What the !@#$ Just Happened Here?

[Magox]

My few cents:

I agree with one of your initial statements that it has been expansion of the Fed's balance sheet as LoLR that has mainly stabilized the financial sector; TARP was enacted after weathering the worst of the crisis. The biggest chunk of it has been given to AIG and used as a pass-through to help (mainly) the two remaining finance titans who provide most of the "expertise" at the Treasury...

 

I'd say Paulson abandoned the original idea for TARP because every sane economist was publicly criticizing it as a giveaway of taxpayer money and calling for direct public investment/nationalization.

 

Lehman went under because P&B denied them access to funds to weather the liquidity squeeze. I'm sure there was no conflict of interest there....

Spot on!

 

There is no doubt that it was a joint effort, or should I say lack of from P&B to allow Lehman to go under. My feelings are that they were what I consider to be BAILOUT WEARY, and never imagined things would get as bad as they did. To this day, Bernanke still defends the decision to let Lehman go under, he says that there wasn't anything that they could have done about it that would of changed the outcome. Ya, and I got this really nice property here to sell you just west of Ft. lauderdale that is to die for.

[GG]

Why I slam the design of TARP to take illiquid assets off the banks' books then complain about the existence of zombie banks? HUH

 

Which TARP are you talking about, the intended or the actual one? The intended one wasn't well thought out, because of pricing issues. There were major miscalculations on the estimates of how much they would cost, the willingness of banks to accept the prices the government was prepared to offer them, and major miscalculations of how the public would accept this bill. In regards to the ACTUAL TARP, which is what it is really about isn't it? This plan is pretty much the same plan in regards to the banking industry as that of the Zombie bank plan of Japan, now isn't it? And if you disagree, please enlighten me how it differs.

 

In the end, there is no difference between the final TARP and the designed TARP, because it had accomplished its primary purpose of immediately settling the markets. The regulators knew in October who the healthy banks were and who the sick ones were. It didn't change over time. But something dramatic needed to be done at the time to ensure that there would be no more Lehman, followed by AIG, etc.

 

As for Monday morning quarterbacking the situation, the longer term picture is being resolved now and it will take time. The asset purchase program is still in the works and portions may still get sold off. To answer your inane question, the biggest difference between US and Japan right now is that the bad assets aren't used to prop up as much of the banks' capital, and the good banks have been able to raise private equity to cushion the reserves. So, no matter what happens to the illiquid assets, the good banks are properly reserved for them.

 

This would even be an academic discussion if TARP wasn't approved in the first place.

 

In regards to your ludicrous statement of the CPFF

 

Really? hmm, last I checked the Federal Reserve is an independent government institution. they don't need the authority of the administration to make their decisions.

 

They don't but there would have been no need to prop up the CP market if there was no financial market to prop up. Why is it so hard for you to see that a first order event is more important than a second order event?

 

Oh yes, I know, it's all because Glass Steagall was repealed.

 

You still didn't answer my question, as always. What led to the demise of Lehman? I mean you originally brought them up, so, what happened?

 

In simplest terms? There was an old fashioned run on the bank. You do remember that there were little concerns in the CP market before Lehman filed, and there was a general sense of optimism in May/June that the crisis may have passed?

[Magox]

In the end, there is no difference between the final TARP and the designed TARP, because it had accomplished its primary purpose of immediately settling the markets. The regulators knew in October who the healthy banks were and who the sick ones were. It didn't change over time. But something dramatic needed to be done at the time to ensure that there would be no more Lehman, followed by AIG, etc.

 

As for Monday morning quarterbacking the situation, the longer term picture is being resolved now and it will take time. The asset purchase program is still in the works and portions may still get sold off. To answer your inane question, the biggest difference between US and Japan right now is that the bad assets aren't used to prop up as much of the banks' capital, and the good banks have been able to raise private equity to cushion the reserves. So, no matter what happens to the illiquid assets, the good banks are properly reserved for them.

 

This would even be an academic discussion if TARP wasn't approved in the first place.

 

 

 

They don't but there would have been no need to prop up the CP market if there was no financial market to prop up. Why is it so hard for you to see that a first order event is more important than a second order event?

 

Oh yes, I know, it's all because Glass Steagall was repealed.

