I vacillate between thinking it would be a good thing to let the US banking system work its own way out of the crisis, and then supporting a federal bail-out.

On the one hand, the banks ought to bear the costs for their own bad decisions, but on the other, if that means that viable banking businesses are destroyed through the fall-out, that would seem to be worse.

Central banks know how to create liquidity, and this doesn't appear to be a central banking crisis. It appears to be a crisis of trust between private banks. The wholesale market has frozen, to the extent where some of the smaller banks in Australia are apparently unable to settle deals.

But what difference will the trillion dollars make to this? Or the $4 billion that the Australian government is putting into the mortgage market in Australia?

On balance I'm in favour of government action, but I can understand why there is so much electoral pressure against it in the US.

Graham

The problem is that Congress was voting to give a third party absolute control over $700 million of public money, and borrowed money at that. Is this what they are elected for? To give away the money and the right to say how it is spent? What if it isn't spent fairly or wisely? What if it isn't enough?

"The buck stops here." will never be hackneyed. It is what is expected of our politicians in a crisis.

Fester,it is $700,000 million or roughly 65% of our GDP.I would like to get things in perspective.I've been unable to find on the net, not the GDP of the USA but it's net total worth as a nation.It has a GDP of approx $14 trillion as their pop is 15 times ours,their net national worth must be at least 40 times this.Given this perspective,their national debt of even $20 trillion[worst case scenario] as suggested by La Rouche,is relatively small by comparision.

So does anyone know or have have reference to,our net national worth and that of the US.This will put things in perspective in regards to our collective debt?ie this will include the value of all land,goods,services minus debt.

I think Congress did the right thing in voting down the bailout bill.

It was badly flawed. As pointed out by Fester, there was little in the way of accountability as to how the money would be spent. There were no penalties for executive fraud and nothing requiring a rewriting of the offending mortgages.

Hopefully, the Democrats can come up with a better proposal - one that will help bail out Mr and Mrs Average in danger of losing their home and superannuation and not the Wall Street high flyer.

Here's a link to an interesting site which tracks campaign donations and voting records in the US. http://www.maplight.org/map/us/bill/72675/default. There appears to be a glitch and the page refers to two different bills, but I think it is about the bail-out and not tax breaks for service people.

They claim that the average contribution from finance related companies to those supporting the bill is $144,988,and to those opposing it $90,213.

Not sure what this really says. Do you get what you pay for and would the bill have gotten through if those opposing it owed more to the securities industry? Or is it that those taking less are less inclined towards the industry, or maybe less knowledgeable about it, so less attractive to industry donations?

Unfortunately if they sink Graham so do we.
We very well may in any case.
Like you I am not impressed with the whole thing, but think acting is the best thing.
I have some out comes I think we should ask for in return.
Future profits to re pay with interest the American tax payers.
Prison for those whose criminal actions bought this about.
And tighter control to see it can not happen again.
We are far from out of trouble, this has the potential to hurt us much more than most think.

Some people must be made to 'sink'.... those who are implicated in the 'morality' or lack thereof in all this should be sunk down a sinkhole.

The BIG SHOTS of Wall street who allowed the shabby lending practices and allowed 'greed is good' to reign.. and those who took advantage of this should all be made to payyyyyyyyyyyyyy.. and pay substantially.

All major assets acquired during this time by Wall street grubs should be forfeit.... surrendered.

-Huge bonuses..(cash payback)
-Luxury Cars and Condominiums. (sold for capital money)
-Huge caches of Jewellery found to be sourced to income derived from such practices.

Of course.. a little bit of plain 'repentance' is what it's about.
Zachaeus shows us the way when speaking to Jesus

"Lord, to those I have defrauded, I restore fourfold"

If campaign donations sway the outcome in favor of keeping all those perks and beamers and whatever then it would be a sorry day for the USA, but then....God is not mocked.. people will reap what they sow, it might not be exactly when we might like it...but reap they will..if not now..later.

No matter what happens the Americans need to show increased compassion towards those dismissed from their jobs because of the crisis by increasing social security.

When people get sacked...families get stressed and destroyed.

Australia needs to get ready "social security wise" as well.
The influx into Centrelink could be huge?

In one of our churches in Sydney we are already preaching the need for prayer over "last days/endtimes" matters and the need to be ready for the great influx into the Christian churches because of whats coming.

Years ago in Australia we had the Commonwealth Bank, which really was the Commonwealth Bank, 100% Government owned. It ran at a profit, although nothing like the profit it makes today, and made a dividend to the Australian Government. There was no such thing as charges for savings accounts, and there was nothing like a monthly fee on home loans. The private banks were doing OK, they still made profits but didn't charge the fees like they do today. Perhaps if a bank needed bailing out in Australia it would be a good time to nationalise the institution concerned and return to the days when we had a Government run institution competing with a free market economy.

Gibo, there may be a big influx into the churches when times get tough, (History has shown that Church attendance increases during times of war and economic depression) but sadly I have to say, many of these will leave when their circumstances improve. I had to admit to my Pastor about a year ago that I had never been in such a better position financially that it was easy to feel that God wasn't necessary. An important lesson here is, no matter how well off you are now, it's no guarantee that you will stay that way.

Our booming economy in the last 10 - 15 years has been due to people cashing out equity on homes (now the reason for the financial crisis) and buying consumer goods such as big screen TVs. Its all been done on borrowed money and now we have to pay.

Graham Y "On the one hand, the banks ought to bear the costs for their own bad decisions, but on the other, if that means that viable banking businesses are destroyed through the fall-out, that would seem to be worse."

My take on this is

the ones in the pooh are clearly dealing with a "viability" problem.

the one not in the pooh are the "viable" ones you refer to, who will not be destroyed.

My take,

the market and the banks are the "experts",

the government, deploying scarce tax payer funds, it not.

Leave it to the experts.

their mess, let them sort it out.

Which seems to be the sentiment of most Republican Congress persons.

Alternatively, any "baleout" should attach benefits, in the longer term to taxpayers by way of future income in return for their substitute "investment funds" and for accepting the "risk" which the banks seem to have overlooked.

Bailing out of the crisis will only defer the pain. Better to let the recession (or in reality probably a depression) start and get over with as quickly as possible. The problem with the growth mantra of capitalism is that we do have limited resources, and so to maintain the ability to grow every now and then we need a spectacular crash. Its going to hurt a lot of people, and those that deserve it least are going to be hurt the most of all. I might sound harsh, but I face the reality that despite not having a plasma tv, I am likely to lose my home if this blows up much more, so face the same consequences as anyone else.

http://blogs.theage.com.au/business/archives/2008/09/failures_catastrophic_for_us_economy.html

Julie Bishop's blog neatly sums up the US crisis. It seems to me
that a number of people in a number of areas, need to be held
accountable.

For instance, why do ratings agencies, who rated these loans
AAA and got paid for it, escape with impunity?

Belly,

It seems you were rather premature when you insisted that we did not share any beliefs or values. I totally agree with your post.

Country Gal,

So you are prepared to lose your house and your job, your superannuation etc to teach the capitalists a lesson. It seems to me that's cutting off your nose to spite your face.

I sincerely doubt whether there are too many people who are in that position, who will agree with you.

Col

you say >> "My take, the market and the banks are the "experts",
the government, deploying scarce tax payer funds, is not.
Leave it to the experts. their mess, let them sort it out."

I agree to a point. However, if the major problem is lack of liquidity, surely we can sensibly provide that. I agree that the gov't doesn't have the experience to make the decisions on where/how to maximise investment. But assisting some of the teetering financial institutions by warehousing their bad debts is surely within the capability of gov't.

I think the average US citizen would take the option of spending $5000 to fix the problem, rather than lose their home, job and superannuation/investments.

On the edge of a possible Depression, this surely is not the time to blindy adhere to principle, regardless of the outcome.

As for those who are gung-ho on teaching those fat cats a lesson. I would point out that the lesson would be far more telling on those who have very little to start with, than on those it is supposedly aimed at.

Can someone tell me how a 'bail out' is any different to 'insider trading'?

Insider trading relates to trading in shares on the stock market. The definition varies from jurisdiction to jurisdiction, but it essentially relates to information that is likely to affect a share price, is likely to affect the share price, and that the person trading on it obtains by virtue of a privileged position.

A bail-out doesn't meet any of these criteria.

Don't bail these sharks out. Given an inch, they will take a mile and in five years time the situation will rear its head again.

Don't help them; encourage the companies to have a Receiver appointed.

Where the debt has been paid on time, when the Receiver demands that loans are repaid, have the Government step in to take over the position of lender. As lender they can charge the loan shark a fee for providing the collection service.

Where the debt has never been serviced adequately, allow the borrower to go into bankruptcy. Where they walked in on a 100% plus mortgage they had nothing and they will be no worse off.

