Our financial system is crumbling this week.

[AWvsCBsteeeerike3]

I just don't get it. I understand there will be a credit crunch - though I'm not convinced it will lead to the next great depression like some claim. And, honestly, I don't care. And, I don't understand why I have to pay for people who made bad investments to get their money back. It's ridiculous. If we're so worried about a credit crunch and not these investors, why doesn't the gov. just act as the bank, set a precedence for who can/can't get loans and what percent your loan will be at given your credit history/background? This way, people can get money/loans, people that made bad investments aren't bailed out, and best of all, I'm not paying for the CEO of Fannie Mae to get his pool cleaned. Oh, and the gov. doesn't even have to manage anything and can't [expletive] it up. They simply give money to regional banks who screen loan applicants.

It's not just bad mortgages that are being bailed out. As I understand it, some major banks do not have the capital to back up their loans, not just to consumers, but the overnight loans to other (smaller) banks. Banks are not lending to each other because they don't know who is liquid and who isn't. Bank regulations had allowed them to keep some debts off their books that regulators and shareeholders see. A false sense of security helped create the problem, now they are unknowns which cause banks unwilling or maybe unable to lend to each other. Once their reserves deplete they're out. So they are tightening loans to anybody to cover the bad loans that are draining their reserves, knowing that they can't get loans from other banks. Things could slowly grind to a halt, even for those with good credit.

I read a newspaper article over the weekend explaining some of the problem to me, I'll try to find and post it.

That newspaper article was good. Thanks for that.

But, it's not like we've never been through a credit crunch before. And, it's not like these banks shutting down means the end of the world. I still refuse to believe that these banks are unwilling to take on good investments. And, if they truly can't, as they claim, then they should claim bankruptcy and all that entails. The federal gov. should provide the capital to banks for good risks instead of letting these banks borrow 700 billion dollars after they've already pissed away their company's fortunes.

[Hungary Jack]

The stock market situation is just a symptom of the real problem. Banks are other financial intermediaries are extremely hesitant to make loans right now because they need to know the value of their own assets in order to set proper reserves. But the inability to price the mortgage-backed securities, CDO's and other assets in their portfolio makes it very hard for them to do this. It also makes it very hard to analyze creditor balance sheets in some situations. Add on top this of the precipitous decline in stock prices, and it is easy to see why short-term credit markets are seizing up. This is what Paulson is losing sleep over.

[UK]

The stock market situation is just a symptom of the real problem. Banks are other financial intermediaries are extremely hesitant to make loans right now because they need to know the value of their own assets in order to set proper reserves. But the inability to price the mortgage-backed securities, CDO's and other assets in their portfolio makes it very hard for them to do this. It also makes it very hard to analyze creditor balance sheets in some situations. Add on top this of the precipitous decline in stock prices, and it is easy to see why short-term credit markets are seizing up. This is what Paulson is losing sleep over.

Plus, how many people have equity on their homes right now? So many borrowed against their homes combined with plunging home prices that no one saved. If they haven't saved and banks aren't going to lend to people with no equity, how are they going to purchase goods?

[AWvsCBsteeeerike3]

Don't take this the wrong way, but you really don't understand the issues.

Sure the stock market is on private funds, but losing 1.2 trillion dollars of capital in 3 1/2 hours shows how important this decision is.

So, for the sake of saving two or three bad days or even weeks on Wall Street, congress should push through an abhorrent bailout plan without getting it corrected? I don't think they should do it at all, and you're asking for the poo version to be pushed through. You may know more about financial markets and the economy than I do, but I don't think I'm wrong for being happy the bailout didn't go through yesterday.

You're focusing on the CEOs and people who defaulted on their loans of the bailout rather the economy as a whole. This is going to impact, you, me, and everyone reading this if we fall into recession. I don't expect most Americans to trust this b/c most of them can't even balance their checkbooks and for good reason as we've seen, they don't Congress, Bush, etc.

No, I'm focusing on the economy as a whole as well. And, my simple reasoning is this: If you are a good investment (ie, have good credit, a solid job, and can make your monthly payments - be it a small business or an individual home/car buyer), banks will invest in you. Maybe not WaMu or Goldman Sachs or whoever else because they've all shot themselves in the foot. But, and I don't know this I can only guess - so if I'm wrong please tell me - there would be a bank, somewhere maybe Europe or Asia, just chomping at the bit to be the banker that all they have to do is follow a standard that banks with great success followed for 100+ years (or however long) and make a killing. If there's no banks wanting to make money and not bankrupt, then I guess I am wrong. But, seriously, America has been a pretty good country with a pretty good finanacial system for a long time. If all the banks here fail, all one has to do is step up with the capital, charge a little bit more for theirmoney, give out only loans that would have been approved in the 80's, follow old practices and make a boatload of money.

