WASHINGTON -- Senate and House Democratic leaders said on Monday that they had reached an agreement on their conditions for approving a $700 billion rescue plan for the financial system, including more oversight of the program and a requirement that the government do more to help troubled borrowers refinance their mortgages. But even as Congressional Democrats and the administration began to narrow their differences, Democrats are bracing for a battle over efforts to limit the pay of executives whose firms seek help and over whether to grant bankruptcy judges authority to modify the mortgages of borrowers in danger of foreclosure. Investors were skeptical. Concerns that the bailout plan may not move smoothly through Congress contributed to the anxiety in the markets that pushed the Dow Jones industrial average down more than 372 points and pushed crude oil up more than $16 a barrel.
But even as Congressional Democrats and the administration began to narrow their differences, Democrats are bracing for a battle over efforts to limit the pay of executives whose firms seek help and over whether to grant bankruptcy judges authority to modify the mortgages of borrowers in danger of foreclosure.
Investors were skeptical. Concerns that the bailout plan may not move smoothly through Congress contributed to the anxiety in the markets that pushed the Dow Jones industrial average down more than 372 points and pushed crude oil up more than $16 a barrel.
As the government weighs how to bail out the financial sector, the engineers of the plan face a dilemma. The higher the prices the government pays for troubled mortgage securities held by banks, the more the rescue will bolster those banks and sustain the lending that is vital to the broader economy. But higher prices would also mean a worse deal for taxpayers. In other words, the more effective the plan, the more expensive it will ultimately be. Under both the Bush administration's proposal and many of the variations finding favor among Democrats, the government would buy up to $700 billion in shaky assets now on the books of financial companies. As the government does so, it will be forced to grapple with the same question that has vexed the brightest minds on Wall Street for more than a year: What are the darn things worth? The very reason for the financial crisis of the last 14 months is that no one knows for sure. Wall Street created securities so complex that their value can swing wildly depending on what happens to the overall housing market. For example, a particular type of mortgage-backed security might offer a giant payout if home prices only drop another 10 percent, but be worthless if they drop another 15 percent.
The higher the prices the government pays for troubled mortgage securities held by banks, the more the rescue will bolster those banks and sustain the lending that is vital to the broader economy. But higher prices would also mean a worse deal for taxpayers.
In other words, the more effective the plan, the more expensive it will ultimately be.
Under both the Bush administration's proposal and many of the variations finding favor among Democrats, the government would buy up to $700 billion in shaky assets now on the books of financial companies. As the government does so, it will be forced to grapple with the same question that has vexed the brightest minds on Wall Street for more than a year: What are the darn things worth?
The very reason for the financial crisis of the last 14 months is that no one knows for sure. Wall Street created securities so complex that their value can swing wildly depending on what happens to the overall housing market. For example, a particular type of mortgage-backed security might offer a giant payout if home prices only drop another 10 percent, but be worthless if they drop another 15 percent.
the more effective the plan, the more expensive it will ultimately be.
Effective at what, exactly? Saving bankers? Yep. In the long run, we're all dead. John Maynard Keynes
Sigh... In the long run, we're all dead. John Maynard Keynes
WASHINGTON -- The United States, having expanded its proposed rescue of the financial sector to include foreign banks, has not yet found any other country willing to join the landmark bailout. The Treasury Department still hopes to marshal a worldwide effort to cleanse the balance sheets of banks. But Europe and Japan have signaled that they are not ready to mount a rescue of the kind being debated here. Treasury Secretary Henry M. Paulson Jr. continues to solicit support from foreign governments. His department plans to prod them by giving preference to banks from countries that show a willingness to help the American effort, a senior administration official said Monday. "We expect other countries to do their part, but we're not insisting their programs be exactly like ours," said the official, who spoke on condition of anonymity. "We're certainly not prepared to put ourselves in a position where there's a free-rider problem." Given that the mortgage collapse began here and that most of the distressed debt is held by American banks, specialists said it was not clear that the United States had much leverage in forcing others to take part. "There's a view in Europe that this is a U.S.-made problem, and that it should be solved in the U.S.," said Charles H. Dallara, the managing director of the Institute for International Finance, a group of 340 global banks.
The Treasury Department still hopes to marshal a worldwide effort to cleanse the balance sheets of banks. But Europe and Japan have signaled that they are not ready to mount a rescue of the kind being debated here.
Treasury Secretary Henry M. Paulson Jr. continues to solicit support from foreign governments. His department plans to prod them by giving preference to banks from countries that show a willingness to help the American effort, a senior administration official said Monday.
"We expect other countries to do their part, but we're not insisting their programs be exactly like ours," said the official, who spoke on condition of anonymity. "We're certainly not prepared to put ourselves in a position where there's a free-rider problem."
Given that the mortgage collapse began here and that most of the distressed debt is held by American banks, specialists said it was not clear that the United States had much leverage in forcing others to take part.
