Fed bail out. How do you feel?

[Greg Pack]

I knew the federal reserve was a private institution , but thought they had "money printing" powers. I read yesterday (on a board) that disputes that. They say the fed reserve does indeed have a finite balance sheet and cannot "print money" as needed. They don't have enough money to bail out every bank that will have liquidity problems. I ran across a whole discussion board of seemingly smart people that continue to buy puts on nearly all financial stocks for this reason. I will have to study this more, any of you financial guys care to comment?

Also what do the lowest treasury yields in fifty years mean - isn't that a flight to safety? Or do IBs and hedge funds use the treasuries to park their money that swooshed out of commodities.

 

[Greg Pack]

Ok ,maybe it's too late to buy LEH puts......

http://www.bloomberg.com/apps/news?pid=20601087&sid=awvTfLGlyzws&refer=home

 

[Greg Pack]

Post deleted

 

[pitzerwm]

The Feds has not "eaten" anything as of yet. You need to get your facts straight. And government "bailouts" have been done many times.

I'm not fond of any socail program that's not equitable, constitutional or legal. Where are any government programs constitutional? What makes them legal, a collection of congressmen vote them legal.

 

[Ben's Car Wash]

The Feds has not "eaten" anything as of yet. You need to get your facts straight. And government "bailouts" have been done many times.

I'm not fond of any socail program that's not equitable, constitutional or legal. Where are any government programs constitutional? What makes them legal, a collection of congressmen vote them legal.

No Bill, not like this. The Fed has NEVER LENT MONEY to any entity other than a BANK! The Fed made a new policy to handle this case and other case to "shore up" bear sterns until a sale could me made. They are guarenteing 35 billion of very risky hedge funds (poorly managed risk) so if they are or go bad.... it's bye, bye 35 billion of US tax payer money. That money, from what I understood came from interest that the fed generated in payments.

I understand the potential shock wave.... but capitalism is brutal. No one bailed out those stock holders did they (yet they took risk)! In they end, the fed SOCIALIZED a capital market... and that's what I have a problem with. Bear Sterns borrowed over 20X their assets, no bank would dare do that for you or I! They were leveraged too heavely at they own demise (my own feeling).

This is only the tip of the ice berg in the sub prime melt down. I wonder if the Fed is going to help the small community banks as they begin to fail? I hope it doesn't get that far.... but I see some of that coming.

 

[pitzerwm]

Well Doug, you really have never actually gotten all of the facts on anything, and explaining them to you is a waste of time. I doubt if anyone reading your stuff takes it to heart any longer. Picking "your" bits and pieces of the truth, is all you need to do.

The feds gave JPM 35B for greatly discounted securities, most common sense people do not believe that the sub prime crap will take down the world. If you doubt that the media needs sensationalism to sell time, so glossing over the facts, is necessary. Just like saying that our troops have killed hundreds of thousands of innocent Iraq citizens, there is no way for us to have a clue if this is true or not. However, one of my friends was a Sarge & was there for 2 terms, he says that stuff never happens and the stuff that he sees on the media now, is beyond distorted from what it is really like over there. If the media keeps telling us that the recession is here and its going to be worse than the depression, eventually, you will believe it and start acting like there is a depression. How quickly we forget the S&L crises, the market crash of 1987, the dot com bust. We all survived them and are better off than we were before that. Speaking of that, I for one and probably most of us are better off than we were when Bush became President, net worth wise. Even with the problems since Jan. I'm only back to Nov. 06.

Mostly, it amuses me that you continue to run around screaming that the sky is falling. Most normal people acknowledge that crap happens and right now it might suck, but make adjustments and continue to figure out what to do, to make the best of the situation. I continue to allow it as the Forum needs a little controversy. Just for kicks why don't you check and see what your net worth was in 2000 and what it is now.

 

[SCS]

Doug, in your many debates here we usually respect even though we believe you are wrong and often times mistating facts. In this case it is not merely one mans opinion which we can disagree with, instead it is such a lack of understanding of the markets that we find ourselves arguing with someone who is so ill equipped to debate the subject that it is laughable.

