The Bailout Defeat: A Political Credibility Crisis

[Lurker]

Not to get into this much further in fear of making a few posters here mad the sun also "dies" or drops to the lowest point in the sky on the 22nd.  It rises 3 days later and starts to climb back up to a higher location in the sky slowly.  Everyone else can put 2 and 2 together here....

You are confusing me...so you are saying Easter should be at Christmas?

[Lurker]

IMO all the Christian congress people would show up to work on XMas as long there wasn't a field sobriety test given at the door.  I was at work on Sept 16th and May 5th; and have been since I started working, unless it was on a weekend.  

Que pasa con estos pinches Euro's e sus pinches "religious holidays"?  Lurker, and 101, we need to get these pilgrams back on boats and send them back to the old-dirty-country they came from and tell them to take their God/Allah/Jehova with them!  Anybody up for a buffalo hunt this weekend?

Senor.  I believe that you have me confused with one of your fellow wetbacks.  Although I have partied a bit on Cinco de Mayo and Diez y Seis as well as a few other minor holidays; I am afraid that I am affectionally referred to as a "gringo".  Que pasa?

[rickortreat]

Another take on "the sky is falling"...posted yesterday after the failed bailout.  Bolding is mine...

As expected, markets have gone ape over the failed vote.

Stocks and commodities took quite a hit; bonds, both government and otherwise, rallied strongly.

Right now everybody is looking around to see whether the Fat Lady is warming up her pipes. At that point, we?re all doomed.

But doomed from what?

So far we?ve had 13 FDIC banks go bust. That?s not a good thing, but it isn?t the end of days.

And, sure, the brokerage landscape has changed dramatically since Lehman Brothers bust, while its brethren opted for mergers or the relative safety of a commercial bank charter.

Meanwhile, consolidation continues among the nation?s largest banks and thrifts. Washington Mutual is on its way into the hands JP Morgan Chase. Wachovia is headed to the big city with Citibank. And there will be plenty of others that will meet similar fates.

And getting these deals done didn?t require this massive bailout legislation. Instead, the existing powers of the US Treasury and the Fed have been used to either swallow some of the bad assets and/or provide some credit insurance of their own devising.

On the other side, the institutions making these bargain acquisitions had little difficulty raising addition capital, despite all the hang-wringing occurring on Capitol Hill or in the financial media.

Yes, there will be more workouts. Yes, we should expect several more FDIC seizures and sales of bad banks beyond the official 13 this year and beyond the workouts like the Wachovia deal.

To pay for this, Congress will have to authorize about $50 to $150 billion in additional funding for the FDIC--a move that no one will likely oppose.

At the core, the banking and financial system still very much works.

Beyond the workouts of bad banks and brokers, the Federal Reserve announced that it will inject a further $630 billion into the global financial system.

This is what the Fed does. It can accept just about anything as collateral, including so-called toxic assets. And it?s working with several other major central banks to work to keep the cash flowing throughout member banks and their counterparties.

But what?s currently working has fallen by the wayside because it?s easier whine and moan over the failed bailout bill.

The bailout bill would not have been the panacea or the silver bullet, but instead could have resulted in a world of additional near-term and long-term challenges for the markets and the economy.

Stocks are down. And traders will keep trying to make a buck by making more trades and trying to whip up more volatility; that?s their game and, of course, their stock in trade.

The stocks and partnerships that we hold are in solid business shape. They?re not immune to a selloff or a complete elimination of credit, but they will realistically keep churning out revenues and paying us.

But bonds are working and will keep working.

Some of our bond funds and mini-bonds will be subject to the vagaries of the stock market--that?s unavoidable. But the bottom line for bonds is that they will keep the cash coming to you.

Do not get swept up in all of the mania over an impending depression. Do not sell everything in a panic.

Instead, stick with the bonds, quality companies and partnerships that we will keep vetting over the coming days, weeks and months.

