Here is a video from Karl Denninger that is interesting.

**FLASH** The REAL REASON For The Bailout

http://uk.youtube.com/watch?v=GqIFoBXGizc

Market freedom is not a “fundamentalist religion”. It is a mechanism, not an ideology, and one that has proved its value again and again over the past 200 years. The Financial Times is proud to defend it – even today.

It is a mechanism, which when viewed through the previously ignored lenses of conservation of mass, thermodynamics, and system complexity, has contributed to increased poverty, resource depletion, climate change, overpopulation, wage slavery, isolation, increased prevalence of disease, and a deterioration in mental health.

It is a fundamentally fairy-tale-based mechanism, because it durably ignores the problems it foments, and refuses to change in the face of mounting contrary experience.

Who is proud to defend Santa Claus or the Easter Bunny? Children.

The Financial Times needs to grow up.

Matchless indeed:

That's a pretty deceptive graph. By showing a divergence they imply that it shouldn't be that way (or that something is "wrong" because of it).

In reality, that exactly what you should expect such a graph to look like. The income figure is inflation adjusted and per capita... so you should expect it to stay essentially flat. GDP, on the other hand, should be expected to rise with a growing working-age population.

Change either GDP to "per worker GDP" or income to "total income" and the divergence is almost entirely erased.

Ok so the "free market" has its problems, but what is the alternative?

The free market may in realitiy be inefficient, but it is more efficient than the alternatives that have been tried over the years. And remember that the modern form of a free market grew out of the peasants revolt in the UK (among other things) in the 1300's after the first Great Plague, as the depopulation gave power to the peasants then working the fields.

The issue is that problems like we are seeing today will always result from a free market, which is why we are supposed to have regulations and regulators, to try to make sure things are pushed in the right direction, and there are floors and caps to prevent excesses, in particular the issue that free markets will allways tend toward a short-termist approach to everything.

The current crisis grown out of a failure of regulation, not the free market mechanisms that caused it (they worked fine, creating new ways of making something more efficient, ie the lending of money).

Dear Gerome,

First off, thanks for the matchless graph - I have many uses for that.

Second, with the utmost respect for your knowledge and ability I have to offer the following:

What you are currently advocating by another name is creative destruction. In the recent past another individual or at least his cronies, advocated such a position as justification for tearing down despotic regimes in the Middle East. The problem with such an approach is the consequences are difficult to control. I know enough about this situation to believe the consequences of not addressing the problems in the financial markets could be catastrophic. Why are you so certain they would not be?

An election is coming within weeks that should change the political landscape of the US. It is at least conceivable that Democrats, who believe in regulation and helping the little guy, would have a slightly different approach than current administration. Perhaps we can not be so cynical as to believe positions taken a month before an election represent the ultimate purposes of a party.

Daniel

Isn't the assumption that the Treasury can waltz into the market next week and sell $700 billion of stuff and have anybody want to buy it kind of bogus? I'd guess to unload that much crap at once interest rates are going to go ballistic.

"on the maxim that it is wise to let adults exercise their own judgment." Who let the children in the free market?

It's reality versus fantasy time.

Reality will win. It always does in the end.

We are already in the 'Post- Bailout Era'. Wow, that was fast! In a US economic 'pond' with a $75 trillion dollar price tag, what's another trillion? Not much.

Some points:

"The lesson is that the financial world cannot behave responsibly, if left to its own devices and thus should not be left to its own devices"

It's not and it won't ... and this is happening automatically. The markets have morphed into self- referencial mode; they are beginning to weigh how the markets themselves function, rather than how the participants in them do. This feedback loop is also self- reinforcing. Like black holes, the dysfunctions become more powerful as more and more planets are swallowed. Oops, there goes another bank ...

