I will be the first to admit that I don't have a mathematical mind, but the potential crash of the stock market, markets around the world deeply concerns me, regardless of who caused it.

What does this mean to Americans? These idiots want to adjourn for the rest of the year and leave this just hanging? What about the people in this country that are losing their homes, their jobs, etc?

As I said, I don't understand the mathematics of this, but right now I am so angry I could spit.

From what I heard on the Canadian radio news this morning, a lot of people felt that this was just a bailout of the wall street bankers by the taxpayers, and they didn't want to do it and in a sense "reward" their bad behavior.

I have no idea what this will mean concretely to the economy... but I guess we're about to find out.

Scrod.

We're screwed...

I think you've pretty much got the gist of it...I am very scared right now. Even with the bailout, I think there would have been a serious and prolonged economic downtown, but I think a Depression is pretty much guaranteed now. Many banks, big and small, are going to fail. Credit for all businesses of all sizes and even for those in good condition, will be nearly impossible to get. I think the thing that many average Joe's, calling their Congressman and telling them to vote "no" failed to realize is, even well-capitalized, well-run businesses need some credit for cash flow and inventory management. Absent that, there will be a lot of folks on Main Street going under, right along with Wall Street.

If the companies can not borrow money from the banks to fund their payrolls, then a lot of regular folks may not get paid in the near future ...

Here's another Ben Stein article:

http://www.nytimes.com/2008/09/28/business/28every.html?em

They are saying in the news that the way a lot of companies work, they borrow money to meet weekly payroll? If companies are operating so close to the line that's a heck of a scary way to run an economy. They need to pare back and do less borrowing and more building up capital.

Exactly!

I had typed out a few replies, but deleted them. But, I was saying basically what you are saying, 5-0. If a business has to borrow to pay employees - that's a sure fire sign of a bad business person.

Oh and what a shock...every politician is now playing the blame game.

God help us all.

Reply to "where do we go now" - If it were me - I'd get anything/everything that I want as far as perfume goes! See my recession/depression thread from last week.

I did yesterday. All except, Allure parfum and No.5 parfum.

The coffert isn't offered just yet. So, being that I wanted to get a regular size bottle anyway, I went ahead and bought a bottle of Allure S, Coco, and Coco M. Parfum. And a Bottle of Allure S. I was going to get the Allure, but they were out of the parfum, so I will have to wait until they get it back in stock. Husband said he'd get the No. 5 -1oz bottle for our anniversary, later this year.

FiveO, I'd like to comment on this, from a personal perspective.

Phil and I are owners of a small business. We've never had to borrow money to make payroll, but many, many small business owners do sometimes need to do so to get through months in which their cash flow suffers for various reasons beyond their control. It's just a fact of life in the small business community.

All companies, large and small, borrow money for all kinds of reasons. Some of those reasons are foolish and unsupportable, some are not.

The entire population of the USA needs to pare back, do less borrowing and build up capital. And now we're all probably going to be forced to do so.

Unfortunately, thanks to greed, many small business owners are now going to go under.

Oil prices are falling ... My 14 year old son just told me to look on the bright side - at least we still have $700 billion dollars

Not to be argumentative, but there are several examples where this just isn't true--farmers, for example. Say a farmer has 3,000 acres of corn to harvest. He hires a custom combine crew to pick the corn crop in October. Obviously, the combine crew will want to be paid when the work is finished. The farmer however knows that under normal market conditions, the price is lowest at harvest. So, he would rather draw on a line of credit and sell during the late winter when he has contracted at a high price. His cash projection shows he can draw on his line of credit to pay the combine crew, pay the interest, sell later, and make a greater profit than if he sells at harvest. He has adequate collateral for the loan, a good balance sheet, and has always paid as agreed. Is he a bad business man?

Thank you, flowergirl. Having to borrow is not a sure-fire sign of being a bad business person. That's a sweeping generalization. imho.

Okay, that's it. I don't do much credit card charging, but that's it for the foreseeable future. No more buying unnecessary stuff for me on plastic.

That's two bright sides, from my perspective! Cheaper energy prices, less government debt.

I, for one, am happy our representatives are taking their time regarding this.

I would deeply resent being on the hook for the golden parachutes that have been and will be handed out. I also deeply resent possibly being on the hook to people who were talked into mortgages they simply couldn't afford.

No I'm not happy about it nor do I wish to see anyone suffer. Nor do I blame any one person/group. There's plenty of that to go around and it does no good.

I hope they take their time, come to a solution that's workable and manageable (and not just another 700 billion flush of the toilet), and get some regulations in place to hopefully prevent the U.S. taxpayer paying off the gambling debts of a few Wall Street fat cats.

My current opinion, based on listening to some congress people who just made statements to the press, is that they will continue to hash this out over Rosh Hashana, and will come up with some similar plan, but perhaps one that limits the power that Paulson has, maybe saying he can not use the money to bail out foreign markets without some vote, but some more acceptable version of the bill will be hammered out over the next 2 or 3 days and will come to vote and be passed by Friday - I think the citizens on Main Street who are against the principle of bailing out a bunch of greedy wrong-doers will see how badly the market has fallen and realize that it may be in their own best interests for the gov't TO do some kind of buy-out before the losses trickle down too far to the average citizen. That's my prediction - we'll see if that happens by Friday or not.

Thanks flowergirl and VelvetSky for the info from a small-business and banking point of view. I realize businesses have to borrow. I worked in a business bank and I had a small business twice in the past. It just seems that a business should have built up a bit of a cushion upon which to borrow before overextending itself with too much credit. As an individual I do use a credit card but if I had to pay the whole thing off at any given moment, I would have enough in reserve to do so. Maybe I'm overly cautious but I have a horror of spending more than I have. As a business person, I would prefer more gradual growth on a more solid base.

This guy pretty much sums up how I feel on the issue. He's a Harvard economist who thinks the bailout is a bad idea.

http://www.cnn.com/2008/POLITICS/09/29/mir...lout/index.html

If we did bail out the current mess, it would be the tip of the iceberg. It's a quick "fix" that ultimately would fix nothing. There's tremendous pressure to just cave in and support the bailout, and I for one am amazed that anyone in Congress has the guts to say no, much less a majority.

Either way, we're in for a long haul here. And not just us; banks in Britain and elsewhere have been hit hard by the housing crunch as well. Poor lending practices are finally coming back to bite us all in the butt.

Here's hoping we can all do what we haven't done a great job of lately -- pull together and help each other out.

Interesting - the stock market fell 777 points today, and in some schools of numerology, the symbolism of the number 777 is that an important lesson has finally been learned ... (cue Twilight ZOne music)

Twitchly, that article makes excellent sense to me too.

Shades of 1929:

http://www.dailymail.co.uk/news/article-10...ress-train.html

My issue with the bailout is that these companies that are looking for government help now are the same companies that routinely lobby against regulation in the marketplace. If a bailout happens, I would like to see significant regulation in the future. My heart hates the idea of bailing out greedy, selfish people, but I sure am afraid of the consequences if we don't.

-Noelle

The question is.................WHAT is the alternative????? Will we regret not taking it??? We're all gonna pay one way or the other which isn't necessarily polititcal!! In some cases it was GREED...........in others............(I was trying to move from one place to the other). If we do nothing what is going to happen???

My sentiments, exactly. $700 billion is a drop in the bucket and would never have been enough to paper-over the trillions of dollars in bad, hyper-leveraged mortgage debt that has frozen our financial system. The best that $700 billion would have done is get us past the elections in November, so this was a game of political football more than a genuine emergency that could be solved with a fire extinguisher (a vote from Congress).

Are we headed for economic disaster? Yes. Is there anything we can do to prevent it? No. Businesses, banks and individuals that are overextended will fail. Besides, doesn't it strike everyone as a little odd that our government, which is already in debt up to its eyeballs, is talking about "bailing out" anything? We don't HAVE $700 billion dollars to hand anyone. We'd have to print it, which would cause massive inflation in the long run and cause its own set of problems.

There will be a lot of unemployment, but we were headed for a lot of unemployment anyway, even if the $700 billion bailout had passed (hello, burst housing bubble, anyone?). That money was designed to prop up failing financial institutions and prevent a sudden and massive round of layoffs in New York, period. We're definitely headed into a very difficult time ahead, but it's helpful to keep in mind that this crisis didn't just pop up out of nowhere. Economists and analysts have been warning of a collapse like this for the last ten to twenty years, due to the perfect storm of easy credit, low interest rates, reliance on foreign sources of energy, moving all our manufacturing offshore and basing our economic expansion on consumption rather than production.

We have serious structural problems with our economy as a whole, and a Congress full of stuffed suits throwing around hundreds of billions of freshly printed dollars won't make the problems go away. I was shocked to see the House kill the bailout bill today, but perhaps that's the first glimmer that some of our leaders are taking these problems seriously and will not just pretend we can spend our way out of the hole we threw ourselves in. We'll see if their newfound enthusiasm for fiscal responsibility lasts once the s**t really hits the fan.

This is a global collapse. Banks all over the world are failing, almost every economy is contracting -- everyone made the same mistakes. There was a push to build build build build grow grow grow grow without stopping to think about the level of support necessary to keep such an engine moving -- as any physicist will tell you, there's no such thing as a perpetual motion machine.

Photos snapped today, somewhere in America:

Great post, Nathan!

Good summery, I hope against all logic that you are wrong.... Just one thing, you don't have to be a physicist to know that there is no such thing as perpetual mobile, every school child knows it. Sorry , couldn't resist not to point it out . LOL!

It really did not surprise me that this did not pass. With the elections around the corner, our representatives are fielding phone calls from angry constituents who do not want to clean up Wall Street's mess. I would have been surprised if it had passed.

-Noelle

Nate, you write beautifully... You're a real polymath.

I found it interesting that the CEO of Washington Mutual, which recently bailed, was allowed to keep his 17.5 million salary and his 7.5 million sign on bonus even though he had only worked for the company for THREE weeks! Yep, it's a fact.

I think the important lesson is: GREED

Whoever is elected will have a historical MESS!

Nathan: The way you explained it makes sense to me, now I can see it from a layman's perspective and understand it better. Thanks so much!

People were jailed in the Keating Savings and Loan scandal and the same should happen here.

I like Ben Stein's common sense approach.

I have to be an echo here and say thanks Nathan , I have a hard time grasping what the news is going on about in a flutter and you have in a few very well written paragraphs given this rather dim witted foriegner something to grasp and comprehend.


That all being said , very very uncertain times ahead , and what could follow is shudder worthy.


I am also happy to have read Stien's take on this mess , he does make sense.

I can probably handle most anything since I have been poor and done without in my life, but I do so worry about my children and my grandchildren and the world they are inheriting.

Me, too, everything you've said (except I don't have grandchildren -- yet! -- unless you want to count a grand-dog that I recently learned about).

Never fear, they are going to pass the bailout bill, or something close to it, because they have to. I know the impulse is to punish Wall Street, and IMO it's a very righteous impulse. But other people than those hedge-fund managers are going to feel the pain if Congress doesn't do something, so I'm confident there will be a bailout. It's just the lesser of two evils, IMO. It would be more evil to stick it to Wall Street since sticking it to them means sticking it to the average person, in spades.

Congratulations!



I'm convinced the average person will have it stuck to them (hmm) regardless; the $700 billion bailout just delays it slightly and makes it that much more expensive in the end.

I still think the unacceptance is more about politics than anything, I really do. I wish I could feel different about this, but I am just sick of the daily BS! These people, both sides, are playing with people's lives!

Just a little glimpse into my world, as it pertains to the economy:

My sister tried to buy a new-construction house, but the builder, who has been in business for decades and has been a major player in the housing industry here, is going out of business, one development at a time. She had given them a deposit, but had to put a stop-payment on the check because the builder is going under. Sad and scary. It's one thing to hear about things in the news, its another thing to hear it from your sister.

