An Economic 9/11?

[Banned]

Associated Press-
WASHINGTON - The fallout from the vote against a bailout package for the U.S. financial system may well be lasting pain for the economy.


The House's stunning defeat of a $700 billion package urgently championed by President Bush, sent shock waves through Capitol Hill, the trading floors on Wall Street and the Oval Office on Monday.

"An economic 9/11," warned Terry Connelly, dean of Golden Gate University's Ageno School of Business, of the potential fallout. As the package went down, panicked investors caused the Dow Jones industrials to nosedive nearly 780 points in their largest one-day point drop ever. Markets across Asia fell sharply Tuesday in the wake of the Wall Street downdraft.

Lawmakers defeated the legislation by a 228-205 vote, although Democratic and Republicans leaders and Treasury Secretary Henry Paulson all pledged to keep working for a package acceptable to all sides.

In the meantime, the economic wreckage that the administration and Congress have warned about — rising unemployment, shrinking nest eggs and prolonged recession — might not happen immediately, but that doesn't mean it won't happen at all.

"This is like the advice you get from the doctor who says you should quit smoking," said Robert Brusca, chief economist at Fact and Opinion Economics in New York. "You know he's right. But if you don't, you're not going to die tomorrow and you're not going to die next week. But at some time, it's probably going to get you."

For now, Treasury was expected to work with other government agencies, including the Federal Reserve and the Federal Deposit Insurance Corp., to deal with problems on a case-by-case basis.

"Our tool kit is substantial but insufficient" without a bailout, Paulson warned.

There are some steps the Federal Reserve can take to cushion damage from the worst credit crisis since the Great Depression.

The Fed, which has been providing billions in short-term loans to help banks overcome credit stresses, could keep expanding those loans in an effort to spur financial institutions to lend more freely again. And, it could keep working with other central banks to inject billions into troubled financial markets overseas.

Also, the Fed could make it easier for banks and investment firms to draw emergency loans from the central bank by expanding the type of collateral they pledge to back those loans.

And, if the credit crisis were to turn even worse, the Fed also has the power in extreme circumstances to expand emergency lending to other types of companies and even to individuals if they are unable to secure adequate credit from other banking institutions.

The Fed also could do an about-face and start cutting its key interest rate again. The Fed in June halted an aggressive rate-cutting campaign and has kept its key rate since at 2 percent.

While some Fed officials doubt that another rate reduction would do much to boost confidence and persuade banks to begin lending again, Brian Bethune, economist at Global Insight, insists a deep cut would pack a powerful punch. It would lower the prime lending rate, now at 5 percent, that serves as a benchmark for credit card rates and many other types of loans.

Even if the bailout were enacted by Congress and actually worked, many predicted the economy will probably shrink in the final quarter of this year and in the first quarter of next year, meeting the classic definition of a recession. If Congress doesn't act, analysts, who were scrambling to downgrade their economic forecasts, believe those contractions will be deeper.

The unemployment rate — now at a five-year high of 6.1 percent — is expected to hit 7 or 7.5 percent by late 2009, which would be the highest since after the 1990-91 recession. Some economists say the jobless rate could rise even more.

"Undoubtedly, both businesses and consumers will run for cover. They will clam up," said economist Ken Mayland, president of ClearView Economics. "The snowball hitting the economy will pick up speed and gather mass."

More banks could fail, too. In the second quarter that ended in June, the Federal Deposit Insurance Corp. estimated 117 banks and thrifts were in trouble, the most since 2003. The threat of more banks failing in the U.S. and abroad forced the government to act swiftly.

The tanking stock market and falling home values — the single-biggest assets for most Americans — have taken big bites out of people's wealth and their retirement accounts even as high energy and food prices are shrinking paychecks. Consumers are major shapers of the U.S. economy. If they retrench, the country will go into a tailspin.

The bailout plan was intended to revive jittery and fragile banks on Wall Street and Main Street by buying billions upon billions of their worst mortgage-related assets so that lending, the oxygen of the American economy, would flow freely again.

"People are going to go home and look at their 401(k)'s and not be very happy, and these are not just people from New York, but Iowa and everywhere else. This bill is meant for everyone — not just Wall Street but Main Street," said longtime New York Stock Exchange floor trader Theodore Weisberg.

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Associated Press Writers Joe Bel Bruno, Martin Crutsinger, Adam Geller, Jim Kuhnhenn and Christopher S. Rugaber contributed to this report.

[BDR]

I think about this a lot. If you remember, bin Laden said from the start they wanted to attack us on an economic level; that's why the WTC was a primary target. That was more symbolic than anything, but did they know the cowboy in Washington would lanuch a never-ending campaign that would drain us as a nation, not only of fellow citizens in uniform, but also of our financial resources?