Excellent article Lurker, one I believe hits the nail on the head in terms of what I think need to be done, which is essentially NOTHING. I am not even a great fan of buying the mortgages in danger although that is certainly more palatable than the crap sandwich they're trying to force-feed everyone now. My reasoning is this:

Poorly run companies fail, that is business, high risk business practices sometimes bite you in the posterior, THAT IS BUSINESS! This article points out what I have been saying all along, markets will adjust, banks in the poorly run category will be absorbed, at pennies on the dollar for the bad paper but IT HAPPENS ALL THE TIME, just never quite on this scale, it will hurt, it will put some people in the poorhouse, it SHOULD put some people in jail, but lending will continue, albeit at a MUCH, MUCH tighter rate than it is now. This is in no way shape or form a bad thing, reason? IMO credit has been faaaar too loose for several years now, anyone who could walk could buy a house or a car with virtually no ID, no provable income, and no verification of immigration status, again I cite the CRA and Clinton's pressure on Fanny and Freddie as part of that problem, this simply could not continue and all the bad paper these clowns underwrote or bought is precisely the reason I or anyone else with half a brain would call them bad companies that deserve to fail. Credit should be tight, you should have to prove who you are and how much you make and how timely you are in paying your bills, it protects the lenders, their stock holders, and ultimately the borrower himself from becoming overextended which has been far too easy to do for years now, it is the only way the market can remain stable.

As far as buying up the bad mortgages, as I said, that is far easier to swallow than this mind numbingly STUPID alternative. Think about it, at any given point in normal financial circumstances, anywhere between 3/4-1% of home mortgages are in default, rarely even the 1%. Currently this mortgage "crisis" is showing roughly 5% in default with another 2-3% on shaky ground, That is bad, but it is not sky is falling bad, and it is certainly not 700 billion dollars bad, and this is where people get lost, they think that money is rescuing people who are losing their homes, no such promise has ever been made and home in foreclosure will remain there to my understanding, this is governmental socializing of banking (bad banking or socializing failure if you will) and buying up of bad paper and real property that the government will then try to resell to recoup some of that money. At its height, foreclosures during the Depression were quite a bit higher (15-18%) and the New Deal extended the damage for year beyond the initial shock, anything beyond just buying up these mortgages will do the same thing and only encourage greater risk taking. People who bought homes they KNEW they could not afford should lose those homes, they couldn?t afford them anyway and those who employed predatory lending practices which in many situations were illegal in the first place should be behind bars, not expecting this big bailout package to protect them from their own crimes, it is THE ONLY WAY housing will readjust itself, and it must do it itself. If the government buys these mortgages with the intent of re-selling the asset, it is not a completely bad thing although short term it will drive real property values lower because government auction ALWAYS have that effect, especially on this scale. My point is, 95% of homeowners PAY THEIR MORTGAGES ON TIME, the situation is bad, but not critical mass, at least not yet.

Financial wizards need to be working this out rather than these morons in the government, in the panic of 1907, at the governments request, JP Morgan and his brain trust put all the Wall St bankers in a room and ironed out a series of mergers, buyouts and streamlined their operations and saved them from themselves and worse yet, government interference, Why aren't Warren Buffet and his type being tapped to analyze the problem today? Because government wants to control banking and anything else they can, it is what they do, and since when has a government run system EVER been run efficiently? One this big? NEVER.

If you don't understand the function of credit, you miss the importance of what is going on.  Otherwise viable businesses fail under circumstances where they are restricted from credit.  No company produces from savings, they use credit to pay for things until they get a return on their production.

The concern is that a large portion of the economy collapses, business fail and jobs disappear.  Such a process can "snowball" as more and more people lose their jobs stop consuming and paying their bills causing more businesses to collapse.

The problem is that the US turned to into a speculative economy, creating more wealth out of stocks and real estate (essentially inflationary, and fed by excessive credit creation) and stopped being concerned with producing goods or ensuring that our trading partners and we were in an equilibrium.