This might sound hard but as a retired Credit Manager I take my hat off to those who have made a point of servicing their debt. They need recognition.

Finally, tighten up the loan criteria. Don't let these 100% loan sharks continue in business.

There's 2 choices, a bailout or no bailout. With a bailout it'll cost each ordinary individual American taxpayer a couple thousand dollars. With no bailout it'll DEVESTATE the ordinary American taxpayer, also their superannuation will be close to worthless for many years to come due to long term stock market collapse.

Times will be 10 times as hard without a bailout. Stock markets the world over will crash (witness the biggest Dow Jones one day fall in history on the back of the rejection of the bailout, and that's just the 'beginning'). America will witness a HUGE depression without a bailout.

An there's American politicians who don't want a bailout simply because they don't ideologically agree with the philosophy. Human stupidity knows no bounds.

No bailout equals an horrific, long standing depression and worldwide collapse of stock markets. The average taxpayer will be much worse off, not better off, if there's no bailout.

Bail them out...so that they can just continue with business as usual? Oh what a good idea (:>|

This crisis has been caused by growth at all costs, promulgated by the greedy and pitifully underegulated by government.

So what is going to change if the American taxpayer forks our $B700? Not bloody much.

It'll hurt many innocent people, but I reckon the best thing to do is not bail out the banks and let the scenario play out. Then maybe, just maybe, we will learn that unbridled growth and a grossly unsustainable economic/financial system is crackers.

If it is bailed out, the same old future-destroying methodology will just continue...with perhaps a little bit of tweaking at best...until the next, and much bigger, crash event.

Paul, you didnt read my post - I said nothing about teaching anyone a lesson. The US market works much differently to the Aust system, and government intervention in their market is only going to push back the time of the hurt. I believe that their system needs to crash properly and let the intracacies rear their heads, in order for them to have a chance to rebuild a new system that has more integrity (and I am not talking personal integrity, rather a system with in-built checks and balances which appear to be missing in the current climate). Australian markets are still much more conservative, with more regulation, and thus government interference is generally seen in a better light, and therefore tends to work more effectively.

As for cutting off my nose, no such thing. I am just prepared to be realistic and acknowledge that I am owed no relief just because I'm a nice person. If we dont let this get fixed properly now rather than a bandaid patch, its going to hurt worse later. I'm still young enough to rebuild if I lose everything (which is the attitude I would still have even if I were 50).

It's all so simple, if you think about it.

Yes, where must be a bailout, but that bailout must be used to buy the heads of the bankers that caused the problem.

Unfortunately, we don't live in the times of John the Baptist, so we can't expect their heads, in the physical sence, but their resignations could be part of the deal. Getting a new bunch, with a bit of fear, in there will help for a while, but the system must change.

Phoenix, it doesn't work like that in the US. The loan defaulters just hand back the keys. They have no further responsibility for the arrears, & that's where the problem lies.

Ludwig, you will get your desired cut in population that way, millions will die in the ensuing turmoil.

Gal, a bit less self centred thinking would be more suitable. "Even if you were 50", & almost dead was left out of your selfish, self obsessed statement. How about if you were 60, or 70, or even 80? Not much thought for those who have wasted their lives, & money, paying for people like you, to be educated & supported, in your youth. It appears that they are now expendable, now you have had your use of them.

Did you just shoot your mouth off, with out thinking, or is that really your attitude?

It seems to me that the fault lies in two areas.
The first is the mortgage brokers who lent to anyone with a pulse.
They then passed the loans back to their finance source and then
disappeared over the horizon.

The second was the finance companies/banks who then took the mortgages
and sliced them up into little bits and put the bits together into
random packages. They then flogged them off as AAA rated instruments.

Then the banks, local government etc bought them up on the S&P rating.
Now it is difficult to know the worth of a package.
So now that the holders do not know the value some are going broke
because they have no backing for their own borrowing.

If the government buys the packages, but at a price that saves the holder but end up with toilet paper.
If they pay what they are worth they will still leave the holder in
the you know what. Later the government may be able to work out how
much they own of what house and sell it off.

Its is a mess.

*"Even if you were 50", & almost dead was left out of your selfish, self obsessed statement.*

Whoah Hasbeen, I think that CountryGal should be applauded for her
matter of fact and realistic way of dealing with her problems,
rather then want Govts to bail her out. Good on her for paddling
her own canoe!

Nowhere did she mention your canoe, which is what you should be
paddling.

"Some" people don't understand that the necessary bailout does NOT mean business as usual for the people who made the mess in the first place.

The regulatory controls will be much more stringent.

This bailout vs no bailout is not about ideology or revenge, except for the stupid. It's about saving the American economy from a deep and long depression. And who's that going to hurt the most? That's right, NOT the rich, but the ordinary taxpayer. I guess some people don't care about that.

Hopefully there will be some lessons for the anti-regulation brigade here. Australia has cushioned itself to some extent because of regulation (albeit minimalist) and the role of the Reserve Bank.

Like Graham Y I oscillated for a while on either side of this debate but for the benefit of a longer term perspective I vote no bail out.

http://www.votenobailout.org/

Let the banks sort it out. Some will go bankrupt but others will be bought out like Merrill Lynch by the Bank of America.

Thanks Yabby.

I had started to draft a sharp reply to hasbeen after he had a go at shooting his mouth off, but ended up biting my tongue at the time. He obviously has his own self-interests at heart to be so offended. Given that members of my family regularly live well beyond the average age, I am well aware of the concerns of older people. My own father has now had to postpone his retirement due to the sum wiped off his assets. He is however fairly ambivalent, given that he's a farmer and seen land prices rise and crash many times in his working life (has now been working for 61 years), and ridden through many hard times. Maybe that's where I inherit my attitude from. He's of the view that if you are invested in quality company's, the value will return in the end. And now is a great buying opportunity if you have been invested in cash.

The people that will be hit the hardest by this are the younger generation, the ones in debt the most. However, as I mentioned earlier these are also the people that are the most well positioned for long term recovery. Older people may lose much of the value of their investments, but for the most part once they are reaching or in retirement, these are invested in predominately cash assets (particularly since interest rates have been so rewarding), and less exposed to the current volatility than younger people with higher risk/longerterm investment strategies for their super. Any retiree with high risk international share portfolios is kind of asking for trouble - its called risk v return for a reason.

" 'Some' people don't understand that the necessary bailout does NOT mean business as usual for the people who made the mess in the first place. The regulatory controls will be much more stringent."

SallyG, of course there will more stringent controls. But what will that actually mean?

Obviously the necessary controls have been terribly lacking. So even if they are tightened up considerably, they may still not be anywhere near tight enough.

I don't for one moment think that they will be sufficiently strong. Essentially, it will be business as usual.

Ok so we may not ever see the crazy situation that now prevails again, but we will still be hooked into the continuous growth paradigm, where a steady rate of expansion in profits and turnover is demanded and even a slowing, let alone a stabilisation of activity, is considered to be a stagnation or recession in the operation of a company, market or country's economy.

We won't be on the right track until we get our heads around the need to have stabilisation as a goal instead of continuous growth.

Bail them out and put the banks and other financial institutions who need saving under mortage to the tax payer.Let them have 50yr mortgage and repay both the interest and capital.

The personal arguments I've heard from a friend in California AGAINST bailing them out go something like this -

"The Banks and their customers got themselves into this position because of their own greed and lack of due diligence in their financial dealings"

and

"I've always done the right thing and never over-committed. Why should I now have to pick up the tab for those who weren't?"

and

"My retirement plans are pretty-well shot now. If I don't lose my job, I'll be paying more taxes instead. Why should I even care anymore?"

(plus a few that I'm not going to repeat).

All reasonable arguments on a personal level but it's not a decision that the correspondent (or any of us) is able to make.

Whatever happens - recession or depression, it's going to get ugly for a lot of people everywhere.

Rache while I understand your Friend Arjay is closer to my reality.
I owe nothing, not a cent to any one.
Years of going without made me the first in a large family to pay cash for my home.
Yet I am already a victim of this crash, so are most of us.
My home once worth two and a half times its purchase price is worth 40% more than I paid for it.
And unsellable.
My super fund lost 5% last year , including part of my 20% salary
sacrifice I paid to keep me from social security, time does not exist for me to rebuild the loss.
This year? even with the bail out almost for sure minus ten percent is the result.
Bail them out, imprison many, bankrupt a few, and control the future dealings of Americas and the worlds greedy.
No other way exists our future even then is not assured, the victims are Joe and Joan average.
They are going to be hurt more than the products of unwed parents who got us in this mess.
Yes yes PaulL no defense some bought it on themselves but those who lent the money did so from pure greed.
I know it is wrong for those like me to pay,but no other way exists.

Lets not forget that Fannie Mae and Freedie Mac were DIRECTED to make (actually buy and wharehouse but it amounts to the same thing) loans to minorities and lower socieconomic groups, regardless of their ability to pay.