Not only the so-called prosperity of the past year was highly unequally shared (see the next point), but it was not even real, as the income and profits of the good years are now dwarfed by the losses of today

First of all, we can see what a 'non-growth' regime looks like; most of us have been living it! This is 'Trickle Up Economics'. Second, the economy is like a tree, the crisis is a systemic starvation of the root. Without surplus being aggregated into the economy from the productive efforts of the root, there is no real wealth generated; no surplus to measure and divide. Wall Street (and Lombard Street) are the branches and leaves, they provide the trappings and the infrastructure to measure and subdivide the wealth that comes from the root. In a good system, investment would flow to the root from above, so that more wealth is generated. This hasn't happened; see Matt Simmons. The 'Bailout' ... is a futile attempt to collect 'surplus' that does not exist ... from the exhausted and under- capitalized root.

the quasi-unanimous support of the Serious People for the bailout, or at least their inability to point out that the current crisis was the inevitable conclusion of the policy framework pushed by the neolib cabal shows how successful they have been at killing alternative ideas

The bailout simply insures that the credit market holocaust will have to burn itself out. The government is doing what it has done for the past twenty- five years, rendering itself irrelevant.

It would not be the first time. After the Wall Street Crash, markets were deemed to have failed and US lawmakers attempted to regulate short-cuts through the crisis. The widely-copied Smoot-Hawley Tariff Act quadrupled the effective tax rate on thousands of imports and deepened the “Great Contraction” of 1929 to 1933. The price of popular anti-market sentiment was much higher in some of Europe’s fledgling democracies: fascism.

That remark is simply incorrect.

Yes, let's focus on the short term: it's true that Wall street can take down Main St with it.

Wall Street's monster will take down all the streets before it runs out of planets to swallow.

The case for more effective regulation is nevertheless undeniable. It is hard to defend a system where top banking executives walk away with millions in compensation when their businesses are, in retrospect, fundamentally flawed. This looks like a reward for failure. We have witnessed two financial crises – the dotcom crash and the current banking disaster – in the first decade of this century. That is hardly a record which inspires confidence in the current efficiency of capital markets or their transparency.

The system of 'trickle up economics' eventually starves the entire system itself of funds. However, never underestimate the cynicism of any markets' participants.

Isn't the point we're at today pretty much that failure is NOT BEING PUNISHED????

Be patient, Grasshopper ... all will be punished. This is a market clearing event, all speculators will be wiped out. Look up Richard Whitney, the 'White Knight of Wall Street'.

The only silver lining is that, for the first time in a long time, they sound a tad defensive to me...If they feel the need to argue they are not a "fundamentalist religion", we're finaly making progress. yey!

We are all now sinners in the hands of an angry market.

Oh I agree about what our underlying human nature can lead us to behave - but that probably reinforces my point rather than weaken it: public policy should work at mitigating these trends, rather than encouraging them.

If money is the arbiter of all things, people will work towards maximising their hold of money, and billionaires will work to become bigger billionaires than the others.

The point about bringing the financial sector down to size is fundamentally a point about what values we have as a society: money (ultimately measured on an individual basis, and inevitable leading to 'net present value' analysis of all human activity, winner-take-all behavior, 'the poor have what they deserve' mentalities and Thatcher's "society doesn't exist"), or something else.

In fact, as we discuss peak oil and other resource constraints, it is worth asking how the prism of money maximisation is compatible with things like resiliency and sustainability...

we need to start getting to the root of the problem(s)

I agree and have posted elsewhere on TOD on why I think this is just the beginning of a financial avalanche: link.

IMHO, the USA federal government is attempting to stop an avalanche with a white collar picket fence made of 700B little twigs. This is a useless gesture. Throwing twigs and taxpayers in front of this avalanche is not going to stop it. We need to get to the root of the problem.

prefer a 4,000 square foot house in among 6,000 sf houses, or a 3,000 sf house in and among 2,000 sf houses. The vast majority of respondents chose the smaller house that was 'relatively larger' to their neighbors than a bigger house (i.e. 'more'). (if you doubt the science of this survey, just answer the question yourself).

