The right man

[tolomeo]

What should a free market believer think about the plan for a government bailout of the US mortgage market?

Try this analogy:

You have a white carpet in your upstairs hall. The normal rule is that nobody can wear shoes on the carpet. But the house is on fire – and the baby is upstairs. Will you tell the arriving fire department to wait and kick their boots off before dousing the flames?

The financial bailouts we’ve seen on Wall Street over the past month are very different from the bailouts we’ve seen in the past for firms like Chrysler or Massey-Ferguson.

The object is not to rescue the shareholders and employees of any one single firm. In fact the US authorities have made a point that shareholders and management of the rescued firms will get nothing. The “golden parachutes” of the CEOs of Fannie Mae and Freddie Mac have been canceled. Shareholders in Bear Stearns received pennies on the dollar. Shareholders in AIG have lost 80% or more of their investment.

The object of this bailout is to prevent bad debts at one financial firm from destroying credit throughout the US and global economy. The financial blogger Barry Ritholtz offers a vivid analogy to understand why the Fed has felt it had no choice but to rescue some firms – while leaving others to perish:

• Lehman Brothers was like the little kid pulling the tail of a dog. You know the kid is going to get hurt eventually, and so no one is surprised when the dog turns around and bites the kid. But the kid only hurts himself, so no one really cares that much.

• Bear Stearns is the little pyromaniac -- the kid who was always playing with matches. He could harm not only himself, but burns his own house down, and indeed, he could have burnt down the entire neighborhood. The Fed stepped in not to protect him, but the rest of the block.

• AIG is the kid who accidentally stumbled into a bio-tech warfare lab . . . finds all these unlabeled vials, and heads out to the playground with a handful of them jammed into his pockets.

Fed Chairman Ben Bernanke is one of America’s leading academic experts on the Great Depression. At a dinner in honor of Milton Friedman’s 90th birthday in 2002, Bernanke finished his tribute to the great monetarist with this acknowledgement of Friedman’s (and his colleague Anna Schwarz’s) thesis that the Great Depression was caused by central bank failure:

Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again.


We can hope that this bailout may prove less costly to the taxpayer than the big scary numbers in the headlines suggest. As Americans discovered during the S&L bailout of 1990, the government acquires a lot of assets in these bailouts. The big scary headline numbers describe only one side of the ledger. The net cost may well be much smaller.

But even if the tax cost proves less than feared, the impact upon the overall economy will surely be painful.

The huge expansion in US mortgage debt since 2002 did two things: It enabled (1) uncreditworthy buyers to buy homes they never should have bought via subprime loans and (2) middle-class Americans to finance more consumption than they could afford via home equity loans.

Even before today's crisis, it was reckless and irresponsible for Democrats to be proposing large new social-welfare schemes on the verge of the baby boomers' retirement. It's about to become nightmarishly difficult to pay for the social programs the US already has got. The last thing anybody should be considering is adding more. Big deficits and big debts go badly together. Party time is over. Clean-up time has come.

di David Frum

[Manfr]

Clean up time has come

Questo David Frum è di una ipocrisia spaventosa: ma chi l'ha creato il megadeficit ? E chi lo sta aumentando con la manovra da 700 miliardi di dollari ? Se Bush non può fare a meno di buttare nel cesso un terzo del bilancio federale per combattere la guerra in Iraq non è certo colpa dei Democratici.

[codino]

si chiama keynesismo guerrafondaio, manfr...

diciamo cha ha preso un po' troppo alla lettera la storia di "pagare gente per fare delle buche, e pagare altra gente per riempire quelle buche"...... solo che (piccolo dettaglio) le buche le aprono coi "missili intelligenti"

[UgoDePayens]

Mi pare che la guerra non c'entri un benemerito con il discorso finanziario.
Qualche speculatore l'ha semplicemente fatta fuori dal vasino, qualche grossa banca d'affari ha seguito il suo esempio, e qualche organo di controllo ha evitato di far notare la cosa.
Ora si tratta di ripulire il mercato da quest'orda di mascalzoni e restituire un'aria più pura ai risparmiatori e ai lavoratori.

[tolomeo]