 

 

 

In simplest terms? There was an old fashioned run on the bank. You do remember that there were little concerns in the CP market before Lehman filed, and there was a general sense of optimism in May/June that the crisis may have passed?

This argument sort of reminds me of which came first, the chicken or the egg?

 

You believe it was TARP that saved the financial system, and I believe it was the Federal Reserve. There you have it.

[GG]

This argument sort of reminds me of which came first, the chicken or the egg?

 

You believe it was TARP that saved the financial system, and I believe it was the Federal Reserve. There you have it.

 

The Federal Reserve simply used the tools that it had. If it were only up to the Federal Reserve, then all things would have been solved when they opened up the discount window to all comers in March. It didn't.

 

All you have to do is look at the timeline. Within a few days of September 13, Lehman, Merrill was gone, as were the other bulge bracket investment banks, with Citi & BofA on the doorstep. In 48 hours!! After Paulson's oh shiite moment , he immediately pulled a 180 and started working on the bailout plan. The Fed was done at that point and needed Treasury to step in.

 

Everything that happened after that is open for the Zapruder interpretors. But it doesn't change the fact that if Paulson didn't change tack in the immediate aftermath of LEH & AIG, this discussion is moot.

[Magox]

The Federal Reserve simply used the tools that it had. If it were only up to the Federal Reserve, then all things would have been solved when they opened up the discount window to all comers in March. It didn't.

 

All you have to do is look at the timeline. Within a few days of September 13, Lehman, Merrill was gone, as were the other bulge bracket investment banks, with Citi & BofA on the doorstep. In 48 hours!! After Paulson's oh shiite moment , he immediately pulled a 180 and started working on the bailout plan. The Fed was done at that point and needed Treasury to step in.

 

Everything that happened after that is open for the Zapruder interpretors. But it doesn't change the fact that if Paulson didn't change tack in the immediate aftermath of LEH & AIG, this discussion is moot.

Ok, this proves one thing,

 

and that is that we disagree...

[Dwight Drane]

And I feel like Bill Murray in Groundhog Day waking to Sonny & Cher every morning with you clowns. The very painful few years would have included a massive meltdown of the global economy in a matter of months, if not weeks as the dominoes kept on tumbling. Amazing how memories are short and that you & Magox agree. Learn the fundamentals of how finance & capital requirements work, then start criticizing it.

 

Right.....it would have been a meltdown of equal proportions. Instead, this has been a well planned looting of the masses by the elite. In this thread alone you have validated all my warnings from late '07 up until September of last year. As others continued their ignorant chiding, you at least understood how close to "THE END" we really were. I noticed a definite tempering of your tone, and even to this day you aren't a cheerleader for current conditions. You may cheerlead policies that on the face can be explained as trying to improve the current condition, but at least you aren't telling me a turd is a rosebush anymore. For that I appologise for some of the shill comments I made. You are only being hopeful for your job and well being and I can't blame you as long as defamation isn't involved. At least you attempt to debate those on this board with actual grasp of knowledge instead of mudslinging. I may not appreciate your personality, but I'm sure you don't like my wiseguy directness either.

 

Now...as far as understanding how capital and finance work.....people need to think BIGGER...and look at what role that plays on a geopolitical scale. People are starting to do that now in public. When you make decisions that are self-serving, others take notice. This is going the way of war. There is no turning back. As I have said numerous times, either others get sick of the US policies and arrogance and start to make moves....or the government continues to appease our trading partners which will eventually lead to such opressive domestic policies that the American people WILL revolt. There are a lot of "hicks" out there that on the surface, seem to have better math skills than the Fed and Treasury.

 

This is not over by any means....and you know that. There is no easy solution. I am amazed that things have hung on this long. If you want to talk capital requirements......every empire has eventually seen their fiat currency fail. The US got a pass in the 70's. If you want to talk individual cases as I was about my place of employ, I can tell you that there is always a creative way around a rule. Just go "offline". That is what our government has done with all these bailout plans. There is no regulation.....in fact as we can see with your championing of mark to market "relaxation", the regulators are aiding the plan. This will not be good in the end. Trust me. I can get a piece of crap rated AAA with a few phonecalls. That is what the government is doing now. In the end.....there is really nothing of value there. And when the other 95% of the public wakes up to that fact, it will be a very sad state of affairs. It will also be too late.

[drnykterstein]

70's? Where did the 80's, 90's, and 2000's go then?