Lets not forget that the US system allows mortage customers to walk away from the loan and just hand back the house key, has a MASSSIVE role in this crisis.

Besides the greed of the banks who loaned the money, we should NOT be ignoring the greed of ordinary people who borrowed more money than they could pay back. I read of one woman on an american webiste complaining about those evil bankers, who'd borrowed 250,000 dollars on an income of 10,000 dollars a year.

There is just NO WAY there isn't two people responsible for that mess. And now that she's been allowed to walk away from the loan scott free, the bank is left with the debt. That is a common scenario.

By the way, some people seem to be under the misapprehension that this is an American crisis. It decidedly is not. This is a global problem that has potentially catastrophic outcomes for ordinary people everywhere.

People should take note of those who's ideological bent feeds their desire to see the US and Capitalism come crashing down. These people will happily put the average Aussie through 100 times more pain than John Howard could ever have imagined, in order to see this come about.

Thankfully it's not up to them. It would actually be interesting to know the potential losses to those who oppose the bailout. My feeling is that very few of them have mortgages, superannuation or jobs on the line, and will happily sacrifice those that do, in pursuit of their hatred.

Re Country girl's post of October 1st, you may be right referring to a coming depression and an ABC news reader may be a prophet. Yesterday, during a news break, the reader referred to 'the coming US depression', then quickly corrected herself with, 'er, recession'.

I remember as a child asking my parents why they did not think there would be another depression (they were in their 20s during the 1930s). They replied that Governments better understood the causes of of such disasters and had taken steps to prevent them through legislation and tight regulation.

What, did someone say that the financial system has been deregulated? Hold on to your hats!

Paul, that puts an interesting perspective on it. I wasnt aware of the ability to walk away in the US. I suppose its developed as a form of consumer protection against the power of the banks. I dont really agree with it though. Our bankruptcy rules at least make people take some degree of responsibility, even if some of the debt gets written off in the end. If this is truly the case I can see why the sub-prime debt became such a huge debacle there and not so much here.

For anybody wanting to know how the world financial system – especially banks - evolved into what it is today, here’s an excellent explanation of how debt is now used to create money and why we're surrounded by it.

http://video.google.com/videoplay?docid=-9050474362583451279

It runs about 47 minutes but it's got a lot of interesting background.

I suspect the bail-out alone isn’t going to fix much. Some significant RE-regulation may be required too.

Paul.L

"Lets not forget that the US system allows mortage customers to walk away from the loan and just hand back the house key, has a MASSSIVE role in this crisis."

These people have been left with nothing. The loan repayments, which comprised a large proportion of their income, have come to nought and the home they once dreamed of owning belongs to the bank as it always did. The banks, from the beginning, had always planned to onsell these homes as rises in repayment rates forced foreclosures. They only came unstuck, or the ones that didn't offload fast enough did, when the huge numbers of houses for sale saw values plummet.

Stop blaming the victims here. These people were conned into taking out loans the banks knew perfectly well they would never be able to repay. Those who've handed in their keys do have a 'massive role in this crisis' as you state, but the blame you are implicating they should wear needs to be sheeted home squarely to where it belongs, that is to the unbridled and unprecedented greed of the banks which sold and passed on these loans.

"It would actually be interesting to know the potential losses to those who oppose the bailout. My feeling is that very few of them have mortgages, superannuation or jobs on the line, and will happily sacrifice those that do, in pursuit of their hatred."

Members of congress on both sides of the house were absolutely swamped with pleas from the American public to reject George Bush's bailout proposal. I'm sure most of them had as much to lose as anyone else. It's not that those opposing the bailout, as it was first presented, want the system to crash. They just don't want a bailout that hands a blank cheque to Wall Street. They want something with real teeth. They want to see those who brought about this situation made to pay, they want stringent regulation to ensure it never happens again, and they want every dollar of taxpayer money used in the rescue package to be recouped with interest.

First I thought, let the bastards pay for the mess they made.

Then I thought, let's just look at the reality now, and see what is the best way forward for everyone.

Now I think, this is very suspicious. What guarantee do we have that this money will fix anything? I'd want some pretty stringent control over what this money is going to be used for, and who is going to profit from it. Just as sure as contracts in Iraq, these corporate bail outs will no doubt find their way into the hands of the creators of the problem, fund multi-million dollar salaries and be filtered to those least needy or deserving.

Further, you just watch our banks cry poor. The very same banks who made good profits last year, and fund a small percentage of their mortgage buisness from overseas, will not pass on any interest rate cuts. Petrol companies will absorb exise cuts into profits, Qantas keeps the fuel surcharge when petrol slides lower under 100, Child care centres absorb the 50% rebate, developers and real estate agents pocket the first homeowners grant. It's the way of the world. The bailout will be no different. It's a sham.

Browyn,

You say >> “These people have been left with nothing. The loan repayments, which comprised a large proportion of their income, have come to nought “

Blaming the victim? What absolute ROT. Where has the concept of personal responsibility gone? These people were greedy. They borrowed more than they could pay back and they have come slightly unstuck. But those people get to walk away.

In fact large numbers of speculators have simply walked away from their loans because house prices have gone down. Those people can rebuy the same house at a significantly reduced price when the bank puts it on the market. The loss caused by the collapse of the real estate bubble is then entirely borne by the bank, even though the speculator had a primary role in creating the bubble, and would have pocketed all of the profit if things had gone well.

You seem to think there is some kind of divine right to borrow money. That everyone should be able to get a loan and not worry about whether they can pay for it. This is absolute twaddle.

So let’s stop pretending that these people are victims of anything but their own greed, stupidity or ignorance. No one forced them to take loans.

On the other hand, the democrats, who stacked the boards of Fanny Mae and Freedie Mac instructed those institutions to make loans to low income and minority clients.

Let me make this clear. If you take out a loan, you should be responsible for paying it back. This is exactly the same standard you are holding the banks to. They made their bed, now they should lie in it. I would hold them to it as well, even if it meant they went under, but I believe the cost of allowing that to happen may be far greater than the cost of intervening.

I’m not denying banks have a full share of the blame, but two people signed those mortgages, the bank manager and the lender. Lets not pretend only one of them was being a tad greedy.

Ajay,

The World Bank calculates national wealth based on national assets over population. Oz and Canada are ahead of the US on this measure.

If memory serves, both Texas (a country in 1841) and California have gross economies larger than Australia's.

Seventy-five percent of the World's wealth is outside of the US. Organizations like Singapore's Tamasek Holdings et al. can go to the fire sale and acquire US assets. Thatcherism in reverse.

All,

Don't let them sink. Let the Market work. Is Capitalist Socialism no longer a tautology?

What would be a danger the World economy is the US changing to a protectionist stance to stop billionaires becoming Rooty Hill Billies.

O

I'm watching this with great interest.

The minimalist government Republicans are suddenly all for government intervention. Sounds a bit like capitalism with a socialist cushion and government stepping in when the market forces are trying to balance out. Please Daddy, we need help, can you give us a loan?!

Either the Republicans truly believe that free capitalism with no government interference is the best way of providing the best standard of living for all or they don't. What is it with them suddenly calling for a taxpayer funded bail out?

If a bail out isn't agreed upon the rest of the world will suffer terribly. How we all try to emulate that fearless and free capitalism American style. The USA is SO rich.

Dare we suggest that unfettered capitalism is as unworkable as is communism? That they are but opposing extremes?

Oliver,I just want to get things in perspective.It seems that no one has put a value on the total worth of the US both public and private.The same can be said for Aust.Their $11.7 trillion debt is still probably a very small proportion of the total land,industry,housing and people value of the US.This taken into consideration,their only real enemy now is fear and distrust which is causing their economy to falter.Money is only a facilitator and it has no intrinsic worth,when it's function is perverted so does it pervert the functioning of the real economy.

Unlike the Great Depression people now have access to an enormous amount of information.When you are more able to understand the disease,then strategies can be put in place to counter act it.

I see the major problem as premoting confidence for people to continue spending thus maitaining their own jobs.The spiral backards will just see more assets devalued well below their true worth and jobs lost that need not happen.

*On the other hand, the democrats, who stacked the boards of Fanny Mae and Freedie Mac instructed those institutions to make loans to low income and minority clients.*

Paul L, whilst I agree with much of your post, the above is a bit of
a cop out. At the end of the day, George and Dick have made the rules
for the last 8 years, the blame is on their shoulders. As I have
said for 8 years, they are a pair of dummies and American voters
are now paying the price of electing them. I don't confuse the
principles of capitalism, with dockhead politicians, as those two
clearly are.

Yesterday I heard an interesting discussion on ABC radio, where
an American economist actually made a great case, that a recession
is what we need, to bring things back to what is sustainable.

I cannot argue with some of his points and many apply to Australia
as well.

