Is the bailout failing already?

[CTBengalsFan]

[url="http://money.cnn.com/2008/11/03/news/economy/bc.banklending.ap/index.htm?postversion=2008110315"]http://money.cnn.com/2008/11/03/news/econo...sion=2008110315[/url]

[quote]WASHINGTON (AP) -- Banks tightened up further on all sorts of lending, from home mortgages to credit cards and business loans, as the worst financial crisis in seven decades took a bigger toll on the economy.

The Federal Reserve said Monday that its latest quarterly survey of bank lending practices found high numbers of banks reporting tighter credit standards across a broad range of loan products.

The Fed survey, conducted in the first two weeks of October, found sizable percentages of banks had "continued to tighten their lending standards and terms on all major loan categories over the previous three months."

Business lending
The Fed found 85% of domestic banks responding to the survey reported that they had tightened their lending standards for a major type of business loans known as "commercial and industrial" loans, up from 60% in the June survey.

An even bigger proportion of banks - 95% - reported tighter standards for the lines of credit they extend to large- and medium-sized businesses.

A large number of banks reported they were tightening standards for both credit cards and other types of consumer loans. Nearly 60% of banks responding to the survey said they had tightened standards on credit card debt, while 65% said they had tightened lending standards for other types of consumer loans over the past three months.

Prime mortgage loans
Continuing a pattern seen since the housing bubble burst, large majorities of banks reported tighter lending standards on prime mortgage loans, as well as nontraditional mortgage loans and subprime mortgages, loans extended to borrowers with weak credit histories.

The Fed survey found 70% of the banks responding said they had tightened lending standards further for prime mortgages. That was on top of 75% who were tightening such standards in the previous survey. The latest survey covered 52 institutions that account for about 78% of residential real estate loans as of June of this year.

Record defaults that began in the area of subprime mortgages have resulted in billions of dollars in losses for financial institutions and triggered the most severe financial crisis to hit this country since the 1930s.

The Bush administration is now implementing a $700 billion financial rescue program for the financial system which seeks to bolster banks' balance sheets through direct purchases of bank stock by the government, or government purchases of some of the distressed assets banks are currently holding.

The goal is provide enough resources to banks to get them to resume more normal lending, and to keep the country from being pushed into a deep and prolonged recession.[/quote]


It seems like the whole goal of the bailout, or at least the way it was sold to the public, was that it was needed so businesses could borrow again to finance their short-term expenses. I'd be interested in what CHD thinks. Has it lubricated credit markets at all? Or do lenders still have no confidence in borrowers so they're holding on to their money, and we're all out $700 billion?

Add on to that article this one: [url="http://money.cnn.com/2008/11/03/news/economy/bc.financialmeltdown.ap/index.htm?postversion=2008110315"]http://money.cnn.com/2008/11/03/news/econo...sion=2008110315[/url]

[quote]WASHINGTON (AP) -- The government will borrow a record $550 billion in the current quarter as it scrambles to fund the huge rescue programs being put in place to deal with the worst financial crisis in seven decades.

The Treasury Department said Monday it plans to borrow more than a half-trillion dollars in the current October-December quarter and another $368 billion in the first three months of next year.

[b]Major Wall Street bond traders estimate the government's borrowing needs for the whole year will total an unprecedented $1.4 trillion.[/b]

The bond traders predict that borrowing will be needed to cover a budget deficit that will approach $1 trillion for a single year. The major Wall Street firms are projecting a deficit of $988 billion in the current budget year, far above the $482 billion estimate that the Bush administration made in July.

The administration's estimate was before the crisis in credit markets this fall prompted the government to put together a $700 billion rescue package aimed at getting money to banks through government purchases of their stock and some of their bad assets. The goal is to bolster banks' balance sheets to prompt them to resume lending.

A deficit of $988 billion for the current budget year, which began Oct. 1, would be more than twice the record $454.8 billion set for the budget year that ended Sept. 30.

The size of the government's borrowing needs and the projected deficit underscore the dramatic challenges that will be faced by the next president.[/quote]

[Homer_Rice]

The short answer, CT, is ,"Yes." The "bailout(s)" will not work. Within a year or two we'll be in a depression so large that it'll make the Great Depression look tame. Get ready.

