The Chicken Littles lecture us not be Chicken Littles
The Treasury Department is telling us to be patient and not to panic.
After screaming that the sky was falling the past two weeks and holding a gun to our heads and peddling scare stores of martial law, they’re telling us to be patient and not to panic.
8.9 on the LMAO Richter Scale.
The usual suspects continue to argue that “We can’t do nothing.” I answered this mindless mantra yesterday on Neil Cavuto’s show. Don’t you dare tell us we’re doing “nothing:”
Doing Something is not always better than doing nothing.
From the Wall Street Journal:
Strategist Jim Paulsen, of Wells Capital Management in Minneapolis, said the fear that has gripped the market in recent days may be an unintended, self-fulfilling consequence of recent efforts in Washington to pass a $700 billion rescue of firms saddled with soured credit bets.
“To sell the bailout to the public, everyone from the President on down had to go out and tell people how bad everything was, that the world was coming to an end,” said Mr. Paulsen. “Ever since, people’s expectations about the economy have gotten worse and worse and worse, and their reaction to each new action to fix the problems has gotten worse and worse and worse.”
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Categories: Subprime crisis
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Corkie - Let me ask the “credit worthy” question another way. If you personally had 100 Billion - would you have loaned it to AIG?
From what I know - I would not have. There are lots of entities that I would, lots I would not. Those who I deemed to be good credit risks (those with sustainable business plans, good decision making etc) would get money. As far as your SOX compliant argument - do you honestly think SOX compliance ensures good governence in a company? I can assure you that SOX compliance does not ensure good decision making or sustainable business plans.
FWIW - I have not been living under a rock or in a cave. I have just been living “out in the real world” (not in the beltway) and what I hear/observe is tons of banks saying “we have money to lend, come talk to us” and ?all? the entities that offered financing (zero down, nothing till 2011 or the like) still doing so. Personal credit card offers still flow fast enough to fill landfills. Equipment lease offers at work are still being made at the rate of several a day per equipment buyer. If there is “no credit” - why is all this credit still being offered.
I do see though a bunch of politician opening their yap, yammering about a credit crisis and CAUSING panic in markets. If I trusted politicians, it would be one thing, but in general, I don’t trust politicians about anything. For most, their one and only goal is power. Further most politicians are lawyers, not economists/business people. They are not trained in financial matters. THEY ARE CLUELESS.
Here is the link to the WSJ opinion piece:
Nothing’s the Matter With Kansas
My bank is still making loans. We have none in default
Are you seriously telling me that if you had $100B of capital that you would concentrate it with a single entity and that you have “lots” of such entities to choose from (other than the federal government)? If so, then I’ve learned everything I need to know about your investment prowess. Also, please name these entities.
No. What on earth would make you think that I did???? SOX doesn’t address governance. SOX addresses accounting. Reread my post. I was asking if you were accusing AIG (and, therefore, PWC – their auditors) of fraudulent accounting. It seems as if you are not. Can I hold you to this?
Gee, thanks for that obvious piece of assurance. And I can assure you that the baseball commissioner doesn’t ensure fair play in football.
Which is it? Are you implying that AIG doesn’t have a sustainable business plan, has made bad decisions, or both???? I’m trying to figure out why you compared AIG to Enron. We’ve already established that it’s not their accounting.
Please explain the specific problems you have with their business model and/or decision making (other than this highly publicized retreat). I assume that you recognized these problems prior to the press attention, therefore, can I assume that you made money shorting their stock?
Did you mistakenly believe that during a credit crisis zero credit is ever extended to anyone in any situation? First of all, many banks are claiming to have plenty of money to lend in order to keep depositors from making withdrawals while they simultaneously reduce lending by 75% to 90% - only to the best applications – in order to keep enough capital on hand to deal with any possible increase in future withdrawals – again cash=strength. I’m happy to hear that such advertising worked on you. I’m also happy to hear that certain ABL equipment leases are still flowing – again it’s not that important.
Please try to see the big picture. This isn’t about people getting credit cards, home loans, or equipment leases. This is about a run (mostly B2B runs with some C2B runs) on certain financial institutions – due to an overall lack of confidence. As with all runs, game theory is working against us. These runs could easily spread to all institutions (which would shut down the credit, such as you described, which is still currently flowing). Just because half a town is on fire doesn’t mean the other half of the town isn’t in danger - even as it continues to do business. Please try to see the big picture – maybe, just maybe, this whole thing hasn’t been fabricated.
BTW, I respect the commenters that would rather have the economy crash into depression rather than support more government controls/regulations. (Although, it would be interesting to see if some of their feelings change after losing life savings and after being unemployed for a year.)
