Thanks a lot, Congress

[IronHog]

Here is what I know, the credit markets no longer work. They are completely dysfunctional.  As a dept. we are even backing away from from borrowers who only a few short weeks ago were considered solid gold plated and in many cases we are no longer loaning beyond overnight.  We are even becoming reluctant to lend against collateral.  This is a pattern that is being duplicated in thousands of trading rooms across the planet. In our case, it is our job to protect our shareholders. If that means hunkering down, we hunker down.

Maybe it will hit home to you when your employer can't finance his inventory, or find money to do an expansion with or finance a payrol or any of dozens of things that businesses need credit and financing for.  In short, credit of all kinds is shutting down and its shutting down at light speed.  And the smaller the company.... the worse it is becoming.  

One last point.... a depression is in NO ONES self interest.  The excesses of the last twenty years need to clear, but not all at the same time.  Its just too dangerous.  

Night all. 

How long will "hunkering down" or lending overnight support your business?

People will either lend, or someone will step into the void to reap the profits that lenders are giving up.  The short term will be hard, but I believe in the free market.

I talked to my banker a couple days ago and she said it was business as usual, BUT underwriting had returned to the strict standards that banks were once know for..............

[Masshog]

We clearly disagree on this one.  Free markets work till they don't and right now is one of the biggest don't works that you will ever see.

I think your banker likely has far to limited a window on the world. I just don't understand the willingness of many to risk a prolonged deflation or worse to prove a point.  Just my opinion.  Take it or leave it as I'm to tired to really care right now Iron (no offense meant, I just mean I'm too tired to debate).   

[john c]

Im enjoying football more this year also.  Must be something in the air.  and I'm maybe ten years away from farting dust (or at least I was before all this blew up). 

This bail out thing should make everyone extremely angry.... I know that I'm angry about it.  Ive seen this day coming for a long time (the bright spot is this has been personally very good for me and the funds/accounts I work with are way ahead of the index this year)... but now its here, Ive lost my stomach for it.  We need to get it stopped in its tracks.... Thats my opinion. But like I say....  hell, I'm wrong a lot.

Looks like Wednesday night and it will all be over with.  I wish they could add to whatever bill they come up with that the Presidential vote will be held the next day so we could get on with life.  Lawmakers need a spoonful of sugar - maybe that would do it.

[Masshog]

Don't expect to much out of this bill.  It will dull the short term panic, but it won't cure the stock market for more than a month or two, if that.  This is about credit.  The economy still has a nasty recession to deal with.   

[IronHog]

We clearly disagree on this one.  Free markets work till they don't and right now is one of the biggest don't works that you will ever see.

I think your banker likely has far to limited a window on the world. I just don't understand the willingness of many to risk a prolonged deflation or worse to prove a point.  Just my opinion.  Take it or leave it as I'm to tired to really care right now Iron (no offense meant, I just mean I'm too tired to debate).   

The British have burned the White House, there was a Civil War, a depression, two world wars, a cold war, and terrorists hate us.......

We have beat worse than this without signing over everything to those the pull the money strings.  I believe this to be fear mongering.

[Masshog]

The British have burned the White House, there was a Civil War, a depression, two world wars, a cold war, and terrorists hate us.......

We have beat worse than this without signing over everything to those the pull the money strings.  I believe this to be fear mongering.

I'm a fear monger?  Just calling it like I see it buddy.  Sorry you don't like it.  Fear mongering my ass. 

[john c]

The British have burned the White House, there was a Civil War, a depression, two world wars, a cold war, and terrorists hate us.......

We have beat worse than this without signing over everything to those the pull the money strings.  I believe this to be fear mongering.

Again, I have continued to argue outwardly why, despite the anger about it, there is a place for government intervention, even if those who caused/allowed these events to happen are the ones being demanded to mitigate the situation.  However, my heart is more aligned with IronHog and virtually everyone I talk to feels the same, at least in their heart.  Where is it going to end, this concept of no personal responsibility.  How do we draw the line on this bailout and not the next or the next or the next?  Sooner or later the question has to be called and the chips allowed to rest.

[john c]

I'm a fear monger?  Just calling it like I see it buddy.  Sorry you don't like it.  Fear mongering my ass. 

My last post saying my heart was more aligned with IronHog WAS NOT MEANT to include the comment about fear mongering.  I don't believe that is true because the argument can go both ways.  The arguments for or against the bailout will stand fine on non-emotional merits but do demand passion. 