I'd pick the smaller home too, but it's still way too big. Ten homes plus mine in the former would be 64k sq ft while ten plus mine in the latter would be only 23k sq ft. In the latter, my relative position vs the polar bear and the planet as a whole is far better than the former. I guess I have to read the report; the question couldn't have been framed so poorly.

cfm in 1200 sq ft home

Jerome - I agree with your main tenets. But with abundant energy supplies and increased population, is it surprising at all that wealth disparity has continued to widen? (Wall St is the current demon, but over history there have been many others). All this talk of Wall St vs Main St presupposes that if Wall St money were somehow distributed evenly over Main St, there would be greater social cohesion, less problems with consumption, problem solved, etc. But I think it is more complicated than just wealth transfers - the inclination to be 'better off' is, and always has been, a relative vs. an absolute, phenomenon.

In Positional Externalities Cause Large and Preventable Welfare Loss, economist Robert Frank outlines our social inclinations for relative positioning and rank ...

Not that complicated; It has been a policy of the United States government since the early 1980's to subsidize and encourage debt. It has done so for an obvious reason; the government itself was and is the world's greatest debtor. Encouraging debt is in the US government's interest. Substituting debt for savings was the main spring of Ronald Reagan's 'Supply- Side Economic Policy' and remains policy at all levels both here in the US and the Eurozone, to this very minute.

In a low-inflation/low- rate regime (which we have been in ... since 1982) the price of debt to the government is essentially zero ... the interest cost of money is less than the rate of inflation. This appeared to be a better 'Niewe Deal' than taxation- and- balanced accounts and far more popular. So long as the debt could be refinanced the principal didn't ever have to be repaid. Backed by the non-relevant 'full faith and credit' (taxing authority) of the US government, many were eager to lend, particularly persons and businesses overseas.

A consequence has been impoverishment of the many with debt, both individually and collectively.The only essential to sustain the system is to keep primary and interbank interest rates low at all costs.

Low interest rates are pernicious. Without subsidy (401K and other, similar tax-exempt plans) there is no return on savings and there consequently are no savings. What is happening now is the result of the systematic and long- term starvation of our economy of capital; represented by the aggregated savings of the greatest number of productive citizens.

Disagree? Look around and see the crumbling, obsolete infrastructure with your own eyes.

At the Main Street level, the savings are substituted with more debt availability. Obviously, the debt load of individuals cannot be reinvested and the calculus of compounding (of interest on debt) works to depress the aggregate earnings of Main Street as a whole, even if the nominal earnings of individuals continue to rise.

During the Great Depression the aggregate savings rate of Americans was 15%. Today, it is ZERO. A depression, now ... is a truly terrifying prospect.

To replace the aggregated capital, various forms of leverage have been substituted; derivatives, off- balance sheet vehicles, single- and multi- party self dealing. Instead of investment leading to productive return, there is gatekeeping and fee- seeking, as these provide the only returns in a 'non- yield' environment.

The markets become gambling casinos before they bacame abattoirs. Because of non-existant return and zero savings, there is simply insufficient capital available for investment here in the US.

This is the kernal - the radioactive core of our current financial predicament.

From a world-wide perspective, the lack of a 'yield mechanism' - a decent rate of return on safe investments - means that the offshore capital that would alleviate our crisis will remain offshore.

Sad, really ...

How did the researchers know that the person questioned did not simply prefer a smaller (or larger) house?

When I looked at the question, the size of the house was the basis for my answer - given that the qualifiers (size of neighbours' house) had no direct impact on me. (ie rephrase the question: a red house if neighbours were blue; or a green house if neighbours were yellow.)

If the qualifier were something which affeccted me, like noise or crime, my choice might be determined more by the qualifier than to the choice I was given.

Al

Ooops! may not be evident, but this is in response to Nate from Waaaayy up :)

IMO, size is the problem. Not only can huge corporations blackmail entire societies because they are "too big to fail". Huge corporations are also able to buy whatever legislation they want, whether it is bailouts or bankruptcy "reform" or what have you. Allowing corporations to become huge corrupts both democracy and capitalism, and we're seeing the terminal stages of that now.