"There's a view in Europe that this is a U.S.-made problem, and that it should be solved in the U.S.," said Charles H. Dallara, the managing director of the Institute for International Finance, a group of 340 global banks.
"We're certainly not prepared to put ourselves in a position where there's a free-rider problem."
Bankers are not free-riders, they are a vital part of the economy (the one that holds the gun to your head) In the long run, we're all dead. John Maynard Keynes
paulson makes a great 'dr. doom', straight from central casting, better than chertoff even, hell, better than rudy!
'we've cracked it, the blame is too diffused to haunt us, we've taken the world's savings hostage, and we're holding an ak-47 to the head of anyone who wants to threaten our getting away with the hooch...(evil cackle)
the other phrase that recurs to the point of agony, is 'too big to fail'...
the images engendered by that are surreal.
the most recent and compelling is an elephant stepping out onto thinning ice!
i mean really, they were too big to fail, they failed anyway, so the recipe for success is to hand them a fat cheque, (just for aperitivo), unlimited political over-ride power, and total freedom from accountability by rule of law.
makes total sense, huh?
the sopranos were such amateurs... ~"When an inner situation is not made conscious, it appears outside as fate." Karl Jung~
He took them to the city of London and gave a speach, which was sampled into a late 80's dance track. Any idiot can face a crisis - it's day to day living that wears you out.
Polychronicon of Adeeva: Two thieves and a liar
"I've done a few dealings in the citymet a number of stockbrokers and i can tell you in all my life that i've never seensuch dishonesty and greedit's like a big betting shop a bookies a casinowhere the're all screwing each other and the rest of the world"
"when the jews and italian communities went to america rightthey landed in a new country that was ripe for organisation and for racketsnow in this country thats not possible because the real power the real money the real rackets have been going on over here for hundreds of yearsall stitched up and passed on from generation to generationand the american gangsters right, theyr'e still struggling to get the respectability that theyr'e afterbut we've had three centuries headstart on those buggersand look haven't we done a beautiful job of it an' alli bet you there are millions of people right that thinkthat the blokes who work here in the city are really good blokeshard working who have got the economy of this nation deep in their heartswhat a load of cobblers it's the best confidence trick in history"
The dollar buckled, stocks tumbled and the price of oil jumped on Monday as the $700bn (£376bn) US government bail-out plan for the financial sector made slow progress in Washington and once-mighty Wall Street names turned to Japan to safeguard their future.Meanwhile, the Federal Reserve threw open the doors to investment in the US banking industry by private equity firms, sovereign wealth funds and corporate investors - in the hope that this would direct much-needed capital to US banks.
The dollar buckled, stocks tumbled and the price of oil jumped on Monday as the $700bn (£376bn) US government bail-out plan for the financial sector made slow progress in Washington and once-mighty Wall Street names turned to Japan to safeguard their future.
Meanwhile, the Federal Reserve threw open the doors to investment in the US banking industry by private equity firms, sovereign wealth funds and corporate investors - in the hope that this would direct much-needed capital to US banks.
After the roar, the whimper?
But credit default swaps -- complex derivatives originally designed to protect banks from deadbeat borrowers -- are adding to the turmoil. "This was supposedly a way to hedge risk," says Ellen Brown, the author of the book "Web of Debt." "I'm sure their predictive models were right as far as the risk of the things they were insuring against. But what they didn't factor in was the risk that the sellers of this protection wouldn't pay ... That's what we're seeing now." Brown is hardly alone in her criticism of the derivatives. Five years ago, billionaire investor Warren Buffett called them a "time bomb" and "financial weapons of mass destruction" and directed the insurance arm of his Berkshire Hathaway Inc (BRKa.N: Quote, Profile, Research, Stock Buzz) to exit the business.
But credit default swaps -- complex derivatives originally designed to protect banks from deadbeat borrowers -- are adding to the turmoil.
"This was supposedly a way to hedge risk," says Ellen Brown, the author of the book "Web of Debt."
"I'm sure their predictive models were right as far as the risk of the things they were insuring against. But what they didn't factor in was the risk that the sellers of this protection wouldn't pay ... That's what we're seeing now."
Brown is hardly alone in her criticism of the derivatives. Five years ago, billionaire investor Warren Buffett called them a "time bomb" and "financial weapons of mass destruction" and directed the insurance arm of his Berkshire Hathaway Inc (BRKa.N: Quote, Profile, Research, Stock Buzz) to exit the business.
They explained that there was a market for CDS indeed but that it's the risk of the counterpart that is priced (in case I hadn't got that). After I reworded they saw that I had got that. And they admitted that, indeed, some CDS had become worthless because the originator had defaulted. But apparently that was never taken into account in the pricing.
