Wednesday, September 24, 2008

Getting Scary

Here's the TED spread for this morning:


And here are the latest mortgage rates from Wells Fargo:


The one month Treasury bill is crashing again:


It looks like the markets are going to force the hand of Congress. I expect the bailout will be passed today or tomorrow.

13 comments :

Bryan said...

Bring it.

Mike said...

Doing some simple math.

Proposed bailout = $700 billion
Number of Tax Payers in US = about 130 million

700 bil/130 mil = $5384 per taxpayer.

So Bush and Co want me to pay $5000 to bailout their banking buddies?

Hell No !!! I won't pay !!!

Reminds of this clip..

http://www.youtube.com/watch?v=WINDtlPXmmE&feature=related

Anonymous said...

In a nutshell, that graph on the ted spread has been my reality for the last 2 weeks. The whole point of this bailout was to restore enough confidence in finance to bring this down to reasonable levels.

Look at the ted spread in December or in April. I can deal with that. At that point, the banks say FU to construction companies, & the like, the bad lending risks go bankrupt, and the creative destruction of capitalism works its magic to bring things back into equilibrium.

What we had the last 2 weeks was untenable, we had business like my client, a superb credit risk (700MM in assets 60MM loan) on the verge of going under. That was not creative destruction, it was a market failure and it had to be dealt with - quickly.

Now that the media is reporting a deal has been made on the bailout, we'll see how quickly it gets implemented. Jobs will still be lost, house prices will still go down, but hopefully it will not destroy the larger economy with it. No one likes the bailout, it was just simply necessary.

Steven

Anonymous said...

Brian, I understand your frustration, but think of it this way. If you followed my posts on the earlier thread, I had clients, completely solvent at risk of going under in the next month. Had that happened, about 6,000 middle to upper middle class jobs in CA would have been destroyed, and most of those people would have hit the unemployment lines.

Had that happened, that would have cost you boys out in CA at least 2.7 million dollars. Multiply that by several other firms that had clients in the same pickle and suddenly we are talking about real money here.

Even worse, had it gotten that bad that quickly, I can guarantee you within a few months, we would be right back here with people now clammoring for a bailout - except now you would be out of pocket 5K plus your share of the unemployment benefits I noted.

So in the end you are better off. We all have to take a bite out of the big shit sandwich, but at least its not a shit hoagie.

Anonymous said...

Actually, that second comment was directed at mike. Sorry

Steven

Deflationary Jane said...

Sorry Steven, I just can't work up a lot of pity for your client and yes, I have been a small business owner. I used to stress about everything since I was paid at the very end after production - which meant fronting salaries for months at a time. I never took a single loan.

Bryan said...

Cold! I wish this were more painless. But better the amputation than the gangrene. He and we may yet have things turn out, not too much worse for wear.

Anonymous said...

Hey Mike, calculate the loss in your earnings potential and a 10 year deflationary contraction's effect on your portfolio. Unless you have no assets and work for the gov't, it will hit you a hell of alot worse than 5k or 10k.

Max said...

Unless you have no assets and work for the gov't, it will hit you a hell of alot worse than 5k or 10k.

Or work anywhere and have your 401k in anything but cash.

Seems to me most people haven't seen a pay raise in quite a while. Unless you're a real estate agent or a mortgage broker, that is.

I guess inflation is better. You'd better pray that the wage-price spiral hits wages first, otherwise, enjoy eating Top Ramen.

Did I take the bait?

Mike said...

"Unless you have no assets and work for the gov't, it will hit you a hell of alot worse than 5k or 10k."

Well in fact, I do work for the government. And I already took all my 401K money out of stocks more than an year ago and converted to cash and gold.

Rest of assest holdings are in Cash and Foreign currencies.

I say hell with it, let the market crash !! I am tired of US borrowing money we don't have.

Anonymous said...

Its economies of scale deflationary jane. Some business sectors simply cant function without access to credit. Apparently yours was not one of them.

Brian said..."But better the amputation than the gangrene."

Agree Brian - the problem is, this isnt gangrene we are talking about here - this is healthy tissue - the healthiest of the healty in terms of debt to equity ratios. Gangrene has set into the hand - but instead of lopping of at the elbow where appropriate - this is cutting deep past the shoulder and into the torso.

Steven.

Bryan said...

Better safe than sorry.

Hey, you want more platitudes? I got a whole bag of 'em right here. I can keep going for a long time.

By the way, I equate the amputation to the bailout, and the gangrene to the Depression-like after affects of protracted large-scale illiquidity. The bailout is a necessary evil (but no less an evil) by my current understanding. So I think we agree.

At the very least we may say that a level of sophistication is being applied to this snafu which my reading suggests was not present in the 1920s and 30s, judging by gov't reactions.

Anonymous said...

Bryan - I got you now. Sounds about right to me.

Steven