[HognotinMemphis]

Again, I have continued to argue outwardly why, despite the anger about it, there is a place for government intervention, even if those who caused/allowed these events to happen are the ones being demanded to mitigate the situation.  However, my heart is more aligned with IronHog and virtually everyone I talk to feels the same, at least in their heart.  Where is it going to end, this concept of no personal responsibility.  How do we draw the line on this bailout and not the next or the next or the next?  Sooner or later the question has to be called and the chips allowed to rest.

I'm with you on this. I'm tired of paying for everyone's ******* and lettinig some get rich and some at the other end of the spectrum get what they should never have had. Let's all go down together. If I can't pay the tax on my home, let the city take it. What are they going to do with it? No one else will buy it if it gets to the point that they have to take it from me.

If my company's revenues and cash flow go below what it takes to pay the bills, then the government loses my sales tax and income tax proceeds as well as 5 people no longer employed and paying personal income taxes. I'll then get a job with the government. Ha.

[SpareRib]

Despite the fact that your post is rather insulting I will respond anyway. The reasons some of us are for this crappy bill is that we think that the economy is on the verge of having a complete seizure.  Most of the professionals that I work with think that this crappy bill is better than no bill at all. That despite its considerable shortcomings that it will dull the panic and should begin the process of moving the credit markets forward again.  As tempting as it might be for you to write off our support as selfish (or even idiotic), it could be that we think its the best thing for the country.

My experience is a bit different from that of Biggus (he is an equity guy).  I am a debt/credit trader.  I am involved in making the buying and selling decisions (remember that when we buy a security we are essentially loaning money) for one of the largest fund families in the country. Our holdings range from long corporate and mortgage debt down to the cp/fed funds/repo and so forth that we hold in our money funds. I'm not young, I have spent twenty five years trading and studying my markets and the economy.  Frankly, theres not much that you can show me at this stage that I haven't seen in some form or fashion at some point along the way. To be good in my position requires a great deal of cynicism.  Anyway, I don't mention any of this to be a braggart, but simply to provide context for for what I am about to say.

Here is what I know, the credit markets no longer work. They are completely dysfunctional.  As a dept. we are even backing away from from borrowers who only a few short weeks ago were considered solid gold plated and in many cases we are no longer loaning beyond overnight.  We are even becoming reluctant to lend against collateral.  This is a pattern that is being duplicated in thousands of trading rooms across the planet. In our case, it is our job to protect our shareholders. If that means hunkering down, we hunker down.

Maybe it will hit home to you when your employer can't finance his inventory, or find money to do an expansion with or finance a payrol or any of dozens of things that businesses need credit and financing for.  In short, credit of all kinds is shutting down and its shutting down at light speed.  And the smaller the company.... the worse it is becoming.   

One last point.... a depression is in NO ONES self interest.  The excesses of the last twenty years need to clear, but not all at the same time.  Its just too dangerous.   

I do agree with Biggus on something else.  They are all despicable.   Both parties are responsible in their own ways for Washington's share in this mess. 

Night all. 

I think the average person understands the equities market better than the debt/credit market.  While folks will study the equity side their portfolios (translate "retirement funds"), it's easy to assume that a highly rated bond is a "safe" investment. It's also easy to assume that credit will always be available for basic daily personal needs and business operations.  It's easy to assume that the factors that influence credit availability will remain within safe parameters.    For my lifetime, the well has always been there.  The only variable was the cost of drawing the water.  This mess is proving that assumption false.

Thanks for the classroom.

[Ash]

Here is what I know, the credit markets no longer work. They are completely dysfunctional.  As a dept. we are even backing away from from borrowers who only a few short weeks ago were considered solid gold plated and in many cases we are no longer loaning beyond overnight.  We are even becoming reluctant to lend against collateral.  This is a pattern that is being duplicated in thousands of trading rooms across the planet. In our case, it is our job to protect our shareholders. If that means hunkering down, we hunker down.

Question: Why are you backing away from these borrowers. What has changed that has made them not worth lending to except for your company's fear it might lose it's money? Have they suddenly become money losing businesses. Do they no longer have cash flow. Is your company so pessimistic they think that noone is going to make money? That is the one thing I really don't understand. When you see a company like ATT that is still pretty sound having problems getting buyers for commercial paper that isn't anything but psychology at work.

I talked to some loan officers at my bank (where I once worked). They said that their having no problems with lending but agreed with the previous poster that the underwriting standards have just returned to where they were historically. That said I find it hard to believe that this many companies have become so inundated with debt that with older underwriting standards noone will lend to them.

[IronHog]

I'm a fear monger?  Just calling it like I see it buddy.  Sorry you don't like it.  Fear mongering my ass. 