[steggyD]

Fear mongering, Homer? Or is this a solid prediction?

[Homer_Rice]

[quote name='steggyD' post='721171' date='Nov 3 2008, 11:27 PM']Fear mongering, Homer? Or is this a solid prediction?[/quote]
Forecast. So far, no one is stepping up to save the system by stepping outside the system. The longer we wait, the worse it'll be.

[sois]

What about "change"? "Change we need". That should fix everything.

[Homer_Rice]

[quote name='sois' post='721249' date='Nov 4 2008, 12:02 PM']What about "change"? "Change we need". That should fix everything.[/quote]
Stop being a dumbass.

[sois]

ok

[steggyD]

[quote name='Homer_Rice' post='721256' date='Nov 4 2008, 12:11 PM']Stop being a dumbass.[/quote]
Is he really being a dumbass? This is why I still sit here, wanting to vote, but I have no one to vote for. I was competely against the bailout, yet it seems every single person in Washington was for it, including our two leading presidential candidates.

Yet, everyone tells us to go out, vote and make a difference. What fuckin' difference can we make? Waste my vote on a thid party candidate? That's what everyone calls it and that's what it is, honestly. We are not represented anymore. We have lifers in Congress who are so out of touch with reality, it's sickening. Fuck voting! I think I'm going to sit here and not vote, just to show I won't be part of the system.

[sois]

Steggy who would you vote for? I think McKinney is the only one who supports my #1 position (get out of all wars NOW, wasting too much money). That's all I care about. The economy.

Pretty much every smart economist said the bailout was lame. Yet it passed.

[CatScratchFever]

In all fairness, the bailout hasn't really been implemented yet. But, no, it won't work anyway.

[CincyInDC]

See if you can find CHD in these pics...

[url="http://brokershandsontheirfacesblog.tumblr.com/"]http://brokershandsontheirfacesblog.tumblr.com/[/url]

Sorry, CHD.

[Chris Henrys Dealer]

[quote name='CTBengalsFan' post='721099' date='Nov 3 2008, 04:00 PM'][url="http://money.cnn.com/2008/11/03/news/economy/bc.banklending.ap/index.htm?postversion=2008110315"]http://money.cnn.com/2008/11/03/news/econo...sion=2008110315[/url]




It seems like the whole goal of the bailout, or at least the way it was sold to the public, was that it was needed so businesses could borrow again to finance their short-term expenses. I'd be interested in what CHD thinks. Has it lubricated credit markets at all? Or do lenders still have no confidence in borrowers so they're holding on to their money, and we're all out $700 billion?

Add on to that article this one: [url="http://money.cnn.com/2008/11/03/news/economy/bc.financialmeltdown.ap/index.htm?postversion=2008110315"]http://money.cnn.com/2008/11/03/news/econo...sion=2008110315[/url][/quote]

You're beginning to see some signs. Libor, (the London Interbank Offering Rate) has been set lower for 18 consecutive days now. And in terms of bond deals, a lot more have been hitting the pipeline lately. Virginia Electric, Morgan Stanley, JP Morgan, Pepsi and Coca Cola for example in the last week have all priced fairly large issues. However, these are well regarded issuers. the true litmus test, will be when a lower rated issuer hits the market. there are a couple of names on deck, but I think they are waiting to see what happens in the next little while.

What's crazy is the way the Treasury is operating the TARP program. Today for example, the Treasury unleashed a new issue of fair size, 750 million in bonds. That combined with a negative sentiment towards bonds (so many people bought them the last two weeks) and equity markets have been rallying pushed the market substantially lower in the morning and the afternoon. Then about 2.30, the Treasury under the TARP program came in and bought a shit load of mortgage bonds from banks and such. this sent the market rocketing and pushed the bond market up.

What was different about this is that the treasury basically traded like an investment bank. They did the headfake to push the market down with the issue, and then stepped in and bought bonds for cheap. Maybe the Goldman influence is showing. Usually govt agencies signal their intentions well in advance. I took this as a sign that they are under instructions to seek profit under TARP.

