Is the Panic Overblown?

What would happen if that $700B dollars was used directly to pay mortgages and credit cards off instead of giving the money to the lending companies? Look at all the money that would be available to boost the economy!

Dear Walter Olson, I've always been too ignorant to understand the stock market, and I'm probably too ignorant to understand your Elliott Wave folks in George; but I did look up the web site and am not to ignorant to understand everyone is patting themselves on the back about how right they've been all along. I don't see any compassion. I don't see anyone helping. I'm a disabled person on Social Security, barely making it. My husband lost his job a year ago and has yet to find another one. I've been in a panic for a year, worried about so many things, and now all this is happening. I'm very, very frightened. There was one solution offered on the website: to buy -- buy Robert Prechter's book, subscribe to the newsletter (not free, probably not for dummies). It's probably too late, and I don't have the money anyway.

Elizabeth, My view is that you are hopelessly naive about the enormous economic situation right in front of us. I would respectfully suggest that you familiarize yourself with the writings of Robert Prechter and the Elliott Wave folks in Georgia. We are about to be caught in a wave based on something very deep in all of us including you. Please turn off the TV and the laptop and start trying to understand the situation. Thank you. Walter Olson Wethersfield, CT October 9, 2008, 3:10 pm EDT

Friends Excuse me -- just buying the toxic loans leaves people like me who only bought what we could afford with no equity (the equity represented by the downpayment) in a unfair situation. The folks who walked away will now be able to get a mortgage and buy one of the foreclosed houses at the new depressed price, with a 5.25% loan, while I am stuck with the old price, a higher loan rate, and stuck paying the taxes to pay for these foreclosed buyers new 5.25% loans.

Is the "panic" overblown? Probably; to some extent all panics at some point become overblown and that's usually where new bull markets begin.

President Bush needs to fly to Berlin and give a speech that says , Mr. Putin PUT THAT WALL BACK UP !!!

The subprime problems themselves would have resulted in a housing bubble burst, and possibly a small recession. However, subprime EXPOSED greater systemic probems with the world's financial institutions due to derivatives. The counterparty risk under the subprime pressures acted like proverbial bad Christmas tree lights. One light goes out, and they all go out. Securitized debt is the culprit - not subprime.

Right the "fuse" of the crisis is only a few hundred billion in mortgages. The bomb of the crisis is the face value of credit default swap insurance that was oversold on those mortgages, 12 trillion in mortgages, 62 trillion in credit default swaps. That added to over leveraged finance companies, banks, hedge funds, and GSEs which had little or negative stockholder equity after subtracting the goodwill, the intangibles, the Level 2 and 3 assets, future tax benefits, and opaquely valued derivative positions. Watch out for the Internation Bank of Settlements value at risk exception days reset of the value at risk model multiplier now that Q3 has ended.

Goverment, press, and politicans aret the ones are out of control. Question is this: whose perpuating the fear in the global marketplace? But the root cause of all this needs to be examined closely. But now new history is revealing that the present mortgage problem had its back in the '90s. Even Rep Barney Frank blocked legislation which President Bill Clinton wanted to introduce to curb Freddie and Frannie Mae. Use the past to learn the lesson and take that lesson to solve the problem.

The panic and the resulting stampede to a bail-out was and is ridiculous. One of the things we have learned is that the design of our banking system operations and monetary policies no longer serve us. Since the 1970s we have allowed our currency to float with no underlying assets supporting the value of our currency. Those chickens have come home to roost. Don't get me wrong, I'm not for a return to the "gold standard" as it is just as inherently inflationary as the current fiat policy. Indeed, are we to be asked to suspend our disbelief that the sub-prime crisis, housing market crisis, capital market exchange crisis, entitlement funding crisis and every other financial woe that is impacting the world are somehow coincidences? Only a true fool would believe it. The fact is the banking and monetary policies of our nation have created an economy with very little of what people would call "economic justice". The Lords of Wall Street put billions of bonuses in their pockets and then line their pockets some more with a phony stampede over less than 3% of the total assets in our economy and the government cracked the whip the whole way. Are we ready for something new? Are we ready for a monetary policy that is supported by equities - real assets? If we made this simple change in our monetary policy, we would enjoy a doubling effect as each time new money is created, it is backed up with real equity securities (of a special kind that are bankruptcy proof because we are talking about the boneheads in government here, right?). The capitalization of the government would change. The total capitalization owing to liabilities would decrease (on a percentage basis) each time the new monetary policy was used. The dollar would no longer face the drubbing in the foreign exchange markets. But it doesn't end there. Imagine an economy where everyone has equal opportunity (not equality of outcome, but equal opportunity) to rise to the top based on hard work and not their birthright or relative education. Imagine a fully funded health care system where a $500,000 policy costs the taxpayer only $25 per month, per capita. Imagine a fully funded Social Security program that eliminates all of its deficits within 12 years. Imagine a capital market exchange that won't leave you holding worthless securities overnight. Imagine being able to write-off your entire housing payment each year. It's all out there. It's waiting for us. A new kind of exchange. A new kind of business investment paradigm. It's not socialism. It's not communism. It's the capitalism we were promised in our school years but have never been able to quite put our finger on it. I'm a structured finance consultant so I know a little about this and about what can be done. Imagine that. Clinton Lovell Houston

