So what’s Plan B?

It looks like this bill fails in the House. Who knows what happens next. The Dow is bouncing around, but doesn’t seem out of line given the drop it took a couple of weeks ago.

Republicans said no almost 2 to 1 in the House. It’s an interesting time in America politics and markets.

Both presidential candidates supporting this bailout plan in principle. It will be interesting to watch their responses.


  1. Down 777 pts at the close. Biggest one day drop ever.

  2. “The Dow is bouncing around,….”

    If by, “bouncing around”, you mean down 770 points then, yes, the Dow is bouncing around.

  3. The Dow did bounce around today.

    To help you grab a little perspective, the market hit a low of 10,403 on the 18th then headed up with the hopes of a bailout. We simply closed at where the market thought we belonged without a bailout.

    It may even be a double bottom with large volume and signal a reversal in the market.

    (I’m a housewife, don’t spend a dime on my advice.)

  4. An economist might refer to it as a “correction”.

  5. Let’s put this into perspective… 777 points is the biggest one day point loss. But, it’s 6.9%, well below the 22+% of Black Monday in 1987.

  6. Thanks Bdad. I remember that one, too. Didn’t know about it at the time…but the Spouse certainly reacted when he came home.

  7. Since we are all talking perspective today, you might want to use “the google” to research a little thing called the TED spread.

    This, of course, doesn’t mean anything to the idiots calling their legislators in droves, telling them to vote against the bailout, but it’s sure as hell gonna mean something to them in a couple weeks when their boss can’t make payroll, or worse yet, they won’t be able to get their daily Big Mac because Mickey D’s can’t get a credit line to keep the doors open.

    The world is not going to end anytime soon. But ignoring systemic risk to settle scores with Wall Street is flat stupid. Would you burn down your house because you had a leaky roof? Congress might be attempting to do just that.

  8. I called my reps. to oppose the bailout because it was poorly conceived.

    Cindy, what’s your stance?

    My stance is this–we do need some sort of bailout, but it needs to be consumer and corporate. I say you can’t have one without the other.

    You don’t wanna bailout taxpayers, then no dice on the corporations. I think $700 billion might be too much, but what do I know.

  9. Shawn, I was against this plan. I’ll wait and see what the next one is before I weigh in.

    J. Strupp, yes, the spread is out of whack. I’ll wait to see how it settles out in a week or so before I panic. Liquidity is as much a perception as reality.

    Sure, businesses that depend on short-term borrowing to manage cash flow are suffering. Who said a business should depend on short-term borrowing for cash flow?

  10. Britain is nationalizing their failing banks. I might be in favor of that.

  11. Whether the system should depend on short term borrowing or not is somewhat beside the point. The system DOES depend on short term borrowing, and it is grinding to a halt. When enough of the gears come off we won’t be able to fix it, we’ll have to grow a new one. Hard to say when that will happen, but almost everyone says it could be soon. Robert Reich and Newt Gingrich agree on the urgency and a course of action; I tend to equate that with a cosmic event. For the House to vote this bill down and then GO HOME is the height of irresponsibility.

  12. Here’s a couple ideas:

    C/P’d from another site I frequent. The Loan” idea is another member and the private capital idea I stole from a radio host and added some of my own.

    I really don’t see a difference in effect, than Bob’s proposal of loans (senior position), backed with equity as collateral. I don’t think it’s a good idea for the U.S. to start nationalizing these companies by trying to buy controlling interest. But as a loaner, you can dicate the terms of the loan (salaries, debt ratios, etc.)

    Another interesting idea I’ve heard, is various ways to inject private capital, perhaps in combination with public capital. For example, a $5K tax credit for purchasing a foreclosed property. Or the first say $50K-$100K of future equity of a foreclosure purchase is capital gains tax free. I think you’d find a rush of private capital as a result. Pehaps even, private money could go into a shared interest in homes that are risky of foreclosure, where the owner and an investor become partners (assuming a prudent loan term can’t be negotiated). I’m not dictating the numbers, these are just starting points.

    This bailout voted down today was a pig with no lipstick, but rather a veil to hide it’s looks. Instead of trying to add lipstick in some revised bill, I think they need to go back to the drawing board, get some REAL experts that know how to inject free market principles into this “fix” and create a plan that uses the economy instead of abuses it.

  13. HA! Ask someone in the construction industry that question. Short term borrowing is a fact of life.

    As an example, I happen to work for a guy that has a business which has been paid off for years. He uses short-term borrowing to cover pay roll (and raw materials) from time to time to cover cash flow shortfalls between large shipments and our 30 day terms of payment. Who ever said business should depend on short-term borrowing for cash flow? No one. But it’s used a lot, even for businesses that aren’t leveraged to the gills.