I was not attempting to attack you or your post. 

However, much of the noise coming out of Washington reeks of fear mongering. 

The government may need to take limited action to jump start the credit system short term (this credit contraction IS a market correction of the excessive leveraging of the past decade), but this bailout is worse than Medicare D, the war, and the patriot act combined in terms of Federal government encroachment.

[IronHog]

Question: Why are you backing away from these borrowers. What has changed that has made them not worth lending to except for your company's fear it might lose it's money? Have they suddenly become money losing businesses. Do they no longer have cash flow. Is your company so pessimistic they think that noone is going to make money? That is the one thing I really don't understand. When you see a company like ATT that is still pretty sound having problems getting buyers for commercial paper that isn't anything but psychology at work.

I talked to some loan officers at my bank (where I once worked). They said that their having no problems with lending but agreed with the previous poster that the underwriting standards have just returned to where they were historically. That said I find it hard to believe that this many companies have become so inundated with debt that with older underwriting standards noone will lend to them.

Is credit that tight, or moving back where it should be?

How are lenders going to stay in business if they don't lend?

The federal reserve did not factor in that there are a few educated patriots left in this country when they set this mess in motion........................

[john c]

Question: Why are you backing away from these borrowers. What has changed that has made them not worth lending to except for your company's fear it might lose it's money? Have they suddenly become money losing businesses. Do they no longer have cash flow. Is your company so pessimistic they think that noone is going to make money? That is the one thing I really don't understand. When you see a company like ATT that is still pretty sound having problems getting buyers for commercial paper that isn't anything but psychology at work.

I talked to some loan officers at my bank (where I once worked). They said that their having no problems with lending but agreed with the previous poster that the underwriting standards have just returned to where they were historically. That said I find it hard to believe that this many companies have become so inundated with debt that with older underwriting standards noone will lend to them.

A lot depends on the bank.  My B of A VP's say they are ready to loan if we need it with all underwriting being normal except more than usual tightnening on receivable financing.  That's where the crunch will come.

Hey, which of a banker's eyes is a glass eye?  The one that shows just a hint of compassion.  (Sorry for that and saying that did get me into real trouble one time.  Apologies in advance.)

[Masshog]

Iron, sorry if I over reacted last night.  I assumed the comment was aimed at me. I was tired and cranky.   

I don't think a agency eligible mortgage loan is a problem at all.  Most banks want to make these loans.  They are profitable and the sensitization model still works in this area.

As for why we have backed away from investing in many of these companies.  A) Its not our money.  We are a mutual fund and our number one imperative is to protect our shareholders (some of you are probably shareholders).  When you can't adequately handicap risk, you don't take it.  B) The risk of breaking the buck in the money funds is real.  All it takes is a couple of bad choices (and remember that many of the companies that have gone out have been huge issuers) and your done and done.  Breaking the buck costs your firm millions if they choose to support and is a career breaker.   


For what its worth, I hate this bill, but I think its needed.  And I have no confidence that weeks of negotiation will do anything other than a worse, more bloated plan. 

One last point and I will shut up this subject.  Ideally what you want is for every five or six years to have an economic contraction that clears out the weak sisters and keeps the strong ones honest.  Its like forest management.  For years the forest service fought every little fire that sprang up.  The result is that rather than these many small fires clearing out the fuel many forests are now filled with combustible deadfall and underbrush... and when a real fire comes along, its a mofo to fight.  Thats where we are.         

[Ash]

One last point and I will shut up this subject.  Ideally what you want is for every five or six years to have an economic contraction that clears out the weak sisters and keeps the strong ones honest.  Its like forest management.  For years the forest service fought every little fire that sprang up.  The result is that rather than these many small fires clearing out the fuel many forests are now filled with combustible deadfall and underbrush... and when a real fire comes along, its a mofo to fight.  Thats where we are.        

I see what you are saying about other people's money. This section I quoted is probably the best analogy to explain what is happening and why it is happening. The single biggest worry I have is that this bailout will just be the prelude to something bigger. We try to have a free market and sometimes I think that if we pass this program and continue to prop up the markets that Adam Smith's Invisible Hand is going to punch us all in the nuts.

[IronHog]

Iron, sorry if I over reacted last night.  I assumed the comment was aimed at me. I was tired and cranky.  

I don't think a agency eligible mortgage loan is a problem at all.  Most banks want to make these loans.  They are profitable and the sensitization model still works in this area.