They need to fix the banking system b/c financial markets are largely dependent on them, the banking system is dependent on credit and the ability to distribute it (correctly distribute it). They've failed in this and this is something that obviously needs more regulation and without stricter regulations, the 700 billion is a waste b/c we'll be here again. Providing the banking industry means to give credit to where the market hopefully stabilizes (to more than the 4 people you know) will hopefully jump start the economy, prevent it from further slowing the labor market and hopefully improve these fundamental flaws of the economy (sorry Maverick).

So, if our banks fail, every other bank worldwide fails as well? I agree with more regulation. I just wish the people that pushed for no government invovlement weren't the ones now screaming the loudest about how they need a trillion dollars.

You can't let the market correct itself, it won't happen as it will only get worse, this isn't cyclical macroeconomics. Banks would further tighten lending practices and we'll definitely be in a recession and poss. end up in a depression as financial institution cont. to fall, unemployment rises, and the housing market continues to plummet b/c jobless families can't get a loan and can't find a job.

I just simply don't believe this. I refuse to believe that banks will stop investing in good investments.

No one can guarantee that the bailout will work, Ms. Cleo proved 10 years ago to be a fraud and since then I can't predict the future

It was a sad day in my life as well.

, but I can tell you that inaction will lead to further decline. Like I said, I don't like the bailout but I understand why we need it and despite wanting improvements made to it.

Further decline is fine by me.

There were signs of this long before this crisis began, it is up to them to address those issues as well as the bailout and a second stimulus plan.

As far as the 1st stimulus plan, that was doomed to fail, it was a stupid idea b/c the fundamental flaws of the economy are still there.

Also, concerning the gov't giving out loans, where they going to get money to do that? China? The US doesn't have the capital to do that, we're already in debt b/c we allows countries like China to profit off of our currency while decreasing our GDP.

Where is the govt getting the 700 billion from? They can afford that, but can't help the little guy get money to finance his home? This, imo, would be a lot better investment than handing over a blank check to whomever.

[AWvsCBsteeeerike3]

BTW, UK, I've got a ton of respect for you and your opinions, we just disagree here. I may be wrong, but I absolutely and intensely despise giving what is now being speculated as up to 1.3 trillion dollars to financial institutions who screwed up. I wouldn't want to be a Congressman right now having to vote on this issue.

[jim]

BTW, UK, I've got a ton of respect for you and your opinions, we just disagree here. I may be wrong, but I absolutely and intensely despise giving what is now being speculated as up to 1.3 trillion dollars to financial institutions who screwed up. I wouldn't want to be a Congressman right now having to vote on this issue.

You are going to pay one way or the other. I just think we need to focus on getting the economy back instead of worrying about who is getting the worst end of the deal or penalizing someone.

[Hungary Jack]

The stock market situation is just a symptom of the real problem. Banks are other financial intermediaries are extremely hesitant to make loans right now because they need to know the value of their own assets in order to set proper reserves. But the inability to price the mortgage-backed securities, CDO's and other assets in their portfolio makes it very hard for them to do this. It also makes it very hard to analyze creditor balance sheets in some situations. Add on top this of the precipitous decline in stock prices, and it is easy to see why short-term credit markets are seizing up. This is what Paulson is losing sleep over.

Plus, how many people have equity on their homes right now? So many borrowed against their homes combined with plunging home prices that no one saved. If they haven't saved and banks aren't going to lend to people with no equity, how are they going to purchase goods?

I'll just say that I am glad I am not applying for a mortgage or trying to get other forms of credit right now. Many homeowners are finding that it makes more sense to simply default on their mortgage than to try to sell a house at a loss and somehow pay off their loan.

If the bailout includes some sore of assistance for homeowners, how do you distinguish between those who refinanced at teaser rates to splurge on something else (e.g. second home, boat, pricey car, etc.) and those who are simply trying to own their own home at the wrong time? How do you not reward the fools who took out a second mortgage to buy a second home in a hot market (Miami, Phoenix, Vegas) in the hopes of flipping it to make a quick buck? I don't have tons of sympathy for the latter types.