    The spread is not out of whack. As you say, “We simply closed at where the market thought we belonged without a bailout.” That spot happens to be about 350bps which is the largest spread in American history to date. I’m sure it will improve if something is passed by Congress that makes sense (such as the rejected bill) but it’s going to take a heck of a lot longer than a week to unlock the system.

  14. Wait to see what happens tomorrow. The markets in the Far East and Australia are already down tonight.

  15. Steve, the rejected bailout proposal was a HUGE loan, backed with equity as collateral already (the mortgage-backed securities being the collateral). Secondly, if a mortgage-backed security ends up becoming worthless over time, the government obtains warrants from the lending institution that dealt the bad debt off it’s balance sheet.

    Providing incentives to buy up foreclosed properties won’t work. First of all, no one knows what this junk is worth. Second, there’s too much of this junk out there for incentives to have any short-term impact. Third, the solution resides in shoring up the downward spiral of future foreclosures to provide some sort of price stability in the market. Making “work-out” loans readily available to distressed homeowners is the best way to stabilize the gult of foreclosures.

    Actually, I think you’ll find that most REAL experts are on board with the bulk of this proposal.

  16. J,

    That’s not the way it’s been explained to me. A loan actually has payback terms that are ameniable to the one loaning the money and these terms aren’t some “we’ll look at how it’s going in 5 years”.

    I’d agree, some public cash infusion likely has to be a part of this in the short term. But it also has to have a component of free market principles for any long term positive.

    Now I’m no economist, or banker, or….But I’ve been doing some reading. This “fix”methodology is totally unprecedented in the some 50 times in modern history, various “bank crisis” have been addressed worldwide. Now I know America can’t go solving these things in the fashion of dictatorships, but there is applicable history to look at.

  17. Oh..furthermore there HAS to be mechanisms installed to prevent this type of failure. Those protections MUST be part of any “fix”. “I” don’t want vague references that “something” will be done after we look at it.

  18. This bailout was socialism and was unconstitutional…period. Paulsen is a Goldman Sachs Wall Street phony and I agree with Gingrich that he should resign. I don’t trust the fools who caused the problems to solve the problems. Let bad loans default! That’s the way capitalism works and let the gamblers take their loses. The market went down only because the computers kicked in and exacerbated the selling. It had little to do with this phony plan. 90% of the people are against bailing out the fat cats and the dopes who took out mortgages they couldn’t afford. I pay my bills and I don’t want to pay anyone else’s…especially the crooks who are getting million dollar bonuses. Bush and his cronies are completely wrong on this one. There is a long list of experts disagreeing with any plan to bail out bad loans, and there are simple rules that can be changed to alleviate the mess on the books of institutions holding these debts.

    Where are the Patrick Henrys when we need them?

  19. A third of yesterday’s losses returned so far (Dow up 250+)

    Edit…now nearly 1/2 (up 325).

    Now don’t forget to take some profit. Double-or-nothing ain’t what it’s cracked up to be.

    I went to the grocery store yesterday for coffee and creamer. Amazingly enough, the shelves were stocked and citizens were buying their goods as usual. I thought for sure the world had crumbled, until I opened my eyes and went on about life.

  20. Grant, I have an older sister who works hard and pays her bills. She had a retirement account with an insurance company–one of those safe, conservative, money markets. (Until this month, everybody always got back at least what they put in to a money market fund. No gamblers in money markets.) AIG bought that insurance company a few months ago. Then poof! Maybe she will get half of her principal returned in several weeks.

    You don’t have to have done anything wrong to get flattened in this mess. It if grows, the rest of us are going to be in trouble too. As for plan B, there is something to be said for heads on pikes, but we don’t really want to go there.

  21. Kathryn, this phony bailout would not have saved your sister! It’s as weak as it could be in preventing further abuses by the fat cats. It was originally without any “golden parachute” rules. I guarantee you that the execs at the insurance company you mention will be getting millions while the investors lose it all. That’s been going on for years and the Democrats have blocked every attempt to stop it…Barney Frank is the biggest culprit, the worst hypocrite, and a deviant to boot!

    Here’s an interesting commentary:

  22. “As for plan B, there is something to be said for heads on pikes, but we don’t really want to go there.”

    We don’t?

  23. Grant’s right, it wouldn’t have done any good at all.

    Money markets were never guaranteed until very recently. If you were in them, you knew you could loose everything.

    Sadly, those are the kinds of details people ignore.

  24. So TOO BAD Kathryn’s sister.

    Thank you for commenting Grant. You are making the point of my first comment perfectly.

  25. This will probably be one of the stumbling points for ever getting a privatized or semi-privatized Social Security reform.

    People thought the stock market would always go up with hiccups now and then, in spite of disclaimers for every retirement program that it was possible to lose money.