With regard to the second FT quote, what's happened/going to happen to RBS?

Peter.

We need a new Teddy Roosevelt to "bust the Trusts" the large accumulation of power and capital to the very few. Secretary Paulson is not the guy to do it.

The effects of concentration have not been closely examined. None of the rescue packages contain any clue about de-constructing the industry and creating some diversity. The consolidation that took place prior to the crisis added tremendous pressure on bank managements. The stakes of the 'bets' placed by the banks in financial markets kept getting larger ... and the leverage involved amplified risk. With a less diverse approach to strategies the conceptual failure of a single management 'trend' is replicated elsewhere.

Ths issue of 'too big to fail' does not mean these organizations cannot. It is very possible that Citigroup will fail as a large part of its balance sheet includes billions of off-balance sheet 'assets' that it cannot sell.

The three banks are all vulnerable and should they fall they leave a vacuum ... filled by the government, which knows little about banking or finance. The endgame of the current crisis would leave one, giant marginally insolvent bank ... which would weigh on the rest of the economy like a millstone ... before it too collapses.

The US economy looks more and more every day like that of the Soviet Union in its terminal decline; centralized institutions propped up by a discredited and unpopular government with a pauperized labor force, crumbling infrastructure and military adventures gone awry. The Soviets needed foreign capital when the crunch came and they couldn't raise it. If the US continues down the current 'crisis mis-management' road, it will be in the same situation ...

Mortishead, writing in 'The Times', suggests that the banking model is completely broken, and since the LIBOR rates that banks charge each other are now above the rate at which firms can issue bonds at, the banks should be short-circuited:

There is, however, a supply of liquidity available in the corporate sector, the proceeds of years of strong corporate profits and the build-up of reserves. This money could be tapped if there was a market that functioned effectively to match those flush with cash with firms requiring short-term funds.

This is the proper function of banks. It is what they were created to do - match borrowers and lenders - but these institutions have erected on top of that simple business a tower of investment activity that has nothing to do with being a simple clearing house for funds. So overburdened are these banks from their activities as principal investors, as opposed to simple money agencies, that they have destroyed their fundamental purpose, to be effective conduits of funds.

http://business.timesonline.co.uk/tol/business/columnists/article4856620...

Is this practical?
It sounds relatively simple to set up, but that appearance could be a purely a result of my lack of knowledge.

Because I'm a Contributing Editor of the Oil Drum?

Do you have a fact- or argument-based rebuttal of what I wrote, or do you have only insults ('crap', not 'socialist') to offer?

IMO the relevance is there because when global oil depletion really bites it looks like it is clear that the global elite have no intention of mitigation at all. If their perception is that the destruction of the USA or UK is necessary then the politicians will push through policies promoting that destruction. Simply put, currently for the citizens of those two countries the respective governments are not even neutral-they are active participants in the destruction IMO. You might not be aware, but on TOD there is a lot of discussion of how e.g. the USA should/could mitigate peak oil-this assumes that the federal government does not actively fight mitigation.

Through over-platonifying, words like "socialist", "communist", and "cult", can be used to bypass rational judgment and emotionally sway readers into a desired mode of thinking.

If I were to call you a troll, I could be guilty of the same procedure. Accurate, but guilty.

So how about we stick to the details and systemic aspects of the post? Is there anything of substance you have to add?

This is troll behavior. Move to remove.

"Why is this socialist crap published on The Oil Drum?"
Because money/power and energy/power are linked?
Try drilling for oil without money. Try getting people to invest without a "return".

The banking issue will be a defining issue for this generation. I see no way to put this problem back in the bottle. This global spending spree is over, now the bill is due and "taking responsibility" is always something someone else should do.

I'm quite optimistic that we are very screwed.

Because that capitalism crap is doing such a bang-up job ;)

I would say because it is well known that facts have a liberal bias.