As for consumers bearing the brunt of tightening standards, yeah, that was expected. the consumer will be the last to benefit. Things have been improving somewhat, overall, but there is still a lot of uncertainty out there. you have companies like Hungary on collapse watch. And persistant rumours that several large hedge funds are going to close and sell out some funds. (which when you combine with the leverage they use means a wave of selling) So people are nervous, but a little less so.

I personally think we are no where near out of the woods. I think there is still another big dump in equities coming.

[Chris Henrys Dealer]

[quote name='CincyInDC' post='721406' date='Nov 4 2008, 06:45 PM']See if you can find CHD in these pics...

[url="http://brokershandsontheirfacesblog.tumblr.com/"]http://brokershandsontheirfacesblog.tumblr.com/[/url]

Sorry, CHD. [/quote]

No worries man! I like that site.

This one is a good one as well, I like the Gulf Arab trading floor pics.

[url="http://sadguysontradingfloors.tumblr.com/"]http://sadguysontradingfloors.tumblr.com/[/url]

[Homer_Rice]

[quote name='Chris Henrys Dealer' post='721410' date='Nov 4 2008, 07:49 PM']You're beginning to see some signs. Libor, (the London Interbank Offering Rate) has been set lower for 18 consecutive days now. And in terms of bond deals, a lot more have been hitting the pipeline lately. Virginia Electric, Morgan Stanley, JP Morgan, Pepsi and Coca Cola for example in the last week have all priced fairly large issues. However, these are well regarded issuers. the true litmus test, will be when a lower rated issuer hits the market. there are a couple of names on deck, but I think they are waiting to see what happens in the next little while.

What's crazy is the way the Treasury is operating the TARP program. Today for example, the Treasury unleashed a new issue of fair size, 750 million in bonds. That combined with a negative sentiment towards bonds (so many people bought them the last two weeks) and equity markets have been rallying pushed the market substantially lower in the morning and the afternoon. Then about 2.30, the Treasury under the TARP program came in and bought a shit load of mortgage bonds from banks and such. this sent the market rocketing and pushed the bond market up.

What was different about this is that the treasury basically traded like an investment bank. They did the headfake to push the market down with the issue, and then stepped in and bought bonds for cheap. Maybe the Goldman influence is showing. Usually govt agencies signal their intentions well in advance. I took this as a sign that they are under instructions to seek profit under TARP.

As for consumers bearing the brunt of tightening standards, yeah, that was expected. the consumer will be the last to benefit. Things have been improving somewhat, overall, but there is still a lot of uncertainty out there. you have companies like Hungary on collapse watch. And persistant rumours that several large hedge funds are going to close and sell out some funds. (which when you combine with the leverage they use means a wave of selling) So people are nervous, but a little less so.

I personally think we are no where near out of the woods.[b] I think there is still another big dump in equities coming.[/b][/quote]
If Dow hits 4500-5000 range again in a few years, as I think it will, I'll probably get buy some stock.

As for interbank lending, not much happening. I think the plan is to force buyouts.

As for the real economy...bend over and put your legs between your legs, for the proverbial....

Look at the BFI for a harbinger of what's to come.

[Chris Henrys Dealer]

[quote name='Homer_Rice' post='721414' date='Nov 4 2008, 07:01 PM']As for interbank lending, not much happening. I think the plan is to force buyouts.[/quote]


True dat sir. I think you can look at the spreads that banks are charging over Libor to see what their intentions are. HSBC and JP Morgan are consistently at the high end, despite being two of the largest and regarded as two of the better off institutions out there. The expectation would be for them to be on the low range. I think they are looking to push others into trouble and step in and pick the good bits for cheap. (backed by the govt of course)

It's a dirty game in finance out there. Goldman Sachs (and I'm sure other banks) have a desk of traders who's sole job is to watch the markets to see what Hedge Funds are doing right now and to do the same. e.g. hedge funds buying, they step in and start buying to force the price up and make it harder for the hedgies to get filled. conversely, if hedgies are selling, these guys will sell the stock and force the market down. the idea is to put as many out of business as possible. while this might hurt Goldman's prime brokerage unit which deals with Hedge Funds. it makes life easier for their massive internal hedge fund (Alpha 1)

[steggyD]

Tomorrow I will compare our votes for Senate and Congress and see who kept their jobs still after voting for the Bailout Bill. Then we should bomb all districts that voted their Bailout friends back into office. This is the only way to fix our country ...