Il discorso di George W. Bush sulla crisi economica




Good evening. This is an extraordinary period for America's economy. Over the past few weeks, many Americans have felt anxiety about their finances and their future. I understand their worry and their frustration.
We've seen triple-digit swings in the stock market. Major financial institutions have teetered on the edge of collapse, and some have failed. As uncertainty has grown, many banks have restricted lending, credit markets have frozen, and families and businesses have found it harder to borrow money.
We're in the midst of a serious financial crisis, and the federal government is responding with decisive action.
We boosted confidence in money market mutual funds and acted to prevent major investors from intentionally driving down stocks for their own personal gain.
Most importantly, my administration is working with Congress to address the root cause behind much of the instability in our markets.
Financial assets related to home mortgages have lost value during the house decline, and the banks holding these assets have restricted credit. As a result, our entire economy is in danger.
So I propose that the federal government reduce the risk posed by these troubled assets and supply urgently needed money so banks and other financial institutions can avoid collapse and resume lending.
This rescue effort is not aimed at preserving any individual company or industry. It is aimed at preserving America's overall economy.
It will help American consumers and businesses get credit to meet their daily needs and create jobs. And it will help send a signal to markets around the world that America's financial system is back on track.
I know many Americans have questions tonight: How did we reach this point in our economy? How will the solution I propose work? And what does this mean for your financial future?
These are good questions, and they deserve clear answers.
First, how did our economy reach this point? Well, most economists agree that the problems we're witnessing today developed over a long period of time. For more than a decade, a massive amount of money flowed into the United States from investors abroad because our country is an attractive and secure place to do business.
This large influx of money to U.S. banks and financial institutions, along with low interest rates, made it easier for Americans to get credit. These developments allowed more families to borrow money for cars, and homes, and college tuition, some for the first time. They allowed more entrepreneurs to get loans to start new businesses and create jobs.
Unfortunately, there were also some serious negative consequences, particularly in the housing market. Easy credit, combined with the faulty assumption that home values would continue to rise, led to excesses and bad decisions.
Many mortgage lenders approved loans for borrowers without carefully examining their ability to pay. Many borrowers took out loans larger than they could afford, assuming that they could sell or refinance their homes at a higher price later on.
Optimism about housing values also led to a boom in home construction. Eventually, the number of new houses exceeded the number of people willing to buy them. And with supply exceeding demand, housing prices fell, and this created a problem.
BUSH: Borrowers with adjustable-rate mortgages, who had been planning to sell or refinance their homes at a higher price, were stuck with homes worth less than expected, along with mortgage payments they could not afford.
As a result, many mortgage-holders began to default. These widespread defaults had effects far beyond the housing market.
See, in today's mortgage industry, home loans are often packaged together and converted into financial products called mortgage-backed securities. These securities were sold to investors around the world.
Many investors assumed these securities were trustworthy and asked few questions about their actual value. Two of the leading purchasers of mortgage-backed securities were Fannie Mae and Freddie Mac.
Because these companies were chartered by Congress, many believed they were guaranteed by the federal government. This allowed them to borrow enormous sums of money, fuel the market for questionable investments, and put our financial system at risk.
The decline in the housing market set off a domino effect across our economy. When home values declined, borrowers defaulted on their mortgages, and investors holding mortgage-backed securities began to incur serious losses.
Before long, these securities became so unreliable that they were not being bought or sold. Investment banks, such as Bear Stearns and Lehman Brothers, found themselves saddled with large amounts of assets they could not sell. They ran out of money needed to meet their immediate obligations, and they faced imminent collapse.
Other banks found themselves in severe financial trouble. These banks began holding on to their money, and lending dried up, and the gears of the American financial system began grinding to a halt.
With the situation becoming more precarious by the day, I faced a choice, to step in with dramatic government action or to stand back and allow the irresponsible actions of some to undermine the financial security of all.
I'm a strong believer in free enterprise, so my natural instinct is to oppose government intervention. I believe companies that make bad decisions should be allowed to go out of business. Under normal circumstances, I would have followed this course. But these are not normal circumstances. The market is not functioning properly. There has been a widespread loss of confidence, and major sectors of America's financial system are at risk of shutting down.
The government's top economic experts warn that, without immediate action by Congress, America could slip into a financial panic and a distressing scenario would unfold.
More banks could fail, including some in your community. The stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet. Foreclosures would rise dramatically.
And if you own a business or a farm, you would find it harder and more expensive to get credit. More businesses would close their doors, and millions of Americans could lose their jobs.
Even if you have good credit history, it would be more difficult for you to get the loans you need to buy a car or send your children to college. And, ultimately, our country could experience a long and painful recession.
Fellow citizens, we must not let this happen. I appreciate the work of leaders from both parties in both houses of Congress to address this problem and to make improvements to the proposal my administration sent to them.
There is a spirit of cooperation between Democrats and Republicans and between Congress and this administration. In that spirit, I've invited Senators McCain and Obama to join congressional leaders of both parties at the White House tomorrow to help speed our discussions toward a bipartisan bill.
I know that an economic rescue package will present a tough vote for many members of Congress. It is difficult to pass a bill that commits so much of the taxpayers' hard-earned money.
I also understand the frustration of responsible Americans who pay their mortgages on time, file their tax returns every April 15th, and are reluctant to pay the cost of excesses on Wall Street.
But given the situation we are facing, not passing a bill now would cost these Americans much more later.
Many Americans are asking, how would a rescue plan work? After much discussion, there's now widespread agreement on the principles such a plan would include.
It would remove the risk posed by the troubled assets, including mortgage-backed securities, now clogging the financial system. This would free banks to resume the flow of credit to American families and businesses.
Any rescue plan should also be designed to ensure that taxpayers are protected. It should welcome the participation of financial institutions, large and small. It should make certain that failed executives do not receive a windfall from your tax dollars.
BUSH: It should establish a bipartisan board to oversee the plan's implementation, and it should be enacted as soon as possible.
In close consultation with Treasury Secretary Hank Paulson, Federal Reserve Chairman Ben Bernanke, and SEC Chairman Chris Cox, I announced a plan on Friday.
First, the plan is big enough to solve a serious problem. Under our proposal, the federal government would put up to $700 billion taxpayer dollars on the line to purchase troubled assets that are clogging the financial system.
In the short term, this will free up banks to resume the flow of credit to American families and businesses, and this will help our economy grow.
Second, as markets have lost confidence in mortgage-backed securities, their prices have dropped sharply, yet the value of many of these assets will likely be higher than their current price, because the vast majority of Americans will ultimately pay off their mortgages.
The government is the one institution with the patience and resources to buy these assets at their current low prices and hold them until markets return to normal.
And when that happens, money will flow back to the Treasury as these assets are sold, and we expect that much, if not all, of the tax dollars we invest will be paid back.
The final question is, what does this mean for your economic future? Well, the primary steps -- purpose of the steps I've outlined tonight is to safeguard the financial security of American workers, and families, and small businesses. The federal government also continues to enforce laws and regulations protecting your money.
The Treasury Department recently offered government insurance for money market mutual funds. And through the FDIC, every savings account, checking account, and certificate of deposit is insured by the federal government for up to $100,000.
The FDIC has been in existence for 75 years, and no one has ever lost a penny on an insured deposit, and this will not change.
Once this crisis is resolved, there will be time to update our financial regulatory structures. Our 21st-century global economy remains regulated largely by outdated 20th-century laws.
Recently, we've seen how one company can grow so large that its failure jeopardizes the entire financial system.
Earlier this year, Secretary Paulson proposed a blueprint that would modernize our financial regulations. For example, the Federal Reserve would be authorized to take a closer look at the operations of companies across the financial spectrum and ensure that their practices do not threaten overall financial stability.
There are other good ideas, and members of Congress should consider them. As they do, they must ensure that efforts to regulate Wall Street do not end up hampering our economy's ability to grow.
In the long run, Americans have good reason to be confident in our economic strength. Despite corrections in the marketplace and instances of abuse, democratic capitalism is the best system ever devised.
It has unleashed the talents and the productivity and entrepreneurial spirit of our citizens. It has made this country the best place in the world to invest and do business. And it gives our economy the flexibility and resilience to absorb shocks, adjust, and bounce back.
Our economy is facing a moment of great challenge, but we've overcome tough challenges before, and we will overcome this one.
I know that Americans sometimes get discouraged by the tone in Washington and the seemingly endless partisan struggles, yet history has shown that, in times of real trial, elected officials rise to the occasion.
And together we will show the world once again what kind of country America is: a nation that tackles problems head on, where leaders come together to meet great tests, and where people of every background can work hard, develop their talents, and realize their dreams.
Thank you for listening. May God bless you.