The US has gone off the deep end, at some point in any economy, too much credit offered at too low a rate for too long exhausts demand.  At this point the players who made money by issuing the credit, try to keep the game going by making rates even more attractive, or the ability to qualify easier.  But you cannot get responsible people to borrow when they are fearful of not having funds, or being unable to see a way to a profit in a business venture.  The irresponsible ones, coming to the party late, inevitably end up holding the bag, buying real estate at a top, when prices have gotten way ahead of salaries, and have to fall.  Unable to make the payments and now in a home that is worth less then they agreed to pay, default becomes a likely outcome.

AIG failed, or fell to creditors because their mortgage insurance business killed them.  They didn't expect the number of defaults, and it must be higher than 5% to blow up their model.

There is nothing new about a credit binge expansion and contraction.  If you study economic history, you will see that this was a technique used by banks in the 19th century.  They would expand the money supply in a specific area, enabling businesses to expand and encouraging them to take even greater risks to enhance their profit. At some point, the bank decides to stop handing out loans and even calls in a few. This action reduces the money supply, squeezing otherwise viable businesses which eventually fail and are sold for pennies on the dollar, making an enormous profit for the bank.  This is happening on a world-wide scale, and we aren't at or near the bottom yet.

For the record, I do not want a bail-out, but I don't want to see the credit markets seize up either.  The proper way to deal with this is not a bail out, but a loan program that ensures the government PROFITS, and uses the profits to take care of outstanding obligations like social security or the national debt. If the loans don't perform, the government gets control over the property. Also the businesses must run under restrictions until the debt is paid: no dividends, no lavish salary packages or gifts of stock or options, etc.

Any other solution is irresponsible.  Government should not subsidize failed businesses, but it must protect commerce in general and that means a functional credit market.

[westkoast]

Not to get into this much further in fear of making a few posters here mad the sun also "dies" or drops to the lowest point in the sky on the 22nd.  It rises 3 days later and starts to climb back up to a higher location in the sky slowly.  Everyone else can put 2 and 2 together here....

You are confusing me...so you are saying Easter should be at Christmas?

The birth of the sun runs along side the birth of Jesus....on the 25th the Sun is born as described by it coming to life by rising.

And go talk to the hippy pagans about how it sounds more like Easter then Christmas.  They are the ones who explained it.

[rickortreat]

Easter is a ripoff of Passover.

[Joe Vancil]

Well, if they're saying it will be harder for me personally to get credit, I say, "GOOD!  Maybe it'll clear up the junk mail problem I have with everyone and their brother wanting to offer me a credit card."

I'm *GLAD* this bill was defeated.  If the stock market collapses, and I lose everything I have in it - I'M OKAY WITH THAT.  My risk, my choice, my problem.  If the economy collapses because we don't bail the banks out - MY BAD.  But from what I've seen, I think this "crisis" is FAR overblown, and once we let the fatcats know that they're not getting the money no matter what they do, I think they'll get back to business as usual.

[jemagee]

Easter is a ripoff of Passover.

Wow...talk about a stretch...easter as it exists now is a rip off of OTHER pagan events.

And Yes I know the story behind christmas, I also know christianity needed to envelop pagan ideals or die around 300 AD...

Though I have always wondered why they show the 10 commandments on easter - always seemed silly to me

[Laker Fan]

Another take on "the sky is falling"...posted yesterday after the failed bailout.  Bolding is mine...

If you don't understand the function of credit, you miss the importance of what is going on.  Otherwise viable businesses fail under circumstances where they are restricted from credit.  No company produces from savings, they use credit to pay for things until they get a return on their production.

The concern is that a large portion of the economy collapses, business fail and jobs disappear.  Such a process can "snowball" as more and more people lose their jobs stop consuming and paying their bills causing more businesses to collapse.

The problem is that the US turned to into a speculative economy, creating more wealth out of stocks and real estate (essentially inflationary, and fed by excessive credit creation) and stopped being concerned with producing goods or ensuring that our trading partners and we were in an equilibrium.