[UK]

So, for the sake of saving two or three bad days or even weeks on Wall Street, congress should push through an abhorrent bailout plan without getting it corrected? I don't think they should do it at all, and you're asking for the poo version to be pushed through. You may know more about financial markets and the economy than I do, but I don't think I'm wrong for being happy the bailout didn't go through yesterday.

No, I'm focusing on the economy as a whole as well. And, my simple reasoning is this: If you are a good investment (ie, have good credit, a solid job, and can make your monthly payments - be it a small business or an individual home/car buyer), banks will invest in you. Maybe not WaMu or Goldman Sachs or whoever else because they've all shot themselves in the foot. But, and I don't know this I can only guess - so if I'm wrong please tell me - there would be a bank, somewhere maybe Europe or Asia, just chomping at the bit to be the banker that all they have to do is follow a standard that banks with great success followed for 100+ years (or however long) and make a killing. If there's no banks wanting to make money and not bankrupt, then I guess I am wrong. But, seriously, America has been a pretty good country with a pretty good finanacial system for a long time. If all the banks here fail, all one has to do is step up with the capital, charge a little bit more for theirmoney, give out only loans that would have been approved in the 80's, follow old practices and make a boatload of money.

So, if our banks fail, every other bank worldwide fails as well? I agree with more regulation. I just wish the people that pushed for no government invovlement weren't the ones now screaming the loudest about how they need a trillion dollars.

I just simply don't believe this. I refuse to believe that banks will stop investing in good investments.

Further decline is fine by me.

Where is the govt getting the 700 billion from? They can afford that, but can't help the little guy get money to finance his home? This, imo, would be a lot better investment than handing over a blank check to whomever.

No plan is going to be perfect, the plan is designed to be a compromise between parties. Giving them till next Sunday to try and rework it does little to nothing at all if their partisan provisions remain the same.

You can't be focusing on the economy if you think certain increased recession and a possible Great Depression is fine by you.

You're wrong in the fact that you don't think that more people will be looking to borrow than the banks will provide credit, I think you misunderstand how vital lending is to the economy and not how critical denying an additional 5% of the mortgages, small business loans, student loan, etc. is to the economy. In this economy, people are looking to borrow more than they have in many years b/c they're making the same but expenses have increased, unemployment is high, and people had been living beyond their means.

They're getting the 700 billion from the taxpayers, having that go directly to the gov't does nothing for the banks, you need the banking system to revive and get the economy looking forward.

[UK]

BTW, UK, I've got a ton of respect for you and your opinions, we just disagree here. I may be wrong, but I absolutely and intensely despise giving what is now being speculated as up to 1.3 trillion dollars to financial institutions who screwed up. I wouldn't want to be a Congressman right now having to vote on this issue.

I hate it too, but I see it as a necessary evil and something that has to be done.

[UK]

The stock market situation is just a symptom of the real problem. Banks are other financial intermediaries are extremely hesitant to make loans right now because they need to know the value of their own assets in order to set proper reserves. But the inability to price the mortgage-backed securities, CDO's and other assets in their portfolio makes it very hard for them to do this. It also makes it very hard to analyze creditor balance sheets in some situations. Add on top this of the precipitous decline in stock prices, and it is easy to see why short-term credit markets are seizing up. This is what Paulson is losing sleep over.

Plus, how many people have equity on their homes right now? So many borrowed against their homes combined with plunging home prices that no one saved. If they haven't saved and banks aren't going to lend to people with no equity, how are they going to purchase goods?

I'll just say that I am glad I am not applying for a mortgage or trying to get other forms of credit right now. Many homeowners are finding that it makes more sense to simply default on their mortgage than to try to sell a house at a loss and somehow pay off their loan.

If the bailout includes some sore of assistance for homeowners, how do you distinguish between those who refinanced at teaser rates to splurge on something else (e.g. second home, boat, pricey car, etc.) and those who are simply trying to own their own home at the wrong time? How do you not reward the fools who took out a second mortgage to buy a second home in a hot market (Miami, Phoenix, Vegas) in the hopes of flipping it to make a quick buck? I don't have tons of sympathy for the latter types.

Unfort. you can't differentiate the two, ignoring the greedy ones still leads to bad debt and falling home prices.