[Chris Henrys Dealer]

Bank of England cuts 150 bps to 3.00%. European Central Bank goes 50 bps.

Zero Interest Rate Policy here we come! It worked so well in Japan in the 90s, oh wait....

[Quaker]

[quote name='Homer_Rice' post='721124' date='Nov 3 2008, 05:52 PM']The short answer, CT, is ,"Yes." The "bailout(s)" will not work. Within a year or two we'll be in a depression so large that it'll make the Great Depression look tame. Get ready.[/quote]
What does one do to prepare for such oncoming things?

[sois]

[quote name='Quaker' post='721962' date='Nov 6 2008, 09:56 AM']What does one do to prepare for such oncoming things?[/quote]

If you really believe that, stock up on canned goods, bottled water and develop a good shot.

[quote name='steggyD' post='721474' date='Nov 4 2008, 11:22 PM']Tomorrow I will compare our votes for Senate and Congress and see who kept their jobs still after voting for the Bailout Bill. Then we should bomb all districts that voted their Bailout friends back into office. This is the only way to fix our country ...[/quote]

Findings?

[CincyInDC]

[quote name='sois' post='721982' date='Nov 6 2008, 05:06 PM']If you really believe that, stock up on canned goods, bottled water and develop a good shot.



Findings?[/quote]


I'm fairly certain I read that Al Franken's opponent (republican incumbent Norm Coleman) voted for the bailout. Their contest will not be decided until December due to an automatic recount, as it was VERY close.

[url="http://www.startribune.com/politics/state/34024274.html?elr=KArksLckD8EQDUoaEyqyP4O%3a%44W3ckUiD3aPc:_Yyc:aULPQL7PQLanchO7DiUX"]http://www.startribune.com/politics/state/...L7PQLanchO7DiUX[/url]

[steggyD]

Here is the link to who voted yeas and nays. Now I need to look up and see who was re-elected. That's a lot of counting and matching ... got my work cut out for me, someone else round up the bombs.

[url="http://clerk.house.gov/evs/2008/roll681.xml"]http://clerk.house.gov/evs/2008/roll681.xml[/url]

[Chris Henrys Dealer]

Commercial Paper market seems to be making a bit of a comeback.

[img]http://i38.tinypic.com/2qk6sd4.gif[/img]


No surprise to see it's the bank's leading the charge:

[img]http://i35.tinypic.com/2rmm59w.gif[/img]


[img]http://i33.tinypic.com/219z1xi.gif[/img]


No love for foreign companies though:

[img]http://i36.tinypic.com/29mt4ci.gif[/img]

[sois]

[quote name='steggyD' post='721991' date='Nov 6 2008, 11:24 AM']Here is the link to who voted yeas and nays. Now I need to look up and see who was re-elected. That's a lot of counting and matching ... got my work cut out for me, someone else round up the bombs.

[url="http://clerk.house.gov/evs/2008/roll681.xml"]http://clerk.house.gov/evs/2008/roll681.xml[/url][/quote]

In Nevada, the Rep who voted for bailout (Jon Porter) was ousted.
The Rep who voted against bailout (Dean Heller) was re-elected.

Nevada is smart.

[CincyInDC]

MORE DOOM!

[url="http://www.forbes.com/2008/11/12/recession-global-economy-oped-cx_nr_1113roubini.html?feed=rss_popstories"]http://www.forbes.com/2008/11/12/recession...=rss_popstories[/url]

[quote]Doctor Doom
The Worst Is Not Behind Us
Nouriel Roubini, 11.13.08, 12:01 AM EST
Beware of those who say we've hit the bottom.