[FalcoConservatore]

Link primo articolo (David Frum):
http://www.ilfoglio.it/soloqui/1093

Link secondo articolo (discorso Bush):
http://www.ilfoglio.it/soloqui/1088

[tolomeo]

Link primo articolo (David Frum):
http://www.ilfoglio.it/soloqui/1093

Link secondo articolo (discorso Bush):
http://www.ilfoglio.it/soloqui/1088

grazie zaffo per la precisazione e, soprattutto, per l'ospitalità.

[Manfr]

Mi pare che la guerra non c'entri un benemerito con il discorso finanziario.
Qualche speculatore l'ha semplicemente fatta fuori dal vasino, qualche grossa banca d'affari ha seguito il suo esempio, e qualche organo di controllo ha evitato di far notare la cosa.
Ora si tratta di ripulire il mercato da quest'orda di mascalzoni e restituire un'aria più pura ai risparmiatori e ai lavoratori.

E il tutto mentre in questi anni a governare in America c'erano ... ? E il tutto aggravato da una politica monetaria decisa da Governatori della FED di area ... ? La guerra non c'entra un benemerito col discorso finanziario, ma c'entra moltissimo col discorso del deficit che Frum usa come scusante per dire " basta programmi sociali, non ci sono i soldi". Ettechecredo, Bush li ha sputtanati per correre dietro a finti terroristi e salvare le banche bancarottiere che la sua ignavia di fronte alla speculazione, l'impoverimento causato dalle sue politiche, e l'emissione di carta straccia della FED hanno creato.