As for why we have backed away from investing in many of these companies.  A) Its not our money.  We are a mutual fund and our number one imperative is to protect our shareholders (some of you are probably shareholders).  When you can't adequately handicap risk, you don't take it.  B) The risk of breaking the buck in the money funds is real.  All it takes is a couple of bad choices (and remember that many of the companies that have gone out have been huge issuers) and your done and done.  Breaking the buck costs your firm millions if they choose to support and is a career breaker.  


For what its worth, I hate this bill, but I think its needed.  And I have no confidence that weeks of negotiation will do anything other than a worse, more bloated plan. 

One last point and I will shut up this subject.  Ideally what you want is for every five or six years to have an economic contraction that clears out the weak sisters and keeps the strong ones honest.  Its like forest management.  For years the forest service fought every little fire that sprang up.  The result is that rather than these many small fires clearing out the fuel many forests are now filled with combustible deadfall and underbrush... and when a real fire comes along, its a mofo to fight.  Thats where we are.        

Right, but when the forest burns it always recovers even if it is a bad one.

Yellowstone was over protected for years and they said the forest would never return but it is slowly coming back.

That is where we are, the scorched earth is coming no matter what the feds do at this point.

[Biggus Piggus]

Is credit that tight, or moving back where it should be?

How are lenders going to stay in business if they don't lend?

By taking in payments on their outstanding loans, and earning cash on their float.  Goldman and Morgan want to be banks so they can have all those deposits to milk.  Among other reasons.

Credit is that tight.  TED spread up to 3.34% today.  Commercial paper market is drying up.

Investment managers are selling any stocks that require a lot of short-term financing, because it's going away.

[SultanofSwine]

Some fantastic points Biggus. My Dad has said for the last several years that he would always vote republican if they actually legislated what they preach.

I'm like Fresh in that I dont have anyone on a ballot that represents me.

[Biggus Piggus]

Ideally what you want is for every five or six years to have an economic contraction that clears out the weak sisters and keeps the strong ones honest.  Its like forest management.  For years the forest service fought every little fire that sprang up.  The result is that rather than these many small fires clearing out the fuel many forests are now filled with combustible deadfall and underbrush... and when a real fire comes along, its a mofo to fight.  Thats where we are.        

Greenspan's reaction to the Asian contagion / LTCM disaster-that-wasn't in 1998 forestalled the recession that should have happened in 1999.  It enabled massive overvaluation of tech, telecom and media stocks.  Under the surface, the regular economy had been struggling for years.  What blew off in 2000-02 was largely massively overcapitalized companies with little productive output.

Housing was on its own cycle through that recession, for the average consumer wasn't hit nearly as hard as the stock market was.  Going from overemployed to pretty normal employment was not that bad.  And the availability of credit was easy and getting easier.

Two underlying themes I assign here:

1) Our society has increasingly valued conspicuous consumption.  Kids are being raised to spend way over their heads, funded by juggling credit.  The super-rich--usually nonproducers like athletes, actors and musicians--are held up as role models, along with the questionably productive such as investment bankers and the like.  Society's heroes spend at a grotesque rate and blow money on the most outrageous things.  Young people find not having stuff to be socially painful.  They do stupid things to be cool, which means having stuff they can't afford.  Go to a lot of churches, and you hear that success is close to godliness.  Some are warped into believe that they're supposed to get their rewards right here on Earth.

2) Our financial system has played right into this conspicuous consumption society.  Credit cards per household = more than 4.  Average consumer debt ex-mortgages = $17,000, with average monthly payments of $819.  Averaging more than one new loan application per year.  On average, consumers have one past-due account.  Consumer debt is $2.6 trillion and still growing.  Consumer installment credit equals 21% of personal income, compared with 13% 25 years ago.  From 1993-2003, consumer debt grew at a CAGR of 9-1/2%.  This was on top of a 9% CAGR from 1960-90.

The rate of consumer debt expansion accelerated a bit, despite the law of large numbers, after the 1990-91 recession.  This period coincides with the wave of bank and financial market deregulation, initiated by Reagan and continued under Clinton by Gingrich's Contract with America.

We reached the point where the credit can't get any easier, the lenders can't be more creative, and the consumer can't handle more debt.  If the US economy is to grow in the future, it will have to be fueled by exports.  Consumer spending is going to be less frivolous, held down by a lack of sustainable home price appreciation, low returns on assets in general, and declining availability of credit.

Businesses that sell to consumers are going to find themselves under new pressure to do the lending themselves.  It's that, or cut prices.  If we enter another cycle in which commodities are driven higher regardless of what we're doing, then US consumer spending will be even more difficult.

[elkhog]

I totally agree with that.  I was thinking last night about how spoiled America has become, especially our youth.  I've tried many times to try to teach my children the difference between a need and a want.  Haven't had a lot of success.  America is in need of a reality check. 