Both America and Australia have been living it up on borrowed money,
largely from Asia and the ME. Asians are frugal savers, we borrow
to the max. That is simply not sustainable.

The result of easy and cheap credit has caused houses to be way
overvalued, as the Economist has pointed out for years.

A recession, however painfull, restores the value of money and
brings things back to some kind of sustainability. Those who over
borrowed will pay a price, those who were greedy will pay a price.

Many who are guilty of nothing will pay a price, but on the other
hand, the merry go round of ever rising credit had to end at some
time. Best to deal with it now, for it had to end at some time.

In terms of the West Australian economy, some kind of slowdown will
have to be a good thing, for things have simply gotten out of hand
over here.

Hi Graham,

Good topic.
As the news show, a full bailout didn't rally the markets and won't stop a US recession.

I think a partial bailout is a good proof of concept within the lines of a rescue plan for some of the unlucky but exclude the reckless. Good for the government to intervene to rescue corporations but not to bailout all bad debts so no body really learn anything.

Peace,

Ajay,

I agree with you on both points. The US economy/wealth huge and eonomists now much more about how markets operate than in the GD.

Protectionism to protect the status quo, is still a concern.

Historians Toynbee and Quigley, both have studied the protection those in power stance, as a measure of decline. Yet, the West unlike twenty-two other recognized civilizations has survived declines and atypically, as Huntington notes, has two centres (Europe & the US).

These loans were not all bad. There is a very false impression being given that this was a bank scam. It was not. Many hundreds of thousands of people got into home ownership, through just this system. It is 30 years old, & worked to the borrowers advantage in a growing economy.

Increasing values, & wages allowed the home buyer, with these low start loans, to build equity, & increasing wages allowed them to meet their commitments, & become home owners. The market even survived the "Housing & Loan" fiasco, a few years back, so it is much more than just a pack of cards, as has been suggested.

Those with a better & less selective memory, will remember that no greater labor luminery than Tom Burnes, started the same system here. It was widely praised. Some of the later borrowers got into trouble, in a downturn here, just as they have in the US.

Burns was widely critisied. I felt sorry for him. He had done much good for many, & I doubt anyone was more upset than him, that some were hurt, by the unforseen problem. After 30 years of near constant growth, many did not think a downturn was possible. Fortunately for the rest of us, it was only a tea cup sized storm, in the big picture.

House prices, in the states, are much lower [less than half] than here in Oz. Last year you could still by a house worth living in, for US$70,000. It's probably $35000 now. You could pay these houses off, for no more than the rent you would pay for the same house. Buyers were only up for the taxes [rates], & maintenance costs, above the cost of renting.

The real problem was bundling these things as AAA rated investments. Of course they had behaved as just that, for many years, so perhaps, even that was warranted.

I wish someone, who really knew, would detail the steps that led to the present situation.

Dear Graham,

They don't have a choice but to bail them out
unless they're prepared to sacrifice the lives
of 160 million Americans plus other global
investors with financial investments in the US
through the stock exchange.

Let's hope that future American Governments will
learn from this experience and regulate the
banking and investment sector to ensure that
this doesn't happen again.

The US Government by bailing out the banks will be
buying out the debts (mortgages) and in future
will be able to sell them back at a profit.
In the meantime this will give the banks time
to recover. That's the theory, as presented by
American financial advisers.

Did America apologise for sub-prime? Many need to hear it.

Anasi,

you say >> "The minimalist government Republicans are suddenly all for government intervention. Sounds a bit like capitalism with a socialist cushion and government stepping in when the market forces are trying to balance out. Please Daddy, we need help, can you give us a loan?!"

This is unadulterated nonsense.

Firstly, it was Republicans in the house who were threatened by economic liberal groups to vote down the "bail out"
or else face competition when their re-elections came up.

Secondly, look up the history of central banking. Its not new or remotely anti-capitalist for the gov't to inject funds into the economy to manipulate the market. How do you think the reserve bank sets interest rates?

One of the central banks roles is to be a lender of last resort, providing liquidity to the market when funds are tight. http://en.wikipedia.org/wiki/Central_bank

Yabby,

I'm not suggesting Bush isn't responsible. All I'm saying is that it was a democrat policy that Bush seems not to have changed to provide these loans.

The problem is a lot more complicated than just greedy bankers. It makes it nice a simple for the punters, but doesn't reflect the reality of the situation.

Hasbeen

"The real problem was bundling these things as AAA rated investments."

This spread the problem but it was not the root cause. I'm not sure if it was the case with all the loans that have been defaulted on, but certainly many were very definitely part of a deliberate banking scam, despite your statement to the contrary.

NINJA mortgages were sold by agents who were paid by the banks. They were paid on commission for each sale so the incentive for reckless selling was there. The loans were Automatic Resetting Mortgages whereby the initial repayments were affordable but the rates jumped sharply after two or three years. This critical piece of information was buried in the fine print and not pointed out to the loan recipients. I don't know about you, Hasbeen, but that's certainly a scam in my book.

Sure, we can all condemn these people for not reading the contract carefully. But these were low-income people, probably poorly educated and with a poor grasp of the English language, and with no access to expensive lawyers to point out the pitfalls awaiting them. These people are as entitled to the American dream of owning their own home as anyone else and when they were led to believe it was possible, their lack of caution, while stupid, is perfectly understandable.

As I have said before, and sorry to start sounding repetitive, they are the victims here. The banks are the villains and they are the ones who should be wearing the blame for this fiasco.

Anansi,

Intervention is State Capitalism not Market Capitalism.

All,

Prudent Banking practice is not only to lend to the right borrowers but also to lend on the security value not the market value of the property: i.e, 80%-85% the property's worth at the time of the loan. Thus, providing a margin negative property value fluctuation. [Shares are 50%]

Circa 1974, the World moved from Bretton Woods [1944] to assist the US. Ironically, in 2008, prompting-up the USD might help US investors (FDI) buy into AAA economies like Australia and Canada, at low currency exchanges, as banks and traders sell the minor currencies to help the States.

*This critical piece of information was buried in the fine print and not pointed out to the loan recipients. I don't know about you, Hasbeen, but that's certainly a scam in my book.*

Bronwyn, in my book, you are being rather naive about the world
and how it functions out there.

Yes, the business world is full of scoundrels. Duh. I've seen
many a public servant lose their retirement savings, when they
join the real world and the sharks move in. That is the reality
of business for you, you learn it earlier or later in life, usually
the hard way.

What it comes down to is what is legal? Either companies and agents
broke the law or they did not break the law. Politicians are the
ones who are meant to formulate laws, so that people, even the stupid,
are protected from scoundrels.

I simply do not believe that no politician knew about what was going
on and if they did know and did nothing about it, they were not doing
their job.

The reality is that business is not the Salvation Army. It works
on the basis of what is legal, not what is moral. That is the
reality, like it or not.

Those at fault are those at the top, under whose watch these schemes
took place and who had the power to change the law and did nothing.

Those who claimed to look after Joe sixpack and his vote and then
who ingnored him, once in office. Also those gullible enough to
vote for those dummies, who are now learning the hard way.

Politicians are at fault here, apart from anyone who broke the law,
who should be charged accordingly.

Yabby

"Bronwyn, in my book, you are being rather naive about the world and how it functions out there."

Yes, Yabby, and in my book, you are being rather patronizing, as per usual.

You accuse me of being naive in blaming the banks. And yet it could equally be described as naive to absolve the banks and blame the government, as you have done.

"What it comes down to is what is legal? Either companies and agents broke the law or they did not break the law. Politicians are the ones who are meant to formulate laws, so that people, even the stupid, are protected from scoundrels."

Politicians had indeed formulated laws, after the Great Depression, and very good ones too. These prevented, as they were meant to, any reoccurrence of the 1930s crash. They served the American people well, until gradually dismantled over the last two decades as a direct result of the relentless lobbying and massive political donations on the part of the banks.

Interestingly, one of the main drivers behind the repeal of these laws was the man currently co-chairing John McCain's election campaign. This man was actively lobbying right up until 2004 when the last of the states removed legislation preventing predatory lending. So yes, I agree, weak governments are at fault, but it is the banks that twisted their arms and greased their palms.

"The reality is that business is not the Salvation Army. It works on the basis of what is legal, not what is moral. That is the reality, like it or not."

Yes, Yabby, I've read enough of your posts to know that is certainly your reality.

Well as expected the bail out took place.
It will not fix it.
It did not bail out the world or America but it was the only choice.
We may suffer much more yet but post this American election, you can put money on it, many who bought this about will fall.
Just maybe the home of capitalism will understand in lending money you must have better ways than this to retrieve it.
Greed will not die and world wide Joe and Joan average will continue to pay for others greed.
In other threads that did not attract much interest I spoke about the failure of capitalism.
The Socialization of dept and the non taxing of some profits how truly honestly, rotten in a country that fail hundreds of thousands of true poor.
And focus for a second on the American health system, how it is said to fix it would be socialism.
We are about to see, after this election much pain much change and much fear bought about by a system that one day will fail.