Government policy got us into this mess, we elected them so I guess we will be paying for the election mistakes we all made in the past. My concern now is that we are on the verge of making another huge collective election mistake that we will be paying an even steeper price for.

If money is your god you're in a whole world of trouble right now and your fear levels must be incredible. I don't mean to over spiritualize this situation, but hopefully God is your god and He can help you walk through this troubling time and find the peace you need to get to the other side.

I'm not a financial genius, but I've been screeming at all of the overstatements. This was an excellent report.

I take issue with your assertion that the root cause of this mess is the housing crisis. The root cause is the socialized monetary system we have where the Fed gets to decide how much money to print. I wouldn't trust the government to manufacture anything, let alone money. Alan Greenspan reduced the fed rate to 1% after 9/11 and created the mess we're seeing. This flood of phony money caused businesses to act as if this money represented true savings when it really didn't. Housing was just the bandwagon upon which this money was loaded. Before this it was loaded onto the internet bandwagon. Fed phony money creates these boom and bust cycles as the free market adjusts prices to their true value in relation to the money supply. Simple stuff really. You can't be cheat economic reality by fiat.

tmccray- is where i am, this is a push to something. a money or power grab.

Let's see how someone might respond to this situation. I didn't pay my mortgage, so someone gave me $200,000. Now what am I going to do with my new mortgage?

Yeah, great idea....Once again, the people like my family who bought within our means, don't have any credit card debt, are trying to make ends meet with what we have are faced with paying for all those who just had to have the bigger house, the bigger ride, the bigger toys.....I'm soooo sick of paying for everyone else. What will I see from this bailout....nada....I'll see zero equity in my home while my neighbor, who gets bailed out sees his equity start to climb while I still can't sell my house for what I owe.....

Here is a novel idea: why don't we let the idiots who bought a house they couldn't afford get kicked out and go into foreclosure. Maybe they'll learn that they can only buy stuff they can afford. The problem with our system is a complete lack of accountability. NO ONE is held accountable for their actions, the government just comes in and bails them out. What about all of us responsible folks who have been busting our tails all our life, paying our bills on time and working hard to make our lives better? I use credit responsibly. I know it sounds harsh, but I don't give a crap about the person being foreclosed on and getting evicted from a house they couldn't afford. Screw you and learn how to read the loan agreement next time. Because you wanted to keep up with the Jones', I'm bailing your sorry butt out. Enough is enough; if you want that nice house, work for it. If you want that big screen TV, save up money and pay cash for it. I'm sick and tired of this. Republican or Democrat, NO incumbent is getting my vote this time around.

Is the panic obverblown ! What kind of city crack are you smoking MacDonald. 20% IRA loss in 1.5 years ? 2 trillion gone ? And you think it's a panic. No, it's SANE to want to protect what your federal government failed to. I see, no Fed involvement to regulate, but after all the white collar crime, let's bring in the Fed to regulate ! We deserve the company we keep.