    One of the financial channels (I’ve been flipping through CNBC and Bloomberg) has been looking at withdrawals that have been occurring from mutual funds.

  26. J said: “Thank you for commenting Grant. You are making the point of my first comment perfectly.”


    You seem to be of the position that the bill shoulda have gone through as proposed (“stupid constituents calling their Legislator to vote against it”). Then Grant lists key provisions that the bill didn’t take into account..and it supports your position???

    What did I miss here?

  27. Edit: Dow soars to +460 (Is that about $700BB ?)

    Leading todays losers was Chicken Little Enterprises.

  28. Where’s Thomas when you need him…

    “I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”
    –Thomas Jefferson, Letter to the Secretary of the Treasury Albert Gallatin (1802)

    “We must not let our rulers load us with perpetual debt. We must make our election between economy and liberty or profusion and servitude. If we run into such debt, as that we must be taxed in our meat and in our drink, in our necessaries and our comforts, in our labors and our amusements, for our calling and our creeds [we will] have no time to think, no means of calling our miss-managers to account but be glad to obtain subsistence by hiring ourselves to rivet their chains on the necks of our fellow-sufferers. And this is the tendency of all human governments. A departure from principle in one instance becomes a precedent for[ another] till the bulk of society is reduced to be mere automatons of misery.. And the fore-horse of this frightful team is public debt. Taxation follows that, and in its train wretchedness and oppression.”
    –Thomas Jefferson

  29. Hang on to your hat, J Strupp, but sadly, too bad for Kathryn’s sister.

  30. My point wasn’t “poor sister;” I can do that part. The point is that if Grant’s libertarian is wrong, or even if he is right but it takes a long time for the bargain seeking buyers to appear, all of us are in trouble. How many paydays can the average person miss because their employer has assets but no liquidity before they too default on their mortgages? How long can you tread water?

  31. Shawn Matson says:

    It’s curious how we can’t have “socialism” for taking care of the sick, educating people, or providing a small retirement stipend, etc.

    But when the banks **** up, we’re supposed to replenish their pocketbooks with newly-minted coin?

    We’re supposed to be left for dead, to be torn by the wolves, while the fat cats gets to roll down easy street in their beamer? That’s not right.

    The more I look at this, the more I start to agree with Britain’s nationalizing of the banks that are failing. At least that way taxpayers can make back some of the money the had to shill out to the screw ups on Wall Street.

    In other news, I bank at Washington Mutual and Chase bank. Now that WaMu bit the dust, JPMorgan Chase owns both my banks! How convenient.

  32. Kathryn, you need a new source for your information! The politicians are lying through their teeth in order to scare the public into demanding this half-assed plan. There’s plenty of money in the system. Employers are not going out of business due to lack of liquidity!

  33. Man, I love Thomas Jefferson.

  34. Money in the system is not much good if it doesn’t move. Warren Buffet, Jeffrey Sachs, Robert Reich, Newt Gingrich–that’s left and right–all would have voted for this plan. Sure, we could do better, I’d be happy for the congress to do better, but we need to do something.

  35. Warren Buffet, et al depend on money moving so that they can continue to increase their incomes. The politicians depend on money moving to these guys so that they’ll contribute to the campaign cause. I’m very reluctant to believe the sky is falling just because they say it could.

    I still contend a mess like this shakes out weak players and makes the future stronger.

  36. Kathryn…are you kidding? You don’t care if they do something bad as long as they do something? That’s how we got into this mess! You listed a few questionable people who would have voted for this plan. Here’s a long list of “experts” who wouldn’t have:

  37. No, Grant, of course not. I want something good, but would settle for good enough under the circumstances. The list you reference is in opposition to last week’s 3-pager, not Monday’s bill. Monday’s bill seems to have been good enough for many of the “experts.” Since it wasn’t good enough for the majority of the house, they should have stayed put until they could agree on a course of action.

  38. Kathryn,

    I’d suggest that with the slim vote, at best this bill voted on the other day was a “squeeker”. I expect a little more for $700BB. They “worked so hard” to get just barely enough committments, then Nancy P. decided to grandstand. Those on the edge went the other way. I’m sure if those new dissenters really thought it was a pretty decent bill, they would have swallowed their pride and voted for it.

    In short, the payback was questionable at best and it did ZERO to protect this from happening again. IMHO, if it doesn’t contain some free market principles as a significant portion, it’s long term efficacy was zip. $700BB down the toilet.

  39. J. Strupp says:

    This is a little late Steve but let me clarify.