Look, I had at that time only 6 months of working experience in a banking environment, the first 4 of which being on HR projects. And it did not even take me a couple of seconds to see the problem. I can only see two possibilities: -People involved in those markets saw the problem and deliberately pretended it wasn't there (they sure didn't make much noise about it). -To work in derivatives, there is a requirement that, even though you must be mathematically proficient, you must be terminally stupid and unable to understand any of the figures you process. Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
In my experience, the computer programmers were often barely aware of such concepts as "what's a CDS"... Un roi sans divertissement est un homme plein de misères
BEIJING (Reuters) - Threatened by a "financial tsunami," the world must consider building a financial order no longer dependent on the United States, a leading Chinese state newspaper said on Wednesday. The commentary in the overseas edition of the People's Daily said the collapse of Lehman Brothers Holdings Inc (LEH.P: Quote, Profile, Research, Stock Buzz) "may augur an even larger impending global 'financial tsunami'." The People's Daily is the official newspaper of China's ruling Communist Party, and the overseas edition is a smaller circulation offshoot of the main paper. Its pronouncements do not necessarily directly reflect leadership views, but this commentary by a professor at Shanghai's Tongji University suggested considerable official alarm at the strains buckling world financial markets. China's central bank earlier this week cut its lending rate for the first time in six years, a move analysts said was aimed at bolstering the economy and the battered stock market. "The eruption of the U.S. sub-prime crisis has exposed massive loopholes in the United States' financial oversight and supervision," writes the commentator, Shi Jianxun. "The world urgently needs to create a diversified currency and financial system and fair and just financial order that is not dependent on the United States."
BEIJING (Reuters) - Threatened by a "financial tsunami," the world must consider building a financial order no longer dependent on the United States, a leading Chinese state newspaper said on Wednesday.
The commentary in the overseas edition of the People's Daily said the collapse of Lehman Brothers Holdings Inc (LEH.P: Quote, Profile, Research, Stock Buzz) "may augur an even larger impending global 'financial tsunami'."
The People's Daily is the official newspaper of China's ruling Communist Party, and the overseas edition is a smaller circulation offshoot of the main paper.
Its pronouncements do not necessarily directly reflect leadership views, but this commentary by a professor at Shanghai's Tongji University suggested considerable official alarm at the strains buckling world financial markets.
China's central bank earlier this week cut its lending rate for the first time in six years, a move analysts said was aimed at bolstering the economy and the battered stock market.
"The eruption of the U.S. sub-prime crisis has exposed massive loopholes in the United States' financial oversight and supervision," writes the commentator, Shi Jianxun.
"The world urgently needs to create a diversified currency and financial system and fair and just financial order that is not dependent on the United States."
Tried to find this on the People's Daily but couldn't.
Older Americans with investments are among the hardest hit by the turmoil in the financial markets and have the least opportunity to recover. As companies have switched from fixed pensions to 401(k) accounts, retirees risk losing big chunks of their wealth and income in a single day's trading, as many have in the last month. "There's a terrified older population out there," said Alicia H. Munnell, director of the Center for Retirement Research at Boston College. "If you're 45 and the market goes down, it bothers you, but it comes back. But if you're retired or about to retire, you might have to sell your assets before they have a chance to recover. And people don't have the luxury of being in bonds because they don't yield enough for how long we live." Today's retirees have less money in savings, longer life expectancies and greater exposure to market risk than any retirees since World War II. Even before the last week of turmoil, 39 percent of retirees said they expected to outlive their savings, up from 29 percent in 2007, according to a survey by the Employee Benefit Research Institute, an industry-sponsored group in Washington. "This really highlights the new world of retirement," said Richard Johnson, a principal research associate at the Urban Institute in Washington. "It's a much riskier world for retirees, because people don't have defined-benefit plans. They have pots of money and they have to worry about making it last."
As companies have switched from fixed pensions to 401(k) accounts, retirees risk losing big chunks of their wealth and income in a single day's trading, as many have in the last month.
"There's a terrified older population out there," said Alicia H. Munnell, director of the Center for Retirement Research at Boston College. "If you're 45 and the market goes down, it bothers you, but it comes back. But if you're retired or about to retire, you might have to sell your assets before they have a chance to recover. And people don't have the luxury of being in bonds because they don't yield enough for how long we live."
Today's retirees have less money in savings, longer life expectancies and greater exposure to market risk than any retirees since World War II. Even before the last week of turmoil, 39 percent of retirees said they expected to outlive their savings, up from 29 percent in 2007, according to a survey by the Employee Benefit Research Institute, an industry-sponsored group in Washington.
"This really highlights the new world of retirement," said Richard Johnson, a principal research associate at the Urban Institute in Washington. "It's a much riskier world for retirees, because people don't have defined-benefit plans. They have pots of money and they have to worry about making it last."
That's what I feared anyway.
Even if there hadn't been a baby boomer bulge, this is saying: -that prices would keep rising even though stocks would become obviously overvalued. So retirement money would end up going into the fund of lowest return. -the inflow would always greatly exceed the outflow.
You are what you choose to believe... Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
Except that a lot of people drank that kool-aid. The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman
