BW, i'm guna read your post in a bit

but i had to add, i think congress needs to take obama's advice and leave the extra stuff out right now, like all the other proposals, democrats and republicans are trying to sneak in or trying to get passed with this bill, i think they should leave those out right now, so it doesn't cause a big debate between the two parties, and they just pass everything they fully agree on

Uh that is what Bush said a week ago...

Wall Street Journal reported cash reserves by banks was normally 2 billion dollars, last week it jumped to 90 billion. And they are loaning out at nearly a percentage point higher than they get it from the Federal Reserve.

So it is not that they lack assets, they just imagine there's an unknown degree of default about to hit them and they're hoarding.

I disagree with the expert official opinion. I dont see this as the crisis of the century, the pattern was repeated in 1987 and 1999. The main problem is sloppy banking buying unknown loans and mutiny by the Federal Reserve, that was supposed to coordinate to avoid such selfish hoarding contrary to the national interest.

Now we are asked to destroy our budget, give a permanent guarantee to slipshod hucksters, and maybe socialize wall street too if the Democrats have their way.

Better to do nothing, take a quarter's recession, and let Arabs and Japanese make the loans US lenders wont dare make.

You must have cash, or cash equivalents  to cover cash deposits (checking, savings... not CDs).
Cash equivalents = Bonds, CDs, treasuries, ... Mortgage backed Securities are bonds.    All part of your asset line, to determine your REGULATED ability to lend.

Follow ?

Noir:
the "Risky Lending" is regulated by the Govt. 
Freddie and Fannie lead the way, and set the standards, they are controlled by the Banking committees in the House and Senate.
And run by Treasury Dept.   Its a sick BUREAUCRATIC Cess poll of Govt. Run stupidity.
3-4 years ago, many were lining up to say there is a problem here...........the Govt did nothing.   Remember, Congress does the Funding.  In this case, Congress usually defers to Congressional Committee recommendations.     Its why "Banking and Finance" and "Ways and Means" are very IMPORTANT committees.
Thats why there will be NO SENATE or HOUSE investigations......it all leads back to them.

My opinion on this, is let the Federal Reserve have the funds to buy out these bad bonds.
Again, its a "Faith" and "Confidence" in the bonds that set the value.
At this moment, w/the number of foreclosures rising, and all the bad news, no one wants to buy these bonds.

As bonds loose intrinsic value, the coupon (interest rate) rises on them.
The Fed will be buying a lot of these bonds for more than Intrinsic value today, but for less than what they are face value worth.

As long as the Fed holds them, and later sells them......... If its done correctly, and run buy the Federal Reserve..... It may be ok.
Fed Reserve buys and sells bonds all over the world.  They control a lot of capital foreign and domestic. 
It might be a good thing and actually GAIN in value over time.

What matters is, how much control and phony crap the Govt. is going to attach to this bailout bill.

@ Gladiator.
Dude.  Obama ??
He has no clue on this stuff.  He was not saying a thing on this in the past.

McCain was one of the senators who was railing against Freddie and Fannie.  Along with a group of other CONSERVATIVE senators, that were called "Insensitive" and "Attacking the Poors' ability to realize the American Dream of home ownership."
Attack them like that in the press.......and they are forced to back away, only to say,"See, I told you so."   later on.

BW,

i never ever dreamed that you would ever defend such an act of socialism and deep cut in the free market. hell must be frozen...

700 billion $ are still a lot of money lost for a pretty long time. the fed won't sell these bonds fast, they are far too hot for several years. what will happen after the bill is passed is a decline of the $ and a rally of the oil price, resulting in very high gas prices in the winter causing more trouble in the economy.

Ok after some time thinking on this, I came to these conclusions.

1) Setting up 700b in loans will not help, since confidence is down and no one is willing to make, or take loans. Additionally so many groups credit status is so severely affected while they hold these junk items

2) Buying issues which are low are risky, a method to avoid favoritism MUST BE IN PLACE! I do not want a group getting 100b alone on $100,000 of issues! I do not want cheating to be in place. I advocate the DEATH SENTENCE for corruption relating to this 700b bailout. This should keep bad people away from this huge cash payout.

3) The tax payer must benefit from this, IE we are buying stocks, properties, bonds, or something that can gain value back, if we do this.

4) We should penalize those companies which take advantage of this by fining their executive boards, all of them, for all their old income minus 10% for them, over the last 2 years, as a means to show this sort of thing will not be tolerated. This will prevent a repeat by people who will think the Government will bail them out if they go whole hog and give themselves huge paychecks.

5) There should be a bi-partisan over watch panel in which 33% of the panel can ask for investigations at any given time (by FBI, or any relevent agency) of companies involved, or agencies involved. This panel should have an equal number of Republicans and Democrats to prevent partisan control.

6) All political contributions by these companies must be given back by politicians so as to refund some of the excess loss, and to punish politicians for supporting deregulation of this industry.

@ Gladiator....

You brought Obama into this.....not I.

@ Noir.  Agreed.  I think you got my point.  Again, Im not saying its the way....but it sounds and looks good.
As long as the Federal Reserve controls it, and not the govt.

@ Firewing
Its a problem the GOVT got us into.
Its also a liquitidy problem that only the Federal Reserve should be allowed to control and try to work out long term.

@ Han
The Financial markets the world over are in trouble....this is more than just the US.

Inflation is low, and considering the financial Distress, growth is acceptable as well.

Wrong about what ?

This is not a political thread.

Politicians destroyed the banking system with there "Socialist" ideals.  "everyone must have a house, we should do what we can to make that happen."
Well, no look what happened.

Now, it will take economists, Finance Experts, and a bunch of good ole American Ingenuity to get us through this.

I do support the plan, as I read it.  Its for the best of us all, and I believe, if handled correctly, the FED can actually show a profit off this move.

Hurrah for the House Republicans, they wont go for it.

Some doofus on the radio filling for Hugh Hewitt said House Republicans "cant be so naive" as to rely on private capital to save US banks

He apparently forgot thats the source of the $700 billion under the Paulson plan, the US govt doesnt have $700 billion to lend so it was gonna sell bonds.

So all these hoarding banks have to do is make an offer as yummy as a Tbill. Some equity and voting rights might do it.

Each day I get more and more pissed at this "crisis".  Banking gets a lot of perks and privileges because we decided it cant be cut-throat, it must be responsible and cooperate in the national interest. There's laws preventing businesses from using the word "bank" in their title unless they do a ton of regulations. Thats a lot of protection for these banks. What cooperation are we getting?--a threat to hoard cash and let credit dry up and the economy collapse-- that is of course unless we pay SEVEN HUNDRED BILLION DOLLARS (pinkie kiss)

Well screw them. I say we go to 200 global billionaires, get a down payment of $500 million from each of them, and form a new bank with $100 billion in assets and NO bad mortgages. You think that sucker wouldnt get a lot of pennyante action on Wall St?  And it could start making loans that US banks dont feel like making. You think they might get a change of perspective?  It could probably happen by Thanksgiving. Cost to taxpayers $0. Of course it also screws big K Street donors so they'd squeal, but I got a trillion reasons not to give a damn.

Hmm lets have a war with Canada and lose, let the British Commonwealth occupy and renovate us for a bit, then we'll revolt and form a more perfect union. I believe the name "Republic of Zaire" is free for use.

Of course $10 trillion in debt by the former regime would become toilet paper.

Hmmm. Is there a downside?--Oh right, our Congress would be dissolved and sent home and...no thats another positive step

No challenge is beyond us!

BTW how come banks dont offer 50 year mortgages?  Hardly anybody lasts out a 30 year loan and they're amortized so interest is paid up front, so why not a 50 year spread of payments?  It would be cheaper and in volume quite profitable.

@ Theo

the "lenders" cleared the notes that they backed by packaging them in the form of bonds (mortgage backed Securities).  Most of these notes were pre-purchased by Freddie and Fannie.  Then sold.  the "Illusion" was that they were Govt. Backed....and almost valued like treasury bonds.

This allows the banks to now have fresh capital on hand, to loan out.

Many banks held these packaged notes back to their asset line as leverage to borrow to loan.
So, many entities are in on the value of these packaged Mortgages.

Traditionally, banks hold the mortgages.  Collect the interest, and that is their Income.  BUT.....they can only loan a % of their deposits.
If they clear their loans, and turn them into capital, they have more available to loan.

to answer your question, if the bank is not heavily leveraged by holding Mortgage backed securities, then the bank is probably OK.
Investment houses (Bear Sterns, Lehman), or banks (any of the large group that failed), that had large exposure to these Mortgage security packages.....collapsed already.

Others (Goldman, WaMu, AIG, etc.) are barely holding on...but need to clear these "Securities" or they can fold.

This leads to Yells point.

Yes.  this can work as well.  BUT......Yell, ..... this consortium must clear these notes.
I understand your position....I do....but what then ?  What is the follow through to this ??

Theo....investment banks, basically Can dabble in a much broader area of securities to hold on their asset line.
BUT...they still must maintain a basic Asset to liability ratio that keeps them solvent.  In other words, if they make a bad investment w/to much Asset exposure (mortgage backed Securities) they could fold.

Remember that French Bank ??   Almost a Year ago ??   They were HEAVILY leveraged in mortgage backed Securities of Risky loans.  These notes had a big % coupon (interest paid) because they were full of risky loans.   They folded.  One of the first in the Domino chain.

Yell, Again.
Who will step up and run this ??

Dont you think the Federal Reserve, being centrally placed is best to do this ??
700B will come from Treasury bonds.
These will be issued to the banks, to replace their Mortgage backed securities.......freeing up the bad nots on their Asset line.

I dont see any other way Yell. 
I really dont.

Theo, I hope I didnt confuse you.  follow up ?

Chapter 11, new banks with foriegn capital, maybe federal commercial lending for short term loans, 90day paper.

I do NOT agree there's any real risk of a credit freeze beyond two quarters because new banks could be created in that time.

I do NOT agree this is a once in a century crisis because this is the third time in 21 years people hocked their shirt to buy a pig in a poke, found no sucker to sell it to, got stuck with worthless assets and ugly financing, and hollered for Uncle Sucker. Enough.

I think the unspoken corollary to the Plan is that our economy function with the same cast of players. And I don't value that at all. In fact we need to bust up these combines. Especially Fannie Mae Freddie Mac, we have NO need to have the Federal government passing out loans to folks who cant get any bank to trust them.

You cant think of any way out of recession--what does that tell you about the next time this happens?  You think they'll care?

$25 billion loaned to the Big Three, $300 billion to FM/FM, $85 billion to AIG, FDIC wants $150 billion to shore up deposits, $700 billion to buy BBB loans, whats next week?  You think the boards are saying "It's patriotic not to ask for a handout"?

How much of Paulson's $700 billion bonds you gonna take for yourself BW? $10k?  Think it'll be worth it 30 years from now? Think anybody else feels its a bargain?

Remember Han's Yellow Peril scenario, China gets pissed and sells $700 billion in US bonds all at once, wrecking the US bond market?  Remember we laughed?

Here's what I think is real--a dollar collapse when our money supply is based on political expediency and not market buying power.  Remember the official rate of those Iron Curtain currencies compared to the black market rate?

That's the crisis of the century to me, and we hasten it by spending a trillion extra dollars we'll borrow somehow from somebody. Probably I'm warped growing up in the cold War but just like nuclear war in a good cause doesnt faze me I dont worry about this recession theyre hyping. It beats a recession and stamping extra zeros on the dollar.