My house is currently for sale for $20,000 less than it was worth two years ago. The current zillow.com value of the house is $95,000 less than it was two years ago. This is not a multi-million house - we're talking current list price of $315,000. I suppose that it's not surprising that we have received only one call in four weeks. It was from a divorced mother of 5 who is on public aid asking if we would rent to her.

DH's job is on very very shaky ground. Family business, major feuding, hubby is caught between and gets "fired" with regularity. So we are just now beginning a business of our own, but we will require credit at some point.......


I, like many of you have expressed here, am very afraid for the future.

Oh, no doubt! They're already talking about how this important mission is going to derail broadening access to health care. I was just thinking that the Congress won't allow a situation to continue where all lending dries up, because the loss of jobs, homes, etc. will be just too massive for the country to absorb. It's the lesser of very definite evils, for sure.

And thanks for the congrats on the dog....though if you saw her, you might think otherwise. A face only a grandma could love!

Will try to post a pic, since I'm getting so good at pic-posting!

Here she is! I hope with the coming recession my kid will still be able to feed her!

Click to view attachment

Thanks for the clear post, NathanB!

I agree, we are all going to get hosed big time. I don't know that this is going to be contained within the US only. It's spreading to other countries thanks to globalization. So, we are going to be the ones to suck it up.

Such a cutie!

This is very scary. I can just see the suicide rate skyrocketing.

I sure hope not, but I had the same thought!

The people who caused this problem should do the honorable thing and kill themselves, leaving their entire estates to the taxpayers.

One of the reasons Fanny Mae and Freddy Mac failed, apparently, is because they were required by law (?!! ) to lend to people who were not qualified for a loan, it was a government program.

So those lending institutions were losing huge amounts on loans, no wonder they collapsed. If a shop owner had by law to give 20% of their merchandise free to people who could not pay for it, for how long do you think the shop or any business could survive?

Again, exactly.

We're going to suffer the consequences of several decades of bad decision making no matter what.

Refusing a Wall Street rescue plan is not a punishment of Wall Street, but rather a resistance to throwing good money after bad. When a black hole opens in front of you, your first instinct should NOT be to grab the family silver and toss it in.

Of course, once a black hole opens in front of you, you're pretty well screwed anyway . . .

Here's a chart below (from 2006, so what it shows is less worse off than the situation today) that graphs various banks and their exposure to what is called "toxic paper" -- subprime mortgage based derivatives that were passed off as secure investments and are now clogging up the entire financial system.

BTW: the chart says that the numbers listed are in billions, so when you read that Citibank carries $23,297 worth of hyper-leveraged debt on its ledgers, that means it's carrying a toxic debt of not just twenty-three billion dollars, but over twenty-three THOUSAND billion dollars, and that's just one bank alone. So you can see why this $700 billion bailout idea being floated is absurd and cannot even begin to address the problem of a lack of free-flowing money in the system:

Click to view attachment

But wait! Didn't Citibank just absorb Wachovia? How can Citibank, which is carrying over twenty-three thousand billion dollars of hyper-leveraged debt on its own absorb another four thousand billion dollars of hyper-leveraged debt from Wachovia (which has just gone under because it doesn't have enough positive assets to meet its financial obligations)?

Good question. Run for your lives!

This bailout, rescue, whatever they want to call it, is theater. It's a distraction from the meltdown that has been in process for the last several years. There's nothing that can be done about it, the banks are clogged with trillions of dollars of lousy assets that will never be worth anything, ever, and they want the U.S. government to toss buckets of cash into the system to keep everything afloat because they have no money to pay depositors or to meet their own financial obligations.

The bailout is being sold as a rescue plan for Main Street, but it's not. Our current global economy has been built on this massive flood of hyper-leveraged money and now that the whole thing is drying up, the economic expansion (not to mention the jobs and bonuses and cheap foreign labor that came with it) is set to vanish in a puff of smoke.

Wall Street, Paulson, the President and Congress just want to be seen as "doing something" when faced with such a large-scale crisis, so they're presently engaged in the equivalent of tossing the family silver at the black hole.

I can't really blame them, but I don't appreciate being told it's for my own good.