(liberal = socialist in the eyes of the extremist right-wing in the USA today).

Jeppen,

Socialist crap? $700 Billion in public money for banks that pay $40 million dollar year end bonuses to it's salesmen and you think a call for trust busting is socialist crap? You're missing your daily Rush installment....Hurry, before your brain melts.

Sometimes, it's just so hard to be even a little bit civil.

I have no objection to this discussion being brought up on The Oil Drum, although I do agree it is a reflection of socialist orientation; but then so many of the on topic "remedies" for peak oil are socialist proposals also.

It seems that many have been well indoctrinated into collectivism as a preferred way of life. This is unfortunate because we face a life and death struggle as the collapse of the industrial age unfolds for want of energy to fuel it. Historically, freedom has produced the most productive periods and slavery has produced stagnation and human suffering, plus a concentration of wealth in the hands of masters. If the majority are straddled with the burden of being plundered by those in power it certainly will reduce their ability to fend for themselves, and civil disorder (civil war or revolution) will be a likely consequence to add to the suffering. The current financial collapse is a consequence of the system of plunder and control and not free markets. The proposed solution is just a reflection of how this system works and how to plunder the many at the expense of the few.

Aggravating the situation is the tendency of people to huddle together in times of crisis and look for big daddy to take care of them. Look at the response of the US Congress after 911 in giving dictatorial powers to Bush. Maybe it is time for a little courage instead of a little more "mama come wipe me."

I think this is an important discussion because the political structure will in fact be as important a factor in how peak oil plays out. I personally am not optimistic about either of these systems having a favorable outcome.

I'm a fan too [from the UK]. Can she not be President? Or does it not work like that...??

Considering the amount of Stock that Wall Street holds is it not conceivable that Wall Street is deliberately selling to drive the market down to panic the Congress and the citizens to try to force the Congress to pass the Bailout Bill? [Legalized extortion?]
And after they panic the rest of the market to sell cheap they can set the bottom of the fall by startinig to buy back in (buying the now depressed stocks at very bargain prices) and making a hugh financial profit from the exercise [On top of the Bailout Bill?]
I got out of the stock market 3 years ago and have no intention of getting back in until the stock market is a fair market - Not in my lifetime?

As alluded to above, and in many other places on TOD threads, that is the main worry for a lot of us out here. What difference does it make, really, if a relative handful of individuals make astounding sums of money -- ultimately, they can only spend a limited amount on themselves, so through foolishness and death, most of the money will eventually be returned to the pool.

But if instead of giving it to individuals, it is given to virtually immortal creations of industry and government, then the power shifts have long duration, and we are in for generations of misery in the human population-- perhaps to be stopped only by the destruction of the entire biosphere.

Rather, we get the coporatist collaboration between government and certain favored businesses which is characteristic of the system developed by Mussolini. That we are moving very far in this direction seems most evident in the fact that failed banks are leading to agglomerations, arranged by the government, with no clear consideration of anti-trust issues that would normally happen during a merger.

So for me, the question always returns to why is this happening? Is it foolishness and greed, with no consciousness of the consequences, heedless of future catastrophe, or is it rather, intentional? Does the global elite really want to perch on rocky outcrops over a sea of misery? Are Haiti and Argentina and the Republic of Congo in some sense happening on purpose?

Maybe there is no answer, but if there were, it would seem to require different strategies-- depending on which it is-- to try to overcome this race to the bottom.

The tax incentives are things that have been in the works all year and which everyone wants to pass. But, this is a power play by the Senate against the House leadership because the tax incentives are not payed for elsewhere in the tax code. I'll quote me from yesterday's Drum Beat because I've been going over some of these issues with the House Majority Leader's energy aide Mary Frances Repko over the last year or so: http://www.theoildrum.com/node/4592#comment-415476 The republican principle in the dispute is Sen. Grassley. These comments are about renewable energy tax credits, but the tax policy issue is somewhat the same for the others.