We are trying to help you understand the situation. Bill is right. The federal government lends money to financial institutions all the time. They changed the policy to now take as collateral some debt securities which previously were not acceptable as collateral due to the debt securities lower rateing. Your idea that Bear Stearns was a "cowboy" firm gambling with rediculously long odds and leverage is far from the truth. They were not much different than the rest of the industry. Your idea that the government has only bailed out banks and s&L's is absurd. They've bailed out insurance companies, airlines, auto maker, etc the list goes on and on.

Your opinion that the social programs you support are not bail outs and government supports because they meet your opinion of "fair and equitable and worthwhile" is rediculous. say it "I am a socialist who supports socialist policies as long as it doesn't benefit anyone in an industry that is too white or well paid" that is apparently what you really mean because you appear to love the idea of the feds intervening in capitalism and proping up the losers as long as it's not wall street.

 

[SCS]

CFCW the federal government doesn't just print money up to do the things it wants like loan money to Bear Stearns.

As for buying puts on the financials. I've been buying the healthy ones and doing very well at it. It is an industry where the weak will be eliminated (short those if you like) and the strong are currently available at bargain prices that will make you kick yourself in a few years. To short the entire industry would be a very bad idea. I've made alot of money on Citi, JP Morgan, Indymac bank, Countrywide recently. Not a strategy for the inexperienced or the bulk of your retirement plan.

 

[Ben's Car Wash]

Bill & Scott,

Show me where the FED ever bailed out an entity other than a Commercial BANK? When have they loaned to anything other than a bank? This is the FIRST TIME they did this. Why?

New york times article from today: (you won't read it b/c it's a link)

http://www.nytimes.com/2008/03/23/business/23how.html?ref=business

And stop with the personal attacks when you can't provide documentation to support your argument! I'm not saying that we're on the verge of total inaliation..... I'm saying that this must have been very bad for the FED TO ACT THIS WAY... a way that HAS NEVER BEEN DONE (unless you provide proof otherwise that an investment firm somehow quailified as a commercial lending bank). That's all... other than asking what other people thought... about 1/2 didn't like it or support it.

 

[Ben's Car Wash]

Your opinion that the social programs you support are not bail outs and government supports because they meet your opinion of "fair and equitable and worthwhile" is rediculous. say it "I am a socialist who supports socialist policies as long as it doesn't benefit anyone in an industry that is too white or well paid" that is apparently what you really mean because you appear to love the idea of the feds intervening in capitalism and proping up the losers as long as it's not wall street.

No, I just don't like A$$holes who support corporate welfare while dening kids things like S-Chip!

 

[pitzerwm]

Ok Doug, I read the article in the NYtimes, the same paper that said that McCain was screwing some friend, but other than Bill Gross' assessment of the situation, it doesn't support your statements as usual.

What I don't understand is even if all you have ever claimed were all true, why whine about it here. Go do something about it, sell everything move to the mountains of Montana, or anything. That would impress us, whining about this and that just make us shake our heads and wonder how you got where you are now.

 

[jfmoran]

Bill & Scott,

Show me where the FED ever bailed out an entity other than a Commercial BANK? When have they loaned to anything other than a bank? This is the FIRST TIME they did this. Why?

This is a quote from paragraph 4 of the first page of the NY Times article that I didn't read: "The Federal Reserve not only has taken action unprecedented since the Great Depression ? by lending money directly to major investment banks"...

While the depression was some time ago, I don't believe that qualifies as NEVER!

The only thing I learned from this article, is that nobody understands derivatives, including the people who trade them and that our goverment's answer to the problem is more oversight and regulation of the commercial banks. CAN ANYBODY SAY BIGGER GOVERNMENT! Also See below for BIGGER Government.

In addition the only argument over SCHIP is "HOW BIG TO MAKE THIS SOCIAL PROGRAM", Bush's veto did nothing to touch the program as it stands and has stood for the past ten years. The problem is our boys in Congress on both sides of the aisle are trying to determine "HOW BIG" they are going to make this program to not only cover poor kids, but middle class kids and even adults. Don't worry Doug, Hillary or Barack will make sure that happens.

