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Old February 10th, 2009, 04:31 PM
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Post Why Obama’s new Tarp will fail to rescue the banks

Just 'observing' and reading the 'pundits' from a NON right wing or neo-con website - the Financial Times!

Quote:
Why Obama’s new Tarp will fail to rescue the banks
By Martin Wolf
Published: February 10 2009 18:06 | Last updated: February 10 2009 18:06

Has Barack Obama’s presidency already failed? In normal times, this would be a ludicrous question. But these are not normal times. They are times of great danger. Today, the new US administration can disown responsibility for its inheritance; tomorrow, it will own it. Today, it can offer solutions; tomorrow it will have become the problem. Today, it is in control of events; tomorrow, events will take control of it. Doing too little is now far riskier than doing too much. If he fails to act decisively, the president risks being overwhelmed, like his predecessor. The costs to the US and the world of another failed presidency do not bear contemplating.

What is needed? The answer is: focus and ferocity. If Mr Obama does not fix this crisis, all he hopes from his presidency will be lost. If he does, he can reshape the agenda. Hoping for the best is foolish. He should expect the worst and act accordingly.

Yet hoping for the best is what one sees in the stimulus programme and – so far as I can judge from Tuesday’s sketchy announcement by Tim Geithner, Treasury secretary – also in the new plans for fixing the banking system. I commented on the former last week. I would merely add that it is extraordinary that a popular new president, confronting a once-in-80-years’ economic crisis, has let Congress shape the outcome.

The banking programme seems to be yet another child of the failed interventions of the past one and a half years: optimistic and indecisive. If this “progeny of the troubled asset relief programme” fails, Mr Obama’s credibility will be ruined. Now is the time for action that seems close to certain to resolve the problem; this, however, does not seem to be it.

All along two contrasting views have been held on what ails the financial system. The first is that this is essentially a panic. The second is that this is a problem of insolvency.

Under the first view, the prices of a defined set of “toxic assets” have been driven below their long-run value and in some cases have become impossible to sell. The solution, many suggest, is for governments to make a market, buy assets or insure banks against losses. This was the rationale for the original Tarp and the “super-SIV (special investment vehicle)” proposed by Henry (Hank) Paulson, the previous Treasury secretary, in 2007.

Under the second view, a sizeable proportion of financial institutions are insolvent: their assets are, under plausible assumptions, worth less than their liabilities. The International Monetary Fund argues that potential losses on US-originated credit assets alone are now $2,200bn (€1,700bn, £1,500bn), up from $1,400bn just last October. This is almost identical to the latest estimates from Goldman Sachs. In recent comments to the Financial Times, Nouriel Roubini of RGE Monitor and the Stern School of New York University estimates peak losses on US-generated assets at $3,600bn. Fortunately for the US, half of these losses will fall abroad. But, the rest of the world will strike back: as the world economy implodes, huge losses abroad – on sovereign, housing and corporate debt – will surely fall on US institutions, with dire effects.

Personally, I have little doubt that the second view is correct and, as the world economy deteriorates, will become ever more so. But this is not the heart of the matter. That is whether, in the presence of such uncertainty, it can be right to base policy on hoping for the best. The answer is clear: rational policymakers must assume the worst. If this proved pessimistic, they would end up with an over-capitalised financial system. If the optimistic choice turned out to be wrong, they would have zombie banks and a discredited government. This choice is surely a “no brainer”.

The new plan seems to make sense if and only if the principal problem is illiquidity. Offering guarantees and buying some portion of the toxic assets, while limiting new capital injections to less than the $350bn left in the Tarp, cannot deal with the insolvency problem identified by informed observers. Indeed, any toxic asset purchase or guarantee programme must be an ineffective, inefficient and inequitable way to rescue inadequately capitalised financial institutions: ineffective, because the government must buy vast amounts of doubtful assets at excessive prices or provide over-generous guarantees, to render insolvent banks solvent; inefficient, because big capital injections or conversion of debt into equity are better ways to recapitalise banks; and inequitable, because big subsidies would go to failed institutions and private buyers of bad assets.

Why then is the administration making what appears to be a blunder? It may be that it is hoping for the best. But it also seems it has set itself the wrong question. It has not asked what needs to be done to be sure of a solution. It has asked itself, instead, what is the best it can do given three arbitrary, self-imposed constraints: no nationalisation; no losses for bondholders; and no more money from Congress. Yet why does a new administration, confronting a huge crisis, not try to change the terms of debate? This timidity is depressing. Trying to make up for this mistake by imposing pettifogging conditions on assisted institutions is more likely to compound the error than to reduce it.

Assume that the problem is insolvency and the modest market value of US commercial banks (about $400bn) derives from government support (see charts). Assume, too, that it is impossible to raise large amounts of private capital today. Then there has to be recapitalisation in one of the two ways indicated above. Both have disadvantages: government recapitalisation is a bail-out of creditors and involves temporary state administration; debt-for-equity swaps would damage bond markets, insurance companies and pension funds. But the choice is inescapable.