I think my representitive, Steny Hoyer, is really pushing to have everything in tax policy balance because he is very worried about all the defict spending we are doing. The popularity of the tax credit extentions makes them a place where his push to at least stabilize the deficit spending can get some attention. It is worth noting that originally the savings were taken in energy by reducing oil company subsidies but have now been shifted to closing some loop holes in corporate taxes that the corporations say need closing.

The republicans claim that the need to pay for tax policy shouldn't be applied to something that continues a tax credit that has been on going. This is a little silly because the whole point of putting a time limit on such credits is to evaluate periodically if they are still needed. When the sector in booming, it is going to pay for all its early credits is abundance. So, the credits are an investment which should pay off big time. We know that the credits will end and at that time they will be used as an offset in the opposite direction. In fact, renewable energy generation will undoubtably be taxed in the future because it is going to be so cheap that it won't hurt the economy to milk it a little. We want to get to that point sooner which is why we have credits now.

Perhaps the solution is to take a page from the republican playbook and recast all of this as an insurance program. All energy companies would pay a premium to ensure future energy supplies and renewables would get payments based on the fact that they will be there in the future. Once the whole system is renewable, the premiums and the payments all fall on renewables so there is not a lot of reason to retain the system. None of it is done on the tax books, just like the insurance idea for the financial bailout. This would pretty much automatically reduce the "subsidy" for renewables at the point when it is no longer needed. This is pretty much the way we fund the future availability of bank deposits through FDIC insurance so it might have some appeal. Perhaps renewables are too important to be left to tax policy?

Chris

Of course, there will be a new President! Elections will come around every two years for the House, every four years for the President, and every six years for the senate -- just like clockwork.

But who winds the clock? Who reads the time? The main reason for voting for Obama is that he is better-looking.

In the end all this regulation is not only socializing our markets, destroying confidence ...

Markets are entirely social entities - defined and structured by society and government in a cultural context, presumably by law and regulation that insures fair play. It seems to me the problem we encounter is that our markets are not socialized, but privatized and marked by huge asymmetries of power and information; for all intents and purposes they are rigged at many levels. Our markets are not social; they are sociopathic. To survive, let alone prosper in such an environment, rewards sociopathic, perverse behavior.

That our markets have turned into little more than a flavor of legitimized gambling may well pose a problem for many already bought into the system at fictional prices on fictional terms. Tough.

Still, I agree that the regulations will probably add to the "loss of confidence"; that's because the regulators and regulatory process are so owned by the corpos and piranhas that they function more as parts of a criminal cartel. That "confidence" is a societal value: trust.

cfm in Gray, ME

The incredible concentration of banks in recent days should give us pause:

I think you hit the nail on the head Jerome !!!

Not wanting to go into speculation about the convenience of this disaster, but GS and Morgan must be laughing all the way to their Secret Money Accounts. Wipe out the competition and then pickup the bits for next to nothing with a sweetener fro Paulson.

If interest rates are required on debt (because it encourages paying it back) I want the proceeds to offset taxes, cover losses, and pay for modest administration of banks.

I want the money supply to be rather stable, rather than structurally require expansion, and in proportion to the scale of the economy we need to curb overshoot.

I don't want private corporations and individuals reaping huge rewards for "letting their money work for them."

There is no need to repay it; only to make the payments at least so long as the lenders agree. And the lenders have little choice if they want a return.

Japanese interest rates are near zero. Where is Mideast oil money going to be put to work outside of the U.S.? The amounts are so huge that no other entity can absorb the funds. And the Chinese have to buy dollars to keep their currency from rising. Then they are faced with the choice of holding them without interest or lending back to the U.S. at 4%. They prefer the latter despite all the complaining.

And Americans, use to cheap gas and high living, are willing borrowers to keep the game going. All Americans care about is being able to make the payments whether it is car, house or national debt. They know in the long term the debt will become worthless due to inflation and the real suckers are not the borrowers but the lenders.