However, I don’t respect those commenters that claim certain conditions don’t actually exist in the credit markets right now. For the record, you’re wrong.
Corkie - once again - please don’t assume anything about me. I know you believe what you believe (and think I’m an idiot for not believing the same as you)…and I know I believe what I believe (and why I believe that). We see the events of the past few weeks entirely differently. I’m willing to be shown there is a problem - but all you’ve done is point me to AIG. AIG obviously had “the weakest” business plan when compared to “their peers”. They made less than the best business decisions and failed. Still doesn’t tell me terribly much about the credit market. In fact, it might be telling us that the market is working perfectly but you seem to have completely discounted that possibility.
Why are you pulling facts from thin air?
For starters, please explain why it’s “obvious” that they had the weakest business plan.
conservativesRus, I will continue to assume (safely) that you don’t know much about interbank type credit markets. You have clearly demonstrated that here.
So Corkie, let me see if I got this straight. You believe AIG had the best business plan of all of “their peers” and all of the sudden for no good reason, “everybody” just decided not to loan them money but was still willing to loan others money so AIG went under?
Once again - I’ve suggested that you refrain from making assumptions about me. For you to unequivically state that I don’t know much about interbank credit markets is rather presumptious. I don’t make any assumption about you other than that you believe you know better than me.
Don’t try to squirm out of answering my question. I asked you to identify the problems with AIG’s business model. It’s obvious you can’t.
“Bank runs” start for a variety of reasons. It’s not safe for you to assume that they are justified these days.
I will unequivocally state again, you don’t know much about “interbank” credit markets. Your statements reflected complete ignorance to the fact that the credit markets were choked - a fact only you have disputed.
Corkie - I can see this discussion is not ever going to go anywhere. You are convinced I know nothing about interbank credit. Probably convinced I know nothing about anything financial.
I’m pretty sure you are convinced you know everything about both of those subjects. We disagree about the credit crisis, and AIG in particular.
I will agree with you though that bank runs start for a variety of reasons. And I’d also agree it’s not safe to assume that the run is justified (though I’m not sure what “these days” has to do with the statement - as I’d argue it was never safe to assume they were always justified).
Lastly - I think you’ve be very very surprised to learn what I actually do know though I do not claim to know everything.
That’s not true. I think you might know quite a bit about many areas of finance.
However, if you were more familiar with the specific industry we’re discussing, then you would know that financial institutions have been keeping an iron grip on their liquidity - while simultaneously telling the market that they have plenty of money to lend. A simple game theory analysis reveals that this is the most prudent move for them right now. This isn’t something I’ve learned from reading/watching financial press. I’m personally seeing this everyday.
Interestingly, despite what the clueless press is saying, the magnitude of this problem doesn’t necessarily correlate to problems with the nation’s overall economy.
The credit seizure wasn’t necessarily being caused by actual devaluations of sub-prime assets. It was being caused by the fear that such devaluations would cause an avalanche of widespread devaluations throughout the financial industry. In many of these situations such fear wasn’t rational – yet few could argue that the prudent measures being taken (the iron grip on cash) was irrational given the pervasiveness of the fear.
Here’s an analogy. Think about a small town with one bank. The overall economy of the town might be fine, but fear of bank failure due to a few troubled loans within the town, could cause a run which forces the bank to close. Despite such fear being misplaced, few could argue the prudence of withdrawling funds despite the fact that a failure would disastrously impact the entire town. To fix such a problem, the town government, might decide to guarantee the deposits of the bank. In this situation, such a guarantee might relieve the fears, thereby warding off a bank failure, thereby warding off the disastrous impact such a failure would have on the town. And it’s possible that the resulting cost to the town is zero. Alternatively, instead of guaranteeing deposits, the town could decide to purchase the few troubled loans at a discount, thereby relieving fears, thereby warding off a bank failure, thereby warding off the disastrous impact. And it’s possible that the town could make money on the purchase.
Overall, I’ve never commented on my opinion of the “bailout.” I merely wanted to improve the overall quality of the discussion on Michelle’s board. Given the gross misunderstanding of this topic in the press, I attempted to guide the conversations where I thought it would help. For now, the credit problems seem to be improving slightly.
Martial Law?
Obama has hinted at Martial law…
In the mean time, I’m getting mail from credit cards long paid off telling me interest rates will now be 22%. These are cards that were 6% or lower in my case. These are not punitive rates for being late or overextended. This is credit card companies issuing an edict across the board.
I think this is safely defined as a tightening of credit.