    My opinion is that the vast majority of voters calling their legislators in droves, threatening them to not vote for this bailout, are doing so because of the hatred for the banking system and CEO’s that put our country in this terrible position. While they have every right to do so, their irrational behavior is working contrary to solving our immediate financial problems. If you want to raise hell and complain about CEO compensation, the apparent socialization of our financial system (which has been a social democratic institution in this country for centuries anyways), lack of compensation for the little guy, etc. feel free to deal with it all at a later date. None of these issues have any relavancy to the immediate danger facing our country’s financial system and none of these issues give enough cause to not pass the purposed bailout.

    As of the time I write this, General Electric has felt the need to issue a statement indicating that they are having trouble issuing commercial paper to finance short term debt. They also decided it was necessary to state that their consumer debt division is doing just fine. This kind of thing doesn’t mean much to most people but you better start paying attention to the elephant in the room. Stop letting your idiology and pride get in the way of dealing rationally with this crisis. They’ll be plenty of time for that later.

  40. J. Strupp says:

    By the way, as Americans, we are somehow under the delusion that the financial system in this country has always been a purely capitalist institution. How many government interventions and injections of capital into our nation’s banking industry do we have to go through to prove that this is simply untrue.

    “let’em fail” is not an option.

  41. No delusions here. I’m well aware of how much of our financial lives are managed by others.

    But would they fail? And if they would, shouldn’t someone be held accountable for the failure? There’s no accountability from those who created the crisis. That’s what’s drawing the constituent reaction.

  42. J,

    So calling folks stupid for rejecting the bailout as it stood, was just your way of pulling a Pelosi?

  43. J. Strupp says:


    You are correct that I should not have used the word stupid to encompass all people who voted against this bill. But in my opinion, the vast majority of voters who instructed their legislators to vote against the bailout are doing so solely because they think it’s a great way to get back at investment and commercial bank CEO’s.

    What do you call that? I call it stupid.

  44. I’d disagree as to the motive. To me the motive is the privatizing profits and nationalizing losses. In short, more corporate welfare. IMHO that goes against the value system many of us have…in short, its unAmerican.

    Yes we want some heads on sticks, but I’d start with the people in Gov’t that permitted it and watched it go on. I can’t really blame a private person for making money if the gov’t makes it legal.

    That said, the folks that I consider culpable is limited. Most just aren’t astute enough in that arena to forsee the problems. But there were some lonely voices trying to sound the alarm. These voices were quashed at every turn by folks that had a personal interest in maintaining the status quo.

  45. J’s point is that we are all about to pay one way or another.

    We have been taken to the cleaners (with or without personal culpability) and are about to go through the wringer. The urgent questions are how many times we go through and how bad it’s going to hurt. I say propping up the system is going to hurt less than letting the system collapse.

  46. Kathryn,

    I understand the point. And as much as I hate to admit, I undertsand that socialism has been woven through our financial sytem for ages.

    But from a negotiating standpoint you never accept the “first offer”. Now we can certainly argue that the 3 page POS the Admininstration handed down was the first offer. But now the Senate is injecting some new language which helps to some small degree. If the HOR had passed the previous bill, would we be looking at these improvements?

    Then there’s those (certainly some “smarter” than me) that say this rescue won’t work, but merely stave off the inevitable and make the wounds deeper. I can’t say who to believe, but to me, this “rescue” MUST include some free market principles to have any long term efficacy. Without that, I see it like the school system that just says “throw more money at it and the system will be fixed”. That’s been done 100’s of times and has proven to be mostly wishfull thinking…with the same people, doing the same stuff, with more money.

    I haven’t seen the world crumble in the last couple days and I don’t trust the guy holding a gun to my head to have my best interests at heart. I haven’t seen any “game changing”…just more chips on the table.

  47. OK, what free market goodies are you looking for? The house added some stuff–some of it good, some of it not. The senate is adding some stuff. (I like the little fix to the alternative minimum tax, but what value does it bring to the immediate problem?) I’m all for oversight and checks and balances–keeping sec. treas. from becoming a potentate–but this other stuff muddies the waters and it could get pretty porky before we’re done.

    No, the world hasn’t crumbled, but every day shows a new chink in the mortar. ATT has a pretty predictable cash flow for the next month or more, but can’t sell more than an over night bond.

    By the way, I’m not hacked because the house didn’t pass the bill. I’m hacked because they adjourned for the holiday. Doing nothing is not ok.

  48. adjourned for the holiday <—yup

    As for free market principles, I’ve listed a few earlier. Such things as tax credits for buying foreclosed homes, eliminating capital gains taxes on some ceiling ($50K-$100K?) of appreciation on foreclosed homes. Owner/Investor partnerships for owner occupied homes at risk (shared equity) .

    Most of these things will get inventory moving and bouy values accordingly. The mass of inventory on the market right now is one of the major things pushing values down.

    I’m not saying this is the only medicine, but part of the cure.