Socialism won't fix it Belly.It was Bill Clinton who deregulated their Banking system.The much tighter regulation evolved out of the Great depression.The Bush Administration just perpetuated the lie,thinking that the financial system could produce real wealth to finance the war in Iraq.That cost them a $ 1 trillion.

The way out is to get the USA back to real productivity,import less from OS and make Govt smaller and a lot more efficient.In reality the US has plenty of energy,with coal,shale oil,and the oil of their own and what can be bought from Canada.They also have to reform their legal system as we do since it is costing a fortune in insurances.Our system is basically sound.The rules need improving.There needs to be more competition amongst the Global Businesses.Too few own resources and the energy.This is adding to inflation.There needs to be some international rules that see people in poor countries being paid a basic wage.They should be able to afford to buy the goods they produce.

In NSW we have seen a very wasteful incompetent Govt take too much from the real economy.The result is that we have a housing shortage,insufficient infrastructure,and a state broke.They are getting far less tax as a result.Starved of funds,unemployment is rising and we too are spiralling backwards.

Both the Russians and Chinese have moved toward a market economy.Cringing into socialism will see a lot more poverty.

Re Bronwyn's post of October 4th, "weak governments are at fault, but it is the banks that twisted their arms and greased their palms.'
Isn't it about time that 'greasing of palms' was given its correct name: bribery and corruption?

*So yes, I agree, weak governments are at fault,*

Well that was exactly my point. If politicians are so weak, to
just cave in to lobbyists, they should not be in office. If
people keep voting them in, people have themselves to blame.

*I've read enough of your posts to know that is certainly your reality.*

You have no idea what my morality is. In this case you are simply
trying to shoot the messenger.

Most of the banks involved seem to have been investment banks, as
distinct from regulated banks, in other words banks in name only.
Bear Stearns, Lehmans etc, have now gone broke over this. Good
banks, like Wells Fargo, who are run quite differently can move
in and benefit. I see that Wells Fargo is taking over Wachovia.

So its far more complicated then trying to blame all banks.

Wall St has more sharks then the oceans do, politicians clearly
ignored this fact. Their heads should be on the chopping block.

NOBODY absolutely KNOWS, in advance, what will or will not work. Only time will tell. Whether the authorities do one thing, or the opposite thing, or do nothing, there will be critics sitting in front of their computers proclaiming to anyone who's unfortunate enough to read their typing, that they know the real cause and know the real solution.

Almost every opinionated amateur sideline critic believes he/she is an EXPERT on the Wall St mess.

jw your heated comment would have to include your self would it not?
Just sit and re read your post, if you do not laugh you have no idea of humor.
rofl~!

JW,

Nothing in life is a certainty. Yet, we do know protectionism had a multiplier effect after the 1929 crash of Wall Street, we know that with a term deposit maturity transformation demonstrating a shift from high rates to low rates, that bank margins are squeezed, if they do pass on central bank indicator rates (if they don't lending & business activity declines), we know that central banks and corporates will act to protect the USD and FDI respectively. The latter would likely be protected because, say you are Toyota, if your USD assets decline, your Yen globally consolidated balance shee suffers.

Finallly, we know the difference between State Capital and Market Capitalism.

O.

JW,

Nothing in life is a certainty. Yet, we do know protectionism had a multiplier effect after the 1929 crash of Wall Street, we know that with a term deposit maturity transformation demonstrating a shift from high rates to low rates, that bank margins are squeezed, if they do pass on central bank indicator rates (if they don't lending & business activity declines), we know that central banks and corporates will act to protect the USD and FDI respectively. The latter would likely be protected because, say you are Toyota, if your USD assets decline, your Yen globally consolidated balance shee suffers.

Finally, we know the difference between State Capital and Market Capitalism.

O.

Belly, please read my post properly. The entire point of it was that nobody absolutely knows the wall Street solution. Whether you realise it or not the word "nobody" means JUST THAT. "Nobody"!

Solutions need to be attempted, but "nobody" can guarantee, least of all the lay people on this site, in advance, what absolutely will work.

Only time will tell.

JW I agree with you.

the idea that armchair economists, motivated by sentimental issues of so called "fairness" and "equality" have a clue is laughable.

Personally I posted earlier on this thread and still believe we are better off to leave the thing to sort itself out.

Alot of the problem was caused by governments encouraging Banks to lend to the economically irresponsible, More fool the bankers for going along with here-today-gone-tomorrow politicians.

When Banks go bust some folk lose out, usually the greedy buggers who get sucked in by abnormally high promises of returns (viz Geelong and Pyramid)

However, when governments meddle, it is not the few but all of us (the prudent included) who lose out.

Scarce Tax payers monies squandered on headline political aggrandizement.

Treasurer Swan is looking well out of his depth (must be up to Economics for dummies volume 97) and looking more like a dead duck.

Well it looks like the rabble have got what they wanted, a recession.

The specter of Keating and his “Recession we had to have” will haunt this socialist government of Krudd and Co

This ”one-term” government looking more “one-term” by the day.

And the liberals are right, the banks can afford to hand over the entire 100 base points, despite Sqan swallowing the banks line, hook and sinker to boot, displaying the gullibility of a fool (reminds me of State Treasurer Jolly, whose got dragged down with Pyramid).

JW I have read your post, every one of them, I find no reason to change my views.
Col you did it too, you questioned the value of posters views then gave us your own.
Two grins for the price of one.
And old mate you got it wrong often too.
One termer? rofl.
Now back to the thread.
This is not fun, we stand on the brink of the worst ever crash, just maybe the end of capitalism.
Yes its not our fault, I take it you and I never gambled, hope like me you owe no one anything.
How can anyone not know without the bail outs it would already be upon us? financial melt down.
It may well be when we wake tomorrow.
Today while on the road I twice tried to draw some of my pay at the banks ATM.
Both closed, no worries while I keep no money under my bed I had a few bob at home.
What if they are closed tomorrow? and never open again?
On the day this thread started things looked bad, but in the short time that has passed they look far worse.
Col your biases will change nothing I would bail them out ever time rather than sink, your leader must re think his stand he understands even some on his side are weary of popularism policy's.
I will eat out on your post after the next election , that may well take place within 12 months too.

Relax, Belly.

>>This is not fun, we stand on the brink of the worst ever crash, just maybe the end of capitalism<<

Nope, it's just another turn of the wheel. The system became bloated with junk, the system is now getting rid of the junk. Unfortunately, nobody is quite sure any more what the residual value of the junk might be, so the US Government is pitching in to buy up great gobs of it, and calm the system down.

Not pretty. But for a while there has been a sector of the banking industry that has been creating financial "instruments" out of esoteric mathematical formulae, and selling them to each other like there's no tomorrow.

Well, as usual, there has been a "tomorrow", and the pus is being expelled from the wounds, big time.

We are going to have to suffer a little - but only a little - while the system convalesces. There'll be a bit more regulation, probably a banking version of Sarbanes-Oxley, that banks will undoubtedly bitch and moan about for a while, just as US businesses did with S-O.

But the suffering will be good for us. We will borrow less, for a while, and have to defer that new car or the bigger plasma screen or the extension to the house that we were planning.

It will do us good.

>>What if they are closed tomorrow? and never open again?<<

As long as you are talking about Australian banks, you shouldn't be too worried. Our exposure to the nasty stuff is far less than the US or Europe - half Europe's and a fifth of the US - and they have enough cash to satisfy even your needs, Belly.

One of the reasons they are safer is of course that they have been ripping us off for years. And when this passes - as it will - they will use it as an excuse to rip us even more.

Betcha.

*they will use it as an excuse to rip us even more.

Betcha.*

Ah Pericles, clearly time for you to invest some of those
hard earned savings in Aussie bank shares :)

While I agree greed and maybe theft got us into this I can not agree we will not suffer,
Just in my world I know of very real pain true life distroying pain.
In threads both myself and others started I spoke about this coming, said it had to come but it has just begune not yet ended.

Belly “Col you did it too, you questioned the value of posters views then gave us your own.”

Geez… and I thought that was what an “opinion forum” was all about, I presume, therefore, since to seem to be making issue with it, that you have some different notions on posting here Belly but I will be damned if I can think what they might be

“Yes its not our fault, I take it you and I never gambled”

Personally, only with what I have been prepared to lose (that means several thousands from time to time).

“I would bail them out ever time rather than sink,”

Obviously you are not from Victoria Belly.

Because if you were, you too would recall the Pyramid scandal and the Tricontinental affair (which saw the fire sale of the State bank of Victoria) when the skanks of the Kirner government did just that and forced Victorian motorists to pay a levy to recoup the monies doled out on Pyramid

After the lost over $1,000 of taxpayer funds for every person in the state, they also lost their parliamentary seats, in a landslide

First rule of government, which needs to be tattooed in reverse on every politicians head (so they can read it in the mirror when they comb their hair),

“Respect the taxpayer”

Because it is taxpayers who vote at elections,

Not just you and the other soft touches who want to play “lady bountiful” with the money you expropriate from the taxpayers hard earned real income.

Like pericles so eloquently puts it

“One of the reasons they are safer is of course that they have been ripping us off for years. And when this passes - as it will - they will use it as an excuse to rip us even more.

Betcha.”

“In threads both myself and others started I spoke about this coming,”

Whoopi doo,

but I bet I started before you, busts always follow booms

just as booms always follow busts

Good onya Col you confirmed a view I held about you, can you not see it was you who questioned others right to an opinion?
In supporting a post that told us tapping out our thoughts was a waste of time?
Why are your thoughts not wasted too?
I know about the crash in Victoria, a workmate here in NSW got bad advice and put his retirement money there.
We are far from the end of this crash, we are all effected by it now but it could get far worse.
The Innocent victims will be hurt more than the idiots who caused the crash.

Belly, "Good onya Col you confirmed a view I held about you, can you not see it was you who questioned others right to an opinion?"

Wrong,

I respect everyones rights to freedoms, including to an opinion.

I suggest you read where I have repeatedly expressed my support for the individuals right to freedom of speech and expression, such as any of the post concerning Bill Henson, my absolute support for the freedom of choice of pregnant women who wish to seek abortion and my support for the processes of free market transactions.

However, expressing support for freedom of opinion does not exclude or limit, in any way, the incredulity (for want of a better word) at how moronic some of those opinions are and

my equal right to conmment, as I do, at the stupidity of same.

"The Innocent victims will be hurt more than the idiots who caused the crash."

That has been the case, even since before the fall of Rome.

Belly,

Col: >>> "The Innocent victims will be hurt more than the idiots who caused the crash."

That has been the case, even since before the fall of Rome.<<<

Col has demonstrated the difference between himself and we human beings, he doesn't care, we do.

I feel that with something like this there is little or no perspective until quite sometime after the event.

Like so many events in history the ‘right thing to do’ will only be put forward with the perspective of time.

Right now many experts and ordinary people are thinking in black and white, either governments bail out the banks. Or they don’t.

What the right decision is, will become clear in the next decade or even longer.

In my opinion the bailing out of these institutions is a mistake.

Adam smiths mantra of the invisible hand is still worthy of consideration.

It seems wall street wants it both ways, it wanted free markets and deregulation to expand. But when it flopped it wanted non free markets and government bail outs.

When things collapsed they came like little children for money to the government.

A true free market would use small measures like interest rates to curb and encourage spending and it would let these companies collapse or thrive by themselves. Bailing them out only causes many more problems later on.

The real issue hers is nobody wants to take any responsibility inside the corporate world and is shouldering it all on governments.

Let these banks collapse… main street is overvalued anyways.

Take a good look at the dow jones over a 30 year period and tell me its levels in the past 5 years where sustainable.

Fractelle “Col has demonstrated the difference between himself and we human beings, he doesn't care, we do.”

Actually you are, as often is the case, wrong.

You are confusing “caring”

with

“sentimentalist sympathy”.

The difference

What I ‘care” about is finding solutions and fixing problems, it is what I do for a living.

From reading the content of much of your posts, what you seem to care about is maximising the emotional credit you can extort from any situation, to satisfy your own insecurities.

That might give you a temporary warm and cosy feeling

but it actually benefits no one

*The real issue hers is nobody wants to take any responsibility inside the corporate world and is shouldering it all on governments.*

Well some corporates are paying a heavy price, by going bankrupt,
investors losing the lot.

What interested me was how this whole thing got going in the first
place. Sure enough, somebody on the Economist website posted an
article from the New York Times, from 1999, where the Clinton
administration were pushing Fanny and Freddie to guarantee housing
loans to borrowers with dubious credit ratings and inadequate
equity. When Bush came to power, he never did a thing about it.

So at the end of the day, it is a political problem and to say that
politicians are blameless and its all that naughty Wall St, is of
course not correct.

At the start of the thread we spoke about bailing out American banks.
Now we are dumbfounded by the extent of the problem.
Col Rouge talks of a spit in the ocean in comparison the Victorian bankruptcy of some years back.
Yabby quite rightly puts some blame on politicians, and so we should.
We endlessly talked in threads from the very first day of this forum of over spending over pricing and borrowing beyond our means.
Like rabbits caught in the spotlight world leaders seem stunned we wait for action to stop the bleeding.
Just maybe in one week from now we may see the losses as bad as they have been from this threads birth.
What then?
We can lay the blame endlessly but governments must legislate to see something very like the Australian system of re paying loans is world wide.
And that greed is controlled.
Some acts that bought us to this state are criminal and we must see convictions surely?
It is not yet over we are far from safe in Australia, do not bank on China.
Has any one considered they may not wish to help?
If China shuts down growth to weather the storm we are going to have hard times.

Belly “Col Rouge talks of a spit in the ocean in comparison the Victorian bankruptcy of some years back.”

REALLY?

Please quote where I have ever made diminuating comment to the seriousness of the present world financial meltdown.

I have never ever suggested to make light of the financial crisis, re “spit in the ocean” and I do resent your fraudulent misrepresention of my views as such.

In future, if you want to quote me, quote me verbatim or not at all.

Col
The evidence for my claim is to be found in abundance in your posts. Your vilification of any people less fortunate than yourself gives the lie to your claim that you actually solve any problems for anyone other than yourself.

For example; referring to the women and children who drowned on the SEIV X as “swill” strikes a new low in contempt for others – even for you and helps no-one.

http://forum.onlineopinion.com.au/thread.asp?article=7899&page=0#125173

BTW calling people names like ‘swill’ or ‘morons’ is hardly the language of the impartial, rational and unemotional – again you condemn yourself by your own words.

Fractelle “For example; referring to the women and children who drowned on the SEIV X as “swill” strikes a new low in contempt for others – even for you and helps no-one.”

You obviously misunderstand me.

I value and support the process of “law and order”, as the fair and impartial basis for regulating everything from some interpersonal to international relations.

I do not single out, as you have done, the “swill” on ther SIEVX boats any different to the “swill” who sell drugs to children or the “swill” who made money by defrauding the policy holders of HIH.

They are all swill and the world would be a better place if they either changed their ways or had been drowned at birth.

But since you feel so entitled as to comment to my character, distinct from my posts, I feel entitled to comment on yours and repeat-

“From reading the content of much of your posts, what you seem to care about is maximising the emotional credit you can extort from any situation, to satisfy your own insecurities.”

Be as self-righteous as you want, it means nothing to me, except to confirm the fragility of cognitive reasoning behind what you bother to post.

Belly “And that greed is controlled.”

And

“Some acts that bought us to this state are criminal and we must see convictions surely?”

That would be the ‘greed’ and the ‘acts’ of those who took loans from banks and treated them as ‘gifts’ or with the fraudulent intent not to repay.

You seem to have a flair for commenting on the bleeding obvious but are light on when it comes to any real suggestions.

footnote... governments 780 billion dollars appears to have made no difference.

I guess I was right when I wrote at the beginning of this thread

"the market and the banks are the "experts",

the government, deploying scarce tax payer funds, it not.

Leave it to the experts.

their mess, let them sort it out."

Can somebody explain to me the difference between persons wanting a plasma screen or a house overextending themselves and losing the lot and a bank or company going bankrupt in the pursuit of ever greater returns in unsustainable ways.

Why are individuals borrowing or investing 'greedy' for seemingly excellent growth when it goes wrong, but corporations not. They were somehow swayed by altruistic reasons on the say-so of politicians. Why are politicians to blame when the markets and the banking industry where ever freer to do what they saw fit under the auspices of Greenspan?

Should there be government regulation on corporations, including banks, to curtail that natural human tendency of greed, the pursuit of ever greater personal profit?

To 'share' or not to take advantage of another for personal gain is not something admired in the hard nosed, unemotional world of business. It is in essence contrary to the value of your business to point out that another entity is paying too much, is being ripped off. That is in the realm of personal responsibility, to say otherwise you are branded as a merit denying socialist, do-gooder or bleeding heart.

By blaming politicians, which is also done by out and out capitalists, is peculiar.

It is those with a more socialistic bent who are far less emotive, who are pretty hard-nosed about the natural avarice of human beings.

Human innovation and creativity needs to be encouraged and rewarded, that is good. But, ethical behaviour and scrupuous honesty is not a given in assessing the 'rightness' of pursuing a certain path when some opportunities arise.

That is where governments must come in. The USA needs more government, not less.

Great post, Anansi.

Col Rouge

"That would be the ‘greed’ and the ‘acts’ of those who took loans from banks and treated them as ‘gifts’ or with the fraudulent intent not to repay."