It's good to see some real numbers, finally. It appears that $700B was may have been a catastrophic number that was put forth. As in most things, those who proposed that number were probably expecting to get half as much as they asked for. Unfortunately, with all the rhetoric and spenders in the government, $700B was a STARTING point. It's ridiculous to solve 30-year problems with one big buyout, especially with other needs the country has right now. Its also crazy to burden the taxpayer with these problems, most of whom have followed the rules, worked hard, and paid their mortgages on time. Anyway, what would happen if everyone just kept their mortgage, and one percent of the existing rate on ALL MORTGAGES was diverted to a fund to offset or buy the bad mortgages? This fund would be used to buy or refinance current mortgages, and/or pay back the public for the government's initial outlay as the fund took time to grow. This would be applicable to all mortgages originated before July 2008. For example, if 15% of the mortgages need to be reworked or bought, taking 1% of a 7% mortgages would leave 14+% to offset the bad mortgages. Banks that have been and continue to profit from mortgages should have no problem paying into a fund which rescues them from all of their bad mortgages now, and let's them pay back the system over time, from a stream of income that is pretty much stable for foreseeable future (good loans). With the fed lowering borrowing costs, their earnings would not differ from that what was expected at the time the loan was originated. It basically turns a portion of the existing "good mortgages" into an annuity, which eliminates taxpayer risk, does not change the long-term earnings of the bank, and removes the current strain of the bad mortgages on the system. During this "draw down" of bad mortgages from the system, regulations could be revised to limit the banks that participate in the bailout from trying to add back the 1% into future mortgages, and restrict them from initiating more bad loans in the future. This could be done quickly. No mortgage payment would go up. The banks would trade off (a minimal amount of) future earnings for current loss avoidance, and the government systems would see a surplus after the amount in the "annuity" exceeded the amount paid to offset bad mortgages. As mortgages originated prior to July 2008 matured or were paid off, the surplus should go into the Social Security program. This would extend the solvency of the program and benefit those who had been depending on their homes to represent retirement savings who were adversely impacted by this mortgage-led meltdown. Comments welcome! Dave

Susan B is close there. Sounds like John McCain wants to reward first the criminals who floated these loans by having the government get in bed with organized crime. Great idea McCain. I don't know, maybe you sleep around. Hey, why'd you leave your first wife again for that booby-hatch evil viper ? What's her name ? McCain ditched his first wife because she became disfigured. What a louse. This guys a phony. He probably whacked off every day when he was a prisoner of war... Yeah, let's then reward those that - awe gee, they spent too much at the amusement park and now their credit card bill is too high, awe gee, can't we just give em somethin' to help em along ? Golly gee folks... (Palin)... These people just bought things they couldn't afford, it's not like it's, ya know, their fault, let's give em that house, while the rest of you ? that do work hard and budget right ? Pay for it.

Elizabeth: This is not a panic. This is concientious decision-making by the average investor--whom by the way makes the markets tick. Remember, institutional investors tend to be consistent and conservative (which is good). Individuals, however, (even with their 401Ks) are making a statement. For me, the statement is simple: I no longer trust Wall Street or their Generation-X brokers. We are heading down a path of losses due to complete and utter stupidity and greed. We "invented" ways to make money that never really existed in the first place. The average investor is slowly turning away from Wall Street and looking at other investment opportunities: small businesses, durable goods, precious metals, cash, etc. Why should we trust anyone in New York City? Why? I really want to know one single reason why even one single investment firm can be trusted! There are no reasons. They hire the same people over and over again: The most greedy and intellectually deficient amongst us. End of story.

This is my conclusion ...there are not that many defaults for the imapct that is happening across the world. In Columbus , Ohio the number this year jumped from 250 to about 1,100 currentley. Are you kidding me, if every income employed resident in Central Ohio increased tax withholdings to $220 each this coming year, we are bailed out, this assumes no value at all to an avergae priced home of $150,000. The crises is suspect...could we be in a techology driven finacial war? Short trading? By the way if we assume the average worker in Columbus (let' assume 250,000 with (k) had an average (k) account balance of $11,000. if each investor has lost 20% or $2,200. There has been a marekt loss to Columbus residents of $ 550,000,000. our $220 would had been better spent. My math may be wrong, my logic wrong, but my head tells me this is not about housing at all.

Great idea. Lets give those guys who bought a $400,000 home with a $30k yearly income a little breathing room. (30 years of breathing room) that way it will free up their money so they can go buy that big SUV that they can't afford, or put a few more thousand dollars on their credit cards buying all the worthless junk from Wal-mart, that will help us all out, get this economy moving again.... at least until the rest of us financially responsible folks have to kick out 3 trillion next time around to get them out of debt and "save our economy" from the next meltdown. YEAH, GREAT IDEA!!

Austrian economic theory says the real panic hasn't even started yet.