If Mr Geithner or Lawrence Summers, head of the national economic council, were advising the US as a foreign country, they would point this out, brutally. Dominique Strauss-Kahn, IMF managing director, said the same thing, very gently, in Malaysia last Saturday.

The correct advice remains the one the US gave the Japanese and others during the 1990s: admit reality, restructure banks and, above all, slay zombie institutions at once. It is an important, but secondary, question whether the right answer is to create new “good banks”, leaving old bad banks to perish, as my colleague, Willem Buiter, recommends, or new “bad banks”, leaving cleansed old banks to survive. I also am inclined to the former, because the culture of the old banks seems so toxic.

By asking the wrong question, Mr Obama is taking a huge gamble. He should have resolved to cleanse these Augean banking stables. He needs to rethink, if it is not already too late.

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Old February 10th, 2009, 06:29 PM
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Re: Why Obama’s new Tarp will fail to rescue the banks

I have an extremely bad feeling about the economy. The US economy looks like all "smoke and mirrors" created by the marketing fukkers and wall st ***holes
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Old February 10th, 2009, 06:45 PM
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Re: Why Obama’s new Tarp will fail to rescue the banks

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Originally Posted by gayaguzra#1 View Post
looks like
Looks like?! Where do you live mate?

This is what happens when dumb people elect movie stars to run the show. Failed Reaganomics!

Imagine ... 46% actually voted for a woman who conducts interviews while turkeys are being slaughtered behind her back. Holly molly.
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Old February 10th, 2009, 08:00 PM
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Re: Why Obama’s new Tarp will fail to rescue the banks

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Originally Posted by tantric_yogi View Post
Looks like?! Where do you live mate?

This is what happens when dumb people elect movie stars to run the show. Failed Reaganomics!

Imagine ... 46% actually voted for a woman who conducts interviews while turkeys are being slaughtered behind her back. Holly molly.
Rightly said ...
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Old February 10th, 2009, 08:04 PM
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Re: Why Obama’s new Tarp will fail to rescue the banks

Quote:
Originally Posted by tantric_yogi View Post
Looks like?! Where do you live mate?

This is what happens when dumb people elect movie stars to run the show. Failed Reaganomics!

Imagine ... 46% actually voted for a woman who conducts interviews while turkeys are being slaughtered behind her back. Holly molly.
Oh so now we are to blame Pres. Reagan? Blaming Pres. Bush I can understand, but Reagan??

Wah tantu ji wah... Seems like some extreme liberal woman fucked your brains out
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Old February 10th, 2009, 09:52 PM
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Re: Why Obama’s new Tarp will fail to rescue the banks

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Originally Posted by echarcha View Post
Oh so now we are to blame Pres. Reagan? Blaming Pres. Bush I can understand, but Reagan??
Why? where do you think the Repugs got their failed "Trickle Down Prosperity" mantra from? The mantra of "Let's give tax breaks to the Rich and get government off our backs. No oversight, No regulation and everything will be Hunky-dory" ...
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Old February 10th, 2009, 10:40 PM
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Re: Why Obama’s new Tarp will fail to rescue the banks

first of all the banks were betting and that's why we got into this mess. Now to deal with this toxic assets, these freaking banks are still greedy and want the tax payers to pay the differance, for example if a private investor thinks the fair value he is willing to pay based on market conditions is say 50$, the banks want 80$ and the tax payer is to cover this differance. This is extremely shameful and day light robbery. I just want all these banks to fold up. with all this money being pumped in wlll this still work? all these toxic debts are on paper, they could have been worked out with some new law and reworking the toxic assets and fix the bad assets. This way we could have got done in a few hundred billion dollars instead of the 9 trillion mess we are in. It doesnt take a mathematical genius to figure it out and do the right thing. Now everyone is getting screwed because, what started as a subprime issue now its spread everywhere.

Where they could have worked on the bad assets and rewriting their balance sheets these fukks have no conscience what so ever. what started out as a few hundred billion dollar mess now everyday new forecloures are reported since people are losing jobs, cant keep up with payments, ppl making mortgage paymenst when their property is under water, and interest ates are still high. Remember these guys get money from the feds at 0%. I am done venting now

Last edited by gayaguzra#1; February 10th, 2009 at 10:49 PM.
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Old February 10th, 2009, 11:34 PM
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Re: Why Obama’s new Tarp will fail to rescue the banks

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Originally Posted by gayaguzra#1 View Post
I have an extremely bad feeling about the economy. The US economy looks like all "smoke and mirrors" created by the marketing fukkers and wall st ***holes
I have posted this post in another thread as well. Even if 25% of the forecast made by Gerald comes true, it's very scary.