When we're pumping so much $$$ into this war each month, how in the EFF can we expect to be able to float a $700 billion gift to people who obviously can't do their jobs?

r:>)

[JackANSI]

I think about this a lot. If you remember, bin Laden said from the start they wanted to attack us on an economic level; that's why the WTC was a primary target. That was more symbolic than anything, but did they know the cowboy in Washington would lanuch a never-ending campaign that would drain us as a nation, not only of fellow citizens in uniform, but also of our financial resources?

When we're pumping so much $$$ into this war each month, how in the EFF can we expect to be able to float a $700 billion gift to people who obviously can't do their jobs?

r:>)

The market is overvalued and flawed from the start... That $700billion is to help turn that overvalue into reality, not to float banks. Thats just the easiest way to put it for normal people to digest it.

Its the speculators that started it, the CEO's did nothing to stop it so their shareholders wouldn't abandon ship, and the government decided that turning a blind eye to it was the best thing for the people.

After-all less government is best, especially when without regulation the people have no way of putting checks and balances in play. It gets rid of the pesky little guy so they can reap bigger profits without having to have the fear of jail.

My estimates have oil at a real value of $55-65/barrel. Until it gets back there and STAYS there, say good-bye to life as you knew it the last decade. Even if oil gets back there tomorrow (won't happen) expect 5-7 years of perfection before you stop hearing about a "shaky economy"... Lke it or not, energy is what drives the economy. Oil is the easiest way to describe the direction energy is going, or even more to the point, its the first sign of trouble with supplies of energy...

Its all for the greater good...

[songsmith]

Plus one. Good post!--->JMS

[JackANSI]

And I don't mean "normal people" in a derogatory way... Just that the "normal" person doesn't give a rats ass what is happening in the market as long as their investments are safe, and they'll have a job tomorrow.

[Roar chick]

I thought this was interesting

“Bailout in economics and finance is a term used to describe a situation where a bankrupt or nearly bankrupt entity, such as a corporation or a bank, is given a fresh injection of liquidity, in order to meet its short term obligations. Often bailouts are by governments, or by consortia of investors who demand control over the entity as the price for injecting funds”
This from http://en.wikipedia.org/wiki/Bailout

This says to me that the bail-out would have been a short-term fix anyway. In the end we would have had the same problems and had to pay back the 700 bill.

[JackANSI]

Its a little more complicated than that, but yes, it would be a temporary fix at best. It would stabilize the market for about a year, till the government finds out how badly everything really was messed up, and how badly the bailout money was used.

Side effect for us would be the stabilization, which at this point is worse than letting it crash. Its just long enough for everyone with money to lose to get out safely. When they can, they will, and the crash resumes. Leaving the burden on the unfairly taxed lower, lower-mid, mid, and upper-middle classes. While those that are rich by Bush's tax standards get to pay for hardly any of it. What they do end up paying will be offset by the money they make during the bailout stabilization.

This also means continued rise in energy prices because everyone will be thinking "We already delt with this" allowing greed to resume for a short time longer.

The only way to fix this is to let it crash and let the strongest survive. The ones that were responsible about running their business will survive.



Well.. there is one more option... World War... Getting Iran to attack Israel would be the easiest way, or invading Iran under the UN to provoke Russia and those that dislike the us and the UN to join in against it in the open...

The trick would be to do that without aligning China against us. Maybe getting the monkey off the back of North Korea in exchange for letting it continue its nuclear wankfest and allowing them to take tighter control of Taiwan. Promising cheap energy and allowing them to take credit for ending the conflict by bringing everyone together for a peace treaty might help too. But any of those isn't a good option for us, but better than the raw material and finished products of china from being used against us. China is the real sleeping dragon in this world war..

Before all that we would need at least a US neutral stance coming from Venezuela, which normalizing relations with Cuba would do strongly to help. It would hopefully depolarize that country and region which would allow a more friendly exchange. Maybe sell Chavez some booby trapped F-16s, a few tankers, and loosen the drug war walls for drugs destined for countries other than the US. This gives us access to the energy reserves we'd need to get us through till we could find a way to divide up the spoils of the middle east with China.

Meh.. that'll never work... nevermind..

[bassist_25]

Rob, I think you just succinctly demonstrated what a huge cluster fuck the whole world is currently in.

[JackANSI]

There is no easy way out of this that I see...

To quote one of my favorite movies... "Its one big shit sandwich, and we're all going to have to take a bite."