It is useful, at this juncture, to stand back and survey the economic landscape--both as it is now, and as it has been in recent months. So here is a summary of many of the points that I have made for the last few months on the outlook for the U.S. and global economy, as well as for financial markets:

--The U.S. will experience its most severe recession since World War II, much worse and longer and deeper than even the 1974-1975 and 1980-1982 recessions. The recession will continue until at least the end of 2009 for a cumulative gross domestic product drop of over 4%; the unemployment rate will likely reach 9%. The U.S. consumer is shopped-out, saving less and debt-burdened: This will be the worst consumer recession in decades.
Article Controls

--The prospect of a short and shallow six- to eight-month V-shaped recession is out of the window; a U-shaped 18- to 24-month recession is now a certainty, and the probability of a worse, multi-year L-shaped recession (as in Japan in the 1990s) is still small but rising. Even if the economy were to exit a recession by the end of 2009, the recovery could be so weak because of the impairment of the financial system and the credit mechanism that it may feel like a recession even if the economy is technically out of the recession.

--Obama will inherit an economic and financial mess worse than anything the U.S. has faced in decades: the most severe recession in 50 years; the worst financial and banking crisis since the Great Depression; a ballooning fiscal deficit that may be as high as a trillion dollars in 2009 and 2010; a huge current account deficit; a financial system that is in a severe crisis and where deleveraging is still occurring at a very rapid pace, thus causing a worsening of the credit crunch; a household sector where millions of households are insolvent, into negative equity territory and on the verge of losing their homes; a serious risk of deflation as the slack in goods, labor and commodity markets becomes deeper; the risk that we will end in a deflationary liquidity trap as the Fed is fast approaching the zero-bound constraint for the Fed funds rate; the risk of a severe debt deflation as the real value of nominal liabilities will rise, given price deflation, while the value of financial assets is still plunging.

--The world economy will experience a severe recession: Output will sharply contract in the Eurozone, the U.K. and the rest of Europe, as well as in Canada, Japan and Australia/New Zealand. There is also a risk of a hard landing in emerging market economies. Expect global growth--at market prices--to be close to zero in Q3 and negative by Q4. Leaving aside the effects of the fiscal stimulus, China could face a hard landing growth rate of 6% in 2009. The global recession will continue through most of 2009.

--The advanced economies will face stag-deflation (stagnation/recession and deflation) rather than stagflation, as the slack in goods, labor and commodity markets will lead advanced economies' inflation rates to become below 1% by 2009.

--Expect a few advanced economies (certainly the U.S. and Japan and possibly others) to reach the zero-bound constraint for policy rates by early 2009. With deflation on the horizon, zero-bound on interest rates implies the risk of a liquidity trap where money and bonds become perfectly substitutable, where real interest rates become high and rising, thus further pushing down aggregate demand, and where money market fund returns cannot even cover their management costs.

Deflation also implies a debt deflation where the real value of nominal debts is rising, thus increasing the real burden of such debts. Monetary policy easing will become more aggressive in other advanced economies even if the European Central Bank cuts too little too late. But monetary policy easing will be scarcely effective, as it will be pushing on a string, given the glut of global aggregate supply relative to demand--and given a very severe credit crunch.

--For 2009, the consensus estimates for earnings are delusional: Current consensus estimates are that S&P 500 earnings per share (EPS) will be $90 in 2009, up 15% from 2008. Such estimates are outright silly. If EPS falls--as is most likely--to a level of $60, then with a price-to-earnings (P/E) ratio of 12, the S&P 500 index could fall to 720 (i.e. about 20% below current levels).

If the P/E falls to 10--as is possible in a severe recession--the S&P could be down to 600, or 35% below current levels.

And in a very severe recession, one cannot exclude that EPS could fall as low as $50 in 2009, dragging the S&P 500 index to as low as 500. So, even based on fundamentals and valuations, there are significant downside risks to U.S. equities (20% to 40%).

Similar arguments can be made for global equities: A severe global recession implies further downside risks to global equities in the order of 20% to 30%.Thus, the recent rally in U.S. and global equities was only a bear-market sucker's rally that is already fizzling out--buried under a mountain of worse-than-expected macro, earnings and financial news.

--Credit losses will be well above $1 trillion and closer to $2 trillion, as such losses will spread from subprime to near-prime and prime mortgages and home equity loans (and the related securitized products); to commercial real estate, to credit cards, auto loans and student loans; to leveraged loans and LBOs, to muni bonds, corporate bonds, industrial and commercial loans and credit default swaps. These credit losses will lead to a severe credit crunch, absent a rapid and aggressive recapitalization of financial institutions.