November Friday 14 2008 (18h52) :
Renowned Trend Forcaster Celente Predicts Revolution, Food Riots, Tax Rebellions By 2012


Celente Predicts Revolution, Food Riots, Tax Rebellions By 2012 Trend forecaster, renowned for being accurate in the past, says that America will cease to be a developed nation within 4 years, crisis will be “worse than the great depression”

Paul Joseph Watson, Prison Planet.com, Thursday, November 13, 2008

<>The man who predicted the 1987 stock market crash and the fall of the Soviet Union is now forecasting revolution in America, food riots and tax rebellions - all within four years, while cautioning that putting food on the table will be a more pressing concern than buying Christmas gifts by 2012. <>

Gerald Celente, the CEO of Trends Research Institute, is renowned for his accuracy in predicting future world and economic events, which will send a chill down your spine considering what he told Fox News this week.
Celente says that by 2012 America will become an undeveloped nation, that there will be a revolution marked by food riots, squatter rebellions, tax revolts and job marches, and that holidays will be more about obtaining food, not gifts.

“We’re going to see the end of the retail Christmas….we’re going to see a fundamental shift take place….putting food on the table is going to be more important that putting gifts under the Christmas tree,” said Celente, adding that the situation would be “worse than the great depression”.

<> “America’s going to go through a transition the likes of which no one is prepared for,” said Celente, noting that people’s refusal to acknowledge that America was even in a recession highlights how big a problem denial is in being ready for the true scale of the crisis.
Celente, who successfully predicted the 1997 Asian Currency Crisis, the subprime mortgage collapse and the massive devaluation of the U.S. dollar, told UPI in November last year that the following year would be known as “The Panic of 2008,” adding that “giants (would) tumble to their deaths,” which is exactly what we have witnessed with the collapse of Lehman Brothers, Bear Stearns and others. He also said that the dollar would eventually be devalued by as much as 90 per cent.

<> The consequence of what we have seen unfold this year would lead to a lowering in living standards, Celente predicted a year ago, which is also being borne out by plummeting retail sales figures. <>

The prospect of revolution was a concept echoed by a British Ministry of Defence report last year, which predicted that within 30 years, the growing gap between the super rich and the middle class, along with an urban underclass threatening social order would mean, “The world’s middle classes might unite, using access to knowledge, resources and skills to shape transnational processes in their own class interest,” and that, “The middle classes could become a revolutionary class.” <>

In a separate recent interview, Celente went further on the subject of revolution in America.
“There will be a revolution in this country,” he said. “It’s not going to come yet, but it’s going to come down the line and we’re going to see a third party and this was the catalyst for it: the takeover of Washington, D. C., in broad daylight by Wall Street in this bloodless coup. And it will happen as conditions continue to worsen.”

<> “The first thing to do is organize with tax revolts. That’s going to be the big one because people can’t afford to pay more school tax, property tax, any kind of tax. You’re going to start seeing those kinds of protests start to develop.”
“It’s going to be very bleak. Very sad. And there is going to be a lot of homeless, the likes of which we have never seen before. Tent cities are already sprouting up around the country and we’re going to see many more.”

<> “We’re going to start seeing huge areas of vacant real estate and squatters living in them as well. It’s going to be a picture the likes of which Americans are not going to be used to. It’s going to come as a shock and with it, there’s going to be a lot of crime. And the crime is going to be a lot worse than it was before because in the last 1929 Depression, people’s minds weren’t wrecked on all these modern drugs – over-the-counter drugs, or crystal meth or whatever it might be. So, you have a huge underclass of very desperate people with their minds chemically blown beyond anybody’s comprehension.”
The George Washington blog has compiled a list of quotes attesting to Celente’s accuracy as a trend forecaster.

<> For more details, you can refer to the following website : http://en.wikipedia.org/wiki/Gerald_Celente
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Old February 11th, 2009, 02:30 PM
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Re: Why Obama’s new Tarp will fail to rescue the banks

I am wondering if it would have been better to let the markets take its own course, banks fall under their own weight that screwed up. Let new banks and financial systems come up. These wall street fukks did all this cause they knew they can get away with anything and they are still doing the same thing.

The govt can spend money on unemployment and other benefits, but shud have left the banks run into the ground. After these banks collapse the govt could have come up with a new stimulus plan to stimulate the economy. What do you guys think?
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Old February 11th, 2009, 03:13 PM
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Re: Why Obama’s new Tarp will fail to rescue the banks

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Originally Posted by gayaguzra#1 View Post
I am wondering if it would have been better to let the markets take its own course, banks fall under their own weight that screwed up. Let new banks and financial systems come up. These wall street fukks did all this cause they knew they can get away with anything and they are still doing the same thing.

The govt can spend money on unemployment and other benefits, but shud have left the banks run into the ground. After these banks collapse the govt could have come up with a new stimulus plan to stimulate the economy. What do you guys think?
Govt still have to pay the bill for these falling banks, now that FDIC insurance limits have been increased, but yeah final bill will be less.
On the other hand so far what ever money these banks got nothing made it to the common man everything is being used to so called shore up there balance sheet. Basically all the lending has dried up & without loans no one can buy new furniture/cars/computers/softwares, from common man to big corporations every body is stuck, i guess only solution is govt start lending to people directly that way these banks will have competition & eventually things can come back to normal.
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