I'd like to see some hard evidence of this so-called 'fraudulent intent not to pay'.

If you're going to put the boot into people who are already suffering, as seems to be your favourite pastime, at least have the decency to back up your claims.

Bronwyn “I'd like to see some hard evidence of this so-called 'fraudulent intent not to pay'.

Anyone who accepts a LOAN in any form, even a credit card, is issued a list of conditions.

First condition…. agree to the repayment schedule, whatever it may be.

If you accept ANY loan, with the intention of not repaying it, you are perpetrating a fraud.

Banks and lenders know the bad publicity associated with foreclosure, they only pursue people as a last resort, after they have tried everything else.

Subprime loans for instant, the borrower with a less than perfect credit rating will be able to borrow against security but not at 80%+ only at a lesser % where the lender has a higher margin of security over debt. Of course, the interest rates paid are also higher than the rates available to those with ‘good-credit’.

Bluestone and Liberty are two of a number of Australian sub-prime lenders.
Subprime is not the first option but it is a valuable option for those folk who are recovering from some form of financial disaster. Poor credit rating costs them and they are under a stricter discipline than normal borrowers. Of course if they cannot manage the discipline, they should not present themselves to a lender in the first place.

http://research.stlouisfed.org/publications/review/06/01/ChomPennCross.pdf

As for “If you're going to put the boot into people who are already suffering, as seems to be your favourite pastime, at least have the decency to back up your claims.”

I accept absolute responsibility for my actions. I plan my life and wear the bumps and pitfalls which I live through.

A financial downturn affects me in the same manner as everyone else, except to the extent of the financial resilience I have planned into my borrowing.

I see no difference between me and everyone else.

I expect everyone to exercise similar prudence.

I don’t ask or expect the government to bale me out.

If you think that is “putting the boot in” then I feel sorry for you and what must be an excuse for a life which you live.

*Can somebody explain to me the difference between persons wanting a plasma screen or a house overextending themselves and losing the lot and a bank or company going bankrupt in the pursuit of ever greater returns in unsustainable ways.*

Ananasi, at some point you have to stop and ponder about what drives
corporations. Would you like a pay rise, if you do a great job
at work? It seems that most people would, which is what drives
the cycle.

The CEO and managers of companies are there to increase company
profits. A CEO who does that, can expect a pay rise, one who does
not, would soon lose his job. The CEO is a worker at the end of
the day, not an owner or supplier of capital. He does as instructed
by his board.

Who owns most large listed companies these days? Well its workers,
through their investments in superannuation. Super Funds compete
with each other, to show who is achieving the best returns. A Super
Fund which going backwards, will soon be abandoned by those with
deposits in it. Super Funds again employ managers (workers) to
oversee their investments. Those managers crack the whip and
soon remove their investments from a company which is not making
good profits. If they do well, they want a pay rise too!

So CEOs are under pressure to perform, so are Super Fund managers,
as all want a pay rise, just like you :) So everyone cracks the
whip at everyone else, in one big cycle.

Yabby

"Who owns most large listed companies these days? Well its workers, through their investments in superannuation."

Few workers have any idea which companies their super funds have invested in. How can you be said to own something if you don't know what it is you're meant to be owning?

The majority of shares in any large listed company is always owned by other large companies. The idea that workers or mum and dad investors own companies is a myth, perpetuated by those whose interests are served in maintaining the fantasy, and those stupid enough to believe them.

Bronwyn,

Thats right Bronwyn- and they bank on it.

The public dont have a clue what banks and Governments invest THEIR money in.

The know people are too busy working to sit and trace many of the investments that they go to the ends of the earth to hide.

We ALL know the control over the media by Government and Industry as well.

Tell you what however i will post a few interesting companies name where the unsuspecting decent hard working Australian citizen 'dont' know their funds go.

Greed is the cause here and let me tell you because of greed and the utter cruelty to both people and animals our world leaders have brought this on.

This is going to be far worse than anybody ever could imagaine and to make it even harder on Oz we most certainly have the wrong Government in power.

I hated Howard but I will give his old team the credit they deserve for dragging the country out of the debt labour left us

*Few workers have any idea which companies their super funds have invested in. How can you be said to own something if you don't know what it is you're meant to be owning?*

Bromwyn, the problem there is not ownership, but largely
disinterest. Many people simply read their annual return and
if their money has grown by x% that year, they are content with
that and don't ask further questions.

Fact is that the majority of workers can choose which super fund
should manage their money for them and change funds, if they are
not satisfied with the fund's investment strategy.

Hundreds of thousands of Australians in fact run their own super
funds and choose directly in which companies they invest and that
includes me. If I had my super in a public fund, I would certainly
be asking lots of questions. Most people simply can't be bothered.

A couple of links for you:

http://www.austethical.com.au/ethical_investment/ethical_company_profiles2

Those are the companies where Australian Ehtical invests its money.

http://www.acfonline.org.au/news.asp?news_id=456&c=13656

A link about your options which is written for people just like
you.

The fact remains that fund managers manage money, they do not own
it. That money and thus the stake in companies, is owned by
workers.

Bronwyn “The majority of shares in any large listed company is always owned by other large companies.”

Yes, the “the other large companies”, the investing companies, are insurance funds, mutual funds and superannuation funds.

Insurance funds are investing the cash deposits received as premiums, to cover future insured risks.

The mutual funds are where many ma-and-pa investors acquire unit trusts and other income enhanced (relative to cash deposit interest) returning deposits.

The superfunds are those things we are required, nowadays by law, to deposit into. Their funds are again chasing return and you can tell them what sort of return you want, high risk, low risk, medium splits etc.

“The idea that workers or mum and dad investors own companies” depends on the mum and dad and the company. Rupert Murdoch certainly owns and controls Newscorp.

Ma and Pa investors own the shares they own, just like Yabby owns his Westpac shares, which he previously mentioned, and they are entitled by ownership to receipt of dividends, to attend and vote at AGMs to sell the shares they own.

Theirs may not be a majority of the shares and they maynot work for the company in any capacity but they do own their shares.

My daughter owns shares in the company she works for, they have an employee share scheme, an excellent way for companies to motivate their staff, as well as generate loyalty.

Yabby

"Bromwyn, the problem there is not ownership, but largely disinterest."

Even if a small share holder, or a number of small share holders, was interested enough to go along and vote at a shareholders' meeting, say against a proposed merger, how is their vote going to have any influence against those of the majority ownership? I repeat, the idea of workers 'owning' companies and having a say is a total fiction.

"A link about your options which is written for people just like you."

Thanks, Yabby, your concern is touching! I wasn't talking about myself. I already have my super invested in an ethical fund. I was talking about the vast majority, who as you say are much more interested in the return their money is generating (on paper at least), than on whether or not it is funding the myriad of dirty, dangerous and dubious enterprises that most banks and super funds fail to discriminate against, And of course never draw attention to, it's in the interest of their continued spiralling profits to keep the plebs focused solely on that return margin. I'm talking big picture here, Yabby, not worrying about my own self interest.

Col

You can lay out example after example for the likes of simple minds like mine, it won't change the reality that that little bit of 'ownership' you are at pains to convince me, PALEIF and the rapidly-growing number of sceptics of, confers no power over decision making whatsoever. That little bit of 'ownership' is nothing more than a total gamble, as so many 'mum and dad' investors are about to find out the hard way, as the whole precarious deck of cards comes tumbling down, crushing them, while the manipulators at the top get away scot-free and profits intact.

Protecting inter-bank loans, interlaces companies over varying performance abilities. It is not a good idea. Blanket protection encourages Banks to be reckless to play the system for greater profitability. Banks are open trade irresponsibly, while shifting risk to the Government in the first instance and the ulimately the tax payer, except the moguls, who don't pat tax in the first place.

O.

Bronwyn “You can lay out example after example for the likes of simple minds like mine, it won't change the reality that that little bit of 'ownership' you are at pains to convince me,. . . . confers no power over decision making whatsoever.”

Then my suggestion to you, being so cynical and untrusting in the process is to sell any shares you may hold and find something else to do with your money.

The difference between “big bad capitalism” and “benevolent socialism”:

Capitalists compete, in the stock market, for your investment dollars and if you do not like what is on offer, you can say NO, like I have suggested above

Socialism is run by government for government and you get no choice in what is invested in using your tax dollars.

I still do not think your cynicism should be the primary consideration for tempering my optimism.

Voting in company elections is no different to voting in general elections, you get a democratic opportunity to vote, not a right to make decisions but you can stand for election if you want.

Myself, I am heavily invested in a couple of companies.

One I own all the shares and have all the votes to make all the decisions.

The other I own half the shares (but still make all the decisions).

You can freely decide what you get to make decision in, limited, of course, to your representative proportion of corporate ownership.

Footnote the Australian Companies legislation is fully equipped with what is presently seen as appropriate provisions to protect the interests of minority interests.

Oliver “Banks are open trade irresponsibly, while shifting risk to the Government in the first instance and the ulimately the tax payer,”

Agree totally, reward for risk has to be proportional, not reward and no risk.

The damage done at present is to the “trust”, which has been eroded by some banks behaving irresponsibly, regardless of risk and possibly at the behest of politicians pursuing cheap (housing) loans for the disreputable.

$700+ billion = $2,000+ for every American, Man Woman and Child

*I repeat, the idea of workers 'owning' companies and having a say is a total fiction.*

Its not fiction at all, its more like democracy. You have a say
in terms of what happens in Australia through your vote, but a
very small one.

Millions of workers have an interest in the banks, BHP, Woodside
etc. If millions wanted these companies to change their ways,
they could do it for yes, they are the ultimate owners, through
their super funds.

If those companies earn huge profits and those profits are paid
to shareholders, that money is paid to those peoples super fund
accounts. That is the reality. Super funds are simply managers,
usually working for a commission.

But yes, millions of workers care about the bottom line and their
annual returns, so if you raise ethical issues, you could be
outvoted. Its much the same in democracy.

*That little bit of 'ownership' is nothing more than a total gamble, as so many 'mum and dad' investors are about to find out the hard way*

So do you think that the banks, Woodside, BHP, Woolies, Coles,
Santos, Origin, will simply vanish? My guess is that in 5-10 years,
most of them will still be here, employing people, making profits,
smaller or larger, benefitting millions of workers, who are
ultimately their owners.

BTW, you don't need many shares in a company to be able to go to the
AGM, raise your concerns in front of other shareholders and be
heard. If you have entrusted a super fund manager to manage your
money, then he will speak for you, or else run your own super fund.

For me , well the constitution says let them deal with it.
The banks and investors are the ones that decided to buy these overpriced investment portfolios.

We knew last year so did rudd so he could have stepped in then.

Hang on there he hasnt been in australia for that long since the election.

Hansard 21-1-1898 Constitution convention Debates

Mr. HOWE.-
QUOTE
There are records of bankruptcy, of reckless, and in some instances corrupt,
management, when the hard earnings of the people and the savings of a lifetime
have been swept away-have melted away like snow before the noonday sun. Through
this reckless and corrupt management men who thought they had provided for their
old and declining age found themselves stranded on the cheerless shores of
charity, and many of them have had to accept even amongst ourselves the
pauper's lot. The pauper's lot in Australia or in any other country is
to the deserving poor one of the saddest and darkest blots on our civilization.
END QUOTE
.
What appears to be now is that banks can act recklessly in buying up bad debts,
etc, and the commonwealth is going to guarantee this even so it has no
constitutional powers for this as after all banks are private companies and not
a Federal Government institution

Agree with everything you say above Yabby (nothing new in that).

Tapp I get the point of your post and agree with much of it, as far as off shore investments are concerned.

I would however make one thing apparent

In Australia, whilst the banks are the lenders, they do NOT carry the “default” risk.

Property mortgages are insured against loan default by a special one-premium insurance policy.

If the amount borrowed is less than 80% Loan to Value Ratio (LVR), the lender pays the premium
If the amount borrowed is in excess of 80% LVR, the borrower pays the premium (and it varies according to the borrower’s credit rating and the LVR).

When a bank or mortgage broker prepares to borrow against real estate security, one of the ‘hurdles’ is to get the insurers agreement to the loan before the borrower is offered any money.

Such regulation is an important reason why the Australian system is not so vulnerable as the US system and any criticism of the US system should not be laid at George Bush’s door.
The US system has evolved over decades (Fanny Mae and Freddy Mac with incorporated back in 1970). GWB just happened to be the one ‘on watch’ when it all caught fire.

As for borrowing ona Margin lending Scheme (typically to buy shares), I suspect are not "insured" but the LVR for these sort of loans is far lower (tops around 65% LVR). However, anyone who takes on the risks associated with a Margin Lending scheme is a fool.

As for bankruptcy, they are unavoidable.

People are entitled to undertake any risk which suits them and no one can protect a fool from himself.

There is an element of “lender beware” in extending any form of credit or guarantee (be it a loan or trade credit or just trusting a friend who ends up putting their self interest before moral obligation), to anyone else and I like many, have been so caught too.

Quick & Garran Page 132
QUOTE
The Federal Parliament was given full powers of raising money, not only by
customs and excise, but by every other mode of taxation; and the only conditions
imposed upon this power were that federal taxation must be uniform between the
colonies, and that on the adoption of a uniform tariff, trade between the
colonies should be free. Until the adoption of a federal tariff, the provincial
tariffs were to remain, not only as against the outside world, but as between
States; and after that event the power to impose customs and excise was to be
vested exclusively in the Federal Parliament, through the States were to retain
concurrent powers of raising money by every other mode of taxation.
END QUOTE
.
While the commonwealth has constitutional powers in regard of banking, other
then State Banks operating within a State, it is another matter for the
Commonwealth to guarantee bank deposits while for example only days earlier the
Commonwealth Bank (a private company) purchased BankWest for about 2 billion
dollars.
.
Bank CEO’s getting millions of dollars paid every year regardless how the
bank shares have scandalously gone down.
.
As I understand it some salaries have increased from about 27 times the average
weekly income to about 200 times the average weekly income of CEO’s and other
directors of companies despite that the companies even were being vandalised.
.

11% recovery on the DJ overnight.

the sky did not fall in, after all.

maybe I will ask Passy about his view of it on the other thread (on the other hand, maybe I won't)

Col,

Let us all hope the rebound is sustainable. On the other hand, have you read Moby Dick, towards the end? The whale dives and re-surfaces with Ahab entangled in harpon cabling, dead; yet, Ahab's arm beckons, before the whale sinks again.

It is good the dollar is recovering. In the Great Depression, Importors parked their money in term deposits waiting for the exchange rates to change upwards (we were pegged to Sterling then), but people were not borrowing. The Banks' cash ratio became too high, so as rates fell the burden of maturity transformation grew greater.

O.

Col,

Moby Dick has resurfaced.

At the moment, there is an argument in keeping the USD high.

Else, when importers have money, but the exchange rate is low, their funds become parked as term deposits in the Banks, during times of austerity. This blows-out the deposit side of of cash ratios, and, coupled with a deliterious maturity transform siution, should interest rates fall; profitability suffers. Better placed banks swallow smaller ones.

In the 1930s, the Commonwealth Bank (then the Central, as well as a Trading Bank) purchased huge holdings of Pound Sterling to protect Mother England. Afterwards, it held distorted currency reserves, which, low and behold, it found, it didn't want. So much of tampering with system

In the life of the thread we have gone from bailing out American banks to keeping the world economic system boats afloat.
With luck we will fail.
The system is so flawed we just have to consider rebuilding it.
Toxic loans and such dramatic terms do not address the real problem.
Country's, banks, people have borrowed far too much, yes in time some can pay it back, many can not.
The idea we will soon get back in the black is wrong, for most investors 10% per annual is just a memory.
We may see our super funds in the red for years to come, remember like homes those who bought in at the top of the market will never see much of that money return.
As we tighten our belts ,stop spending, the problem gets worse.
How bad will it get?
Capitalism that can not afford so much for the very poor spending trillions to prop up failed businesses?
Fact is we have seats in that boat, not the first class ones not the dividend paying ones but we have no choice but to pay the bills.

Belly,

Also, don't assume that Banks will report accurately to RBA. In the early '90s, a little of Westpac was for the "big" accounts with large debts was open an additional account for the default, declare the interest only, and not declare the principal.

O.

Oliver what you say is true, not just of that bank.
Yet our banks are so very much better than some.
You I and even Graham could have never thought this could get so bad just in the life of this thread.
America?? I just do not agree with the way they are thinking of fighting this crisis.
But very happy with the words coming out of the EU and France.
We may think we know the future we do not.
But you can bet your last dollar this is the end of the free market or it is the end of capitalism.
While credit as it always has been will remain the power house behind our economy it must not be wild uncontrolled credit.
Speculators have gambled with money they never had we all pay for it.
Three years down the track we may still not know our future.

Belly,

Agree, we are along way from the demise of capitalism. Yet, we are not letting market capitalism weed-out the bad fruit. The system is being managed to sustain in power those whom failed in power. A more apt result is allow a new fitter crop of capitalists to succeed.

Needing help over these times, reminds me of agrarian socialism. Farmers are usually very conservative and stand firm against handouts to say single mothers, yet muster arount the BBQ exchanging ploys to receive government subsidies. I have seen the latter myself at a rural BBQ.

In 1930s, the Commonwealth Bank (then the Central Bank) exchanged liquid funds for commercial bank term deposits, as the former was better placed to ride out the storm. Interventionist, yes. Yet, minimally so.