 

[SCS]

Chrysler! Ever hear about that one? All the airline companies that lost a plane on 9/11. Did you ever hear the federal government passed legislation to compensate all the victims of 9/11? What do you think that was for? It was in liue of the victims sueing the airline, the insurance companies, the real estate company that owned the buildings, the contractor the airports hire to do passenger screening. Why because the losses would have been so great that the airlines who carry roughly 50% of the national flights would have been out of business. The insurance companies (which is a multi level industry whereby every carrier is re-insured for large losses by reinsurance carriers (in many cases more than one)) would have been put out of business as well. It was deemed to be a financial catastrophe to some essential industries that would have crippled business as we know it. Do you think these things were done to line the pockets of the "fat cats". Don't be rediculous. If anything it is the average worker and customer that should be thanking their lucky stars the government stepped in to save their industry, their job, their pension etc.

When you say you are against "corporate welfare" I would tell you there is no such thing. Every company is owned by individuals. Therefore any legislation or government policy that benefits a "corporation" in the end benefits the people who own it. So it is not "Corporate" welfare it is just Socialism. You love it when it is the S-chip. You love it when it is New Orleans. You love it when it is unemployment. You love it when it is Medicare. You love it when it is social security. You love it when it is public housing. You love it when it is food stamps. You love it in most of its other forms but you hate it when it is for Wall street because that to you says WHITE, PRIVLEDGED, FAT CATS. Wake up, this benefits the poor black secretary more than the white fat cats because they have golden parachutes when their job is lost the secretary has nothing. Also, since the owners of Bear Stearns are the public via their 401K/IRA/life savings that is who is saved by getting $2 a share rather than the 0 they would have had if the feds didn't give the short term loan that allowed them to stay afloat until JP Morgan picked the last pieces of meat off their bones.

 

[SCS]

S-chip my achin a$$! If I remember right you've got a grandchild with a serious medical condition. Well I've got a wife and 3 kids and I pay for all of their health care. It costs me a boat load of money each year. I don't spend my time bitching about other people not paying those bills for me. You've got a lot of nerve expecting the average working stiff to pay for your kid when they are struggling to pay for their own.

 

[SCS]

What the federal governemnt should have done about the 9/11 bail out was what Clinton did. Clinton used the school shootings to spur what the left had always wanted more gun control. so after the shootings they dreamed up this "assault weapons" ban. As if that was the solution! It is smart politics. What Bush should have done was used 9/11 to show the public how the current tort system is crushing this country. The lack of tort reform would have put half the airlines, many insurance companies, etc out of business and 50,000 jobs would have been lost. If he would have explained that to the public and pitched the tort reform this country needs at that time it would have passed. There would have been no need for a government funded bail out in response to 9/11 and one of this countrys biggest problems would have been solved. But the liberal democrats and their special interest group are too strong to get this passed with out a looming crisis like we briefly had available to us on 9/11. Yes, Bush blew that one.

 

[Greg Pack]

I thought this was funny.......

 

[Greg Pack]

On a more serious note, Look at what analyst babe Meredith Whitney came up with today on Chiti- group & company:


http://www.reuters.com/article/hotStocksNews/idUSN2640745420080326


Apparently, banks are like teenagers. Turn your back on them for a while and they begin to run amok. Left unsupervised, you soon get the call to come bail them out of jail.

 

[pitzerwm]

Also, it appears that the Fed was involved in the Resolution Trust "bail out" in the 80s and the Texas oil Patch mess, in the 80s, which I don't remember as I wasn't into oil or Texas. Since time began, the government has thought that it could do a better job than the capitalist market and "came to help". Usually, a bigger mess resulted.

 

[Greg Pack]

Wanted to dig this up with the recent developments. I never did buy those Lehman puts. But today, after the fed backstopping fannie and freddie I thought a rally was due. So I went out and tried to catch one of those falling knife financial stocks-RF. Not much, just enough to go "aww $hit" when they promptly dropped another 10%.....

Scott, hope you got out of IMB, and some of those others with a profit.

 

[SCS]

Yes, I was only in Countrywide and Indymac for a month or so. Made a quick pop and got out. Although some of those financials are looking awfully tasty again right now. I've been holding Citi and JPM since they got beat down earlier this year, it may be time to double down.