Thanks for bringing Joseph Tainter and Jared Diamond to the fore scordry.

Yes, the psychology of previous investment make humans overvalue loss versus gain so in real terms institutions, political parties, and individuals will irrationally try to hang onto a losing situation. Are we there yet? I don't know but it doesn't look good. The concentration of economic wealth and political power leads to decreased economic justice, a squeezing of the middle class and a complete trouncing of the working class.

Unfortunately I see the invisible hand giving the american workers a very visible F*ck you.

You are not valued in Amerika anymore. Your jobs are shipped overseas. Amerikan Companies are internationalized, i.e. they just see the US as a place to sell, just a market to be cynically exploited, not employ workers or increase the US wealth to all. They pay little taxes and now we see the end point where the US taxpayer is being fleeced again by the international financial elite. We are a golden goose that has been robbed of its eggs and starved so that Paulson and his cronies can make 500 million WITHOUT PAYING ANY TAX on it while workers have to pay all kinds of taxes on their income.

Welcome to the new financial fuedalism! Your politicians work for the international monied elite not for you.

Where are the new Trust-Busters? Where are the new political forces to reign this crap in?

Oddly enough, I just came across this book review.

"Her new book Depletion and Abundance is a call for communities, families and individual citizens to mobilize in the creation of a “New Home Front” in America (analogous to the Home Front that existed during World War II)." The book is by Sharon Astyk.

See http://energybulletin.net/node/46713.

(Of course, this "back to the farm" theme is a common one among Peak Oilers.

I strongly recommend watching the movie Zeitgeist. I think it contains some overstretched conspiracy theories, but with one of the theories there I agreed:

The credit bubble that was a prerequisite to the Great Depression was deliberately created and facilitated by the FED, so that the huge banks and players could profit from the bust and buy the small ones for penny on the dollar. Many insiders made huge money shorting the market too.

Now they are doing the very same thing 80 years later. The difference this time is that the credit bubble is global, so this time the US of A has all the temptation to choose hyperinflation instead of defaults and deflation to clear its debts. But not before the predators on Wall Street get whatever they can in the mess that follows the credit collapse.

Neither a borrower nor a lender be;
For loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry.
This above all: to thine own self be true,
And it must follow, as the night the day,
Thou canst not then be false to any man.

William Shakespeare, Hamlet, Act 1 scene 3

You just saw Buffet buy $5B worth of GoldmanSachs. Smart move. Goldman might not be worth that, but it keeps Paulson's phalanges off of the rest of his portfolio.

Hi D.Benton_Smith,
You are on the money. This is a POLITICAL crisis. The monied class of Plutocrats want to have total control of the financial instruments of the US and world. If they lose and the people reign them in they even might have to pay taxes on their billions.

D.B.

You make some great points. Unfortunately I think the problem extends beyond the risk of the mortgage being paid or defaulting. I am quite confused and befuddled by most of this, but as I understand it, the mortgages were bundled, rated, tranched and sold into investment instruments of alphabet soup names like CDO and MBS, etc. If things had just stopped there, your comments would be spot on. But through the magic of fractional banking, creative accounting and fiscal alchemy, these were cloned like trace DNA to replicate to many times their original size into a Derivatives market that pushes over $500 Trillion. This seems to be the real snag. As some percentage of the base investment instruments may fail, the blending, slicing, dicing, creation of Julian Fries, and multiply of same, it is virtually impossible to know the percentage in any of the Derivatives which link back to a tangible physical address. And these were conjured up during an upswing in the market and over values, and now no one knows how to value them. Without knowing their real value, there are few buyers, and with few buyers the price is quite low. The whole mess seems to have ballooned in some artificial way creating a massive illusion of some wealth that never existed, but to admit that would create a massive loss for someone to swallow. The problem is that the the folks with the smallest voice, the American tax payers seem to be getting volunteered by our elected officials to pick up the tab.