--Almost all of the $700 billion in the TARP program will be used to recapitalize U.S. financial institutions (banks, broker dealers, insurance companies, finance companies) as rising credit losses (close to $2 trillion) will imply that the initial $250 billion allocated to recap these institutions will not be enough. Sooner rather than later, a TARP-2 will become necessary, as the recapitalization needs of U.S. financial institutions will likely be well above $1 trillion.

--Current spreads on speculative-grade bonds may widen further as a tsunami of defaults will hit the corporate sector; investment-grade bond spreads have widened excessively relative to financial fundamentals, but further spread-widening is possible, driven by market dynamics, deleveraging and the fact that many AAA-rated firms (say, GE) are not really AAA, and should be downgraded by the rating agencies.

--Expect a U.S. fiscal deficit of almost $1 trillion in 2009 and 2010. The outlook for the U.S. current account deficit is mixed: The recession, a rise in private savings and a fall in investment, and a further fall in commodity prices will tend to shrink it, but a stronger dollar, global demand weakness and a larger U.S. fiscal deficit will tend to worsen it. On net, we will observe still-large U.S. twin fiscal and current account deficits--and less willingness and ability in the rest of the world to finance it unless the interest rate on such debt rises.

--In this economic and financial environment, it is wise to stay away from most risky assets for the next 12 months: There are downside risks to U.S. and global equities; credit spreads--especially for the speculative grade--may widen further; commodity prices will fall another 20% from current levels; gold will also fall as deflation sets in; the U.S. dollar may weaken further in the next six to 12 months as the factors behind the recent rally weather off, while medium-term bearish fundamentals for the dollar set in again; government bond yields in the U.S. and advanced economies may fall further as recession and deflation emerge but, over time, the surge in fiscal deficits in the U.S. and globally will reduce the supply of global savings and lead to higher long-term interest rates unless the fall in global real investment outpaces the fall in global savings.

Expect further downside risks to emerging-markets assets (in particular, equities and local and foreign currency debt), especially in economies with significant macro, policy and financial vulnerabilities. Cash and cash-like instruments (short-term dated government bonds and inflation-indexed bonds that do well both in inflation and deflation times) will dominate most risky assets.

So, serious risks and vulnerabilities remain, and the downside risks to financial markets (worse than expected macro news, earnings news and developments in systemically important parts of the global financial system) will, over the next few months, overshadow the positive news (G-7 policies to avoid a systemic meltdown, and other policies that--in due time--may reduce interbank spreads and credit spreads).

Beware, therefore, of those who tell you that we have reached a bottom for risky financial assets. The same optimists told you that we reached a bottom and the worst was behind us after the rescue of the creditors of Bear Stearns in March; after the announcement of the possible bailout of Fannie and Freddie in July; after the actual bailout of Fannie and Freddie in September; after the bailout of AIG (nyse: AIG - news - people ) in mid-September; after the TARP legislation was presented; and after the latest G-7 and E.U. action.

In each case, the optimists argued that the latest crisis and rescue policy response was the cathartic event that signaled the bottom of the crisis and the recovery of markets. They were wrong literally at least six times in a row as the crisis--as I have consistently predicted over the last year--became worse and worse. So enough of the excessive optimism that has been proved wrong at least six times in the last eight months alone.

A reality check is needed to assess risks--and to take appropriate action. And reality tells us that we barely avoided, only a week ago, a total systemic financial meltdown; that the policy actions are now finally more aggressive and systematic, and more appropriate; that it will take a long while for interbank and credit markets to mend; that further important policy actions are needed to avoid the meltdown and an even more severe recession; that central banks, instead of being the lenders of last resort, will be, for now, the lenders of first and only resort; that even if we avoid a meltdown, we will experience a severe U.S., advanced economy and, most likely, global recession, the worst in decades; that we are in the middle of a severe global financial and banking crisis, the worst since the Great Depression; and that the flow of macro, earnings and financial news will significantly surprise (as during the last few weeks) on the downside with significant further risks to financial markets.

I'll stop now.

Nouriel Roubini, a professor at the Stern Business School at New York University and chairman of Roubini Global Economics, is a weekly columnist for Forbes.com.[/quote]

[CatScratchFever]

Don't worry. St. Barack of Hawaii will solve all our problems.