On the issue of exports, what will have to happen to get manufacturing back in this country?

[BlackKnightHogFan]

Greenspan's reaction to the Asian contagion / LTCM disaster-that-wasn't in 1998 forestalled the recession that should have happened in 1999.  It enabled massive overvaluation of tech, telecom and media stocks.  Under the surface, the regular economy had been struggling for years.  What blew off in 2000-02 was largely massively overcapitalized companies with little productive output.

Housing was on its own cycle through that recession, for the average consumer wasn't hit nearly as hard as the stock market was.  Going from overemployed to pretty normal employment was not that bad.  And the availability of credit was easy and getting easier.

Two underlying themes I assign here:

1) Our society has increasingly valued conspicuous consumption.  Kids are being raised to spend way over their heads, funded by juggling credit.  The super-rich--usually nonproducers like athletes, actors and musicians--are held up as role models, along with the questionably productive such as investment bankers and the like.  Society's heroes spend at a grotesque rate and blow money on the most outrageous things.  Young people find not having stuff to be socially painful.  They do stupid things to be cool, which means having stuff they can't afford.  Go to a lot of churches, and you hear that success is close to godliness.  Some are warped into believe that they're supposed to get their rewards right here on Earth.

2) Our financial system has played right into this conspicuous consumption society.  Credit cards per household = more than 4.  Average consumer debt ex-mortgages = $17,000, with average monthly payments of $819.  Averaging more than one new loan application per year.  On average, consumers have one past-due account.  Consumer debt is $2.6 trillion and still growing.  Consumer installment credit equals 21% of personal income, compared with 13% 25 years ago.  From 1993-2003, consumer debt grew at a CAGR of 9-1/2%.  This was on top of a 9% CAGR from 1960-90.

The rate of consumer debt expansion accelerated a bit, despite the law of large numbers, after the 1990-91 recession.  This period coincides with the wave of bank and financial market deregulation, initiated by Reagan and continued under Clinton by Gingrich's Contract with America.

We reached the point where the credit can't get any easier, the lenders can't be more creative, and the consumer can't handle more debt.  If the US economy is to grow in the future, it will have to be fueled by exports.  Consumer spending is going to be less frivolous, held down by a lack of sustainable home price appreciation, low returns on assets in general, and declining availability of credit.

Businesses that sell to consumers are going to find themselves under new pressure to do the lending themselves.  It's that, or cut prices.  If we enter another cycle in which commodities are driven higher regardless of what we're doing, then US consumer spending will be even more difficult.

Wouldn't the events you described above lead to a decrease in price of consumable commodities?

[IronHog]

Some fantastic points Biggus. My Dad has said for the last several years that he would always vote republican if they actually legislated what they preach.

I'm like Fresh in that I dont have anyone on a ballot that represents me.

We need a 3rd party that is for small government, national defense without pointless war, prudent free markets with low national debt, and a strong national identity.

There is no substantial difference between the parties at this point and that is a major reason we are in this mess.

[IronHog]

  If the US economy is to grow in the future, it will have to be fueled by exports. 

Do we still make anything to export?

[HognotinMemphis]

Do we still make anything to export?

Yeah, wealth.

[john c]

We need a 3rd party that is for small government, national defense without pointless war, prudent free markets with low national debt, and a strong national identity.

There is no substantial difference between the parties at this point and that is a major reason we are in this mess.

Right now the senators from both parties are patting each other on the back, glad handing and just wallowing on each other.  I think I'm going to be sick.

What is the name of your new party?

[Mouth Wide Open]

We need a 3rd party that is for small government, national defense without pointless war, prudent free markets with low national debt, and a strong national identity.

Sounds too good to be true.  I would also add leaving all the dividing social issues out of government too.  Let people work that out on their own. 

[Biggus Piggus]

Wouldn't the events you described above lead to a decrease in price of consumable commodities?

We could enter a situation where, like we saw earlier this year, the weakness of our consumption does not steer the prices for commodities.  The only reasons why the rest of the world is following us now are our financial services sector is pulling down their banks too, and some countries also had their own real estate bubbles.

[IronHog]

We could enter a situation where, like we saw earlier this year, the weakness of our consumption does not steer the prices for commodities.  The only reasons why the rest of the world is following us now are our financial services sector is pulling down their banks too, and some countries also had their own real estate bubbles.

Right, but high commodity prices will help stop the economy from getting too bad because energy, agri, timber etc are all huge parts of our non service economy.  Exports are the one good outcome of the weaker dollar.