I am truly stunned - but not surprised - by the add-ons the US Senate has put into their version of this "bailout bill" - which is in itself added onto another unrelated bill.

It's kind of like when you know a loved one is going to die, but when they do it's still hits you in the gut.

Bailout bill redux

The bill adds provisions to the House version - including temporarily raising the FDIC insurance cap to $250,000 from $100,000. It says the FDIC may not charge member banks more to cover the increase. But that doesn't prevent the agency from doing so to cover existing concerns with the fund, according to Jaret Seiberg, a financial services analyst at the Stanford Group, a policy research firm.

Instead, the bill allows the FDIC to borrow from the Treasury to cover any losses that might occur as a result of the higher insurance limit.

The bill also adds in three key elements designed to attract House Republican votes - particularly popular tax measures that have garnered bipartisan support.

It would extend a number of renewable energy tax breaks for individuals and businesses, including a deduction for the purchase of solar panels.

The Senate bill would also continue a host of other expiring tax breaks. Among them: the research and development credit for businesses and the credit that allows individuals to deduct state and local sales taxes on their federal returns.

In addition, the bill includes relief from the Alternative Minimum Tax, without which millions of Americans would have to pay the so-called "income tax for the wealthy."

The debate over extending AMT relief is an annual political ritual. It enjoys bipartisan support but deficit hawks on both sides of the aisle contend the cost of providing that relief should be paid for. Others argue it shouldn't be paid for because the AMT was never intended to hit the people the relief provisions would protect. Nevertheless, lawmakers pass the measure every year or two.

The revised bailout bill also includes a "Mental Health Parity" provision, which would require health insurance companies to cover mental illness as it would physical illness.

My view is that the argument of bailout or no bailout is a deflection away from what we should be talking about, debt based monetary system or gold/sliver based monetary system.

If you understand that it was the imposition of a faulty, predatory, and unstable monetary system that is at the base of the current problem, then it is clear that reinstitution of a free market monetary system (gold and silver are money) is the solution. Bailout or not is meaningless, except that bailout further penalizes innocent participants.

There are five locally owned banks in my county. Four of the five president/owners live in this same county. They are solvent. They are making loans. I asked my local bank president for his honest opinion on the bailout. He said (and he was a WDC lobbiest for a time) that this will not help out county. It would not help our mainstreet. We are too small and didn't take risks with our neighbors' money. He still felt that something had to be done.

Funny. After this long talk I got a letter in the mail. The bank voted to contribute to a community foundation I'm helping start....

Small is beautiful.

The Senate just finished voting on the $700 billion bailout and the results are:

For 74
Against 25

Next comes the House vote.

These bailouts will continue to devalue the real purchasing power of the US dollar, causing food and energy prices to rise further.

Except the bailout moves so far have NOT decreased the purchasing power of US dollar. Inflation is moderating AND the dollar has been strengthening against other major currencies, including an 18% drop in the Australian dollar and a 12% drop in Euro since bailouts began earlier this summer.

In a weird sort of logic, these bailouts are 'bad' for the fundamentals of US (long term) but good for US dollar short term, as the majority of derivatives worldwide are denominated in dollars - deleveraging means demand for dollars to pay off debt.

The amount of dollars printed by FRB and Bernanke CAN be (not necessarily WILL be) dwarfed by the amount of credit leaving the system. We're talking 10s of trillions. That would be deflationary.

http://research.stlouisfed.org/fred2/series/BORROW?cid=122

Take a look at this data of the total borrowing from the Fed Reserve since 1919.

We've been in uncharted waters for months. I sent this same graph to my staff last July.

I'm sorry I don't know how to insert the graph.

Can this be rendered in constant dollars per year? Fewer, but much larger, banks would still impact the overall economy significantly.

Does anyone know anything about Credit Default Swaps ?

I've been reading that there is something like 45 Trillion Dollars
worth of active Credit Default Swaps which will dwarf the current
crunch + bailout.

Can anyone shed any light on this ?

cheers,
Louis.