billion, because it requires another act of congress before that full number can be reached.

 

[quote]My final question is: Whats the point of a $700 billion rescue plan, if the public debt grew almost the same amount on the past month?[/quote] 

My perception is that it is:

1) An attempt to stifle huge inflationary effects of Fed monetary expansion.  (By changing it to 'debt')

2) An allowance for the Fed to extend its actions to institutions that were otherwise supposed to be untouchable:  Insurers, the shadow banking system.

 

--

Steve 

USMoonAny1's picture
USMoonAny1
Status: Member (Offline)
Joined: Oct 5 2008
Posts: 5
Terrific testimony

Dear Cpendle3,

Your testimony that conservative principles really work in business is refreshing. My business, now in its 17th year, had to use a credit line one time, paid back within 9 months, and not one dime of it ever had to go for 'payroll'! I couldn't believe my ears when Pelosi (what a creepy thing she is) and dozens of others claimed the bailout would keep us all in cars, mortgages, payroll and college! Naturally, now I want to know the name of your credit union and how to sign up. And no, to those reading this, I'm not a shill ;-) 

Next, I'm very curious about where to read more about the civil disobedience referenced in your 'commercial fisherman' story... any specific links? THis way I won't have to plow through a hundred unrelated stories on Scroogle.org (Tip: I quit Google- except for MAPS). 

Lastly- I recalled from the tweedle-dee and tweedle-dumb (Bernanke/Paulson) congressional hearing back in June/July '08 that credit unions would also be swept up into their 'jurisdiction'. Has the bail out affected your firm (credit unions)? And if so, in what way?

USMoonAny1

dps's picture
dps
Status: Martenson Brigade Member (Offline)
Joined: Jun 27 2008
Posts: 442
I highly suggest listening to this

http://www.thisamericanlife.org/Radio_Episode.aspx?episode=365

Very informative.

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