The US has gone off the deep end, at some point in any economy, too much credit offered at too low a rate for too long exhausts demand.  At this point the players who made money by issuing the credit, try to keep the game going by making rates even more attractive, or the ability to qualify easier.  But you cannot get responsible people to borrow when they are fearful of not having funds, or being unable to see a way to a profit in a business venture.  The irresponsible ones, coming to the party late, inevitably end up holding the bag, buying real estate at a top, when prices have gotten way ahead of salaries, and have to fall.  Unable to make the payments and now in a home that is worth less then they agreed to pay, default becomes a likely outcome.

AIG failed, or fell to creditors because their mortgage insurance business killed them.  They didn't expect the number of defaults, and it must be higher than 5% to blow up their model.

There is nothing new about a credit binge expansion and contraction.  If you study economic history, you will see that this was a technique used by banks in the 19th century.  They would expand the money supply in a specific area, enabling businesses to expand and encouraging them to take even greater risks to enhance their profit. At some point, the bank decides to stop handing out loans and even calls in a few. This action reduces the money supply, squeezing otherwise viable businesses which eventually fail and are sold for pennies on the dollar, making an enormous profit for the bank.  This is happening on a world-wide scale, and we aren't at or near the bottom yet.

For the record, I do not want a bail-out, but I don't want to see the credit markets seize up either.  The proper way to deal with this is not a bail out, but a loan program that ensures the government PROFITS, and uses the profits to take care of outstanding obligations like social security or the national debt. If the loans don't perform, the government gets control over the property. Also the businesses must run under restrictions until the debt is paid: no dividends, no lavish salary packages or gifts of stock or options, etc.

Any other solution is irresponsible.  Government should not subsidize failed businesses, but it must protect commerce in general and that means a functional credit market.

Remarkable comment Rick, there is hope for you yet! Your assessment that credit has been too loose is something I have been shouting from the rooftops FOR YEARS! Can credit go away? No, and in fact it shouldn't because too much revenue is based on interest accruing loans which further finance expansion and other businesses. It is ludicrous to think anything other than this would be the case, credit is the engine that drives a free market economy and has done so for centuries, there is nothing wrong with that, Rick is absolutely correct that return on investment is primarily based on credit worthiness and ability to finance your operation rather than come up with hard currency of your own, my aforementioned example of McDonalds is an excellent example, enough liquidity to self finance their own equipment but smart enough to stay cash flush and use their tremendous credit rating to look for return  investment on borrowed money, no capitalist market works any other way, and when lending standards are high, as they should be, it works like a well oiled machine. This problem stems from lack of oversight, loose credit, and sinfully greedy investment bankers and hedge funds that built a house of cards based on credit with no backing, whether it was real provable income on the part of borrowers or RIDICULOUSLY overinflated real property values, which were at the core of this problem because those same greedy investment bankers saw a chance to make a quick and massively huge profit and get out before a puff of wind knocked the whole thing down, specifically a rapidly collapsing housing market that caught these same investment bankers off guard and left them with fully 5% of U.S. housing on their books as bad debt. While this is bad, it is at worst a 150 billion dollar problem, the 700 billion number is one that was pulled out of thin air and includes a couple hundred billion in earmarks that HAVE NOTHING TO DO WITH THIS "CRISIS".

This is not say the numbers bantied about are not real, they are, but they are a FRACTION of the market, a small fraction and if I disagree with Rick here on one thing it is the AIG model he refers to, the hard number (HUD and AIG'S default insurance statements bear this out) is 5%, the caveat is not the number but the falling value of the real property they insure, which is about a 30% swing from financed amount to devalued amount, it is at this point the paper becomes "bad",  upside down, and where AIG got caught, and investment bankers and hedge funds by extention were left swinging in the wind, as they should have been, risk taking at that level when it fails is massive, and oftentimes is the result of fraudulent inflating of profits which is why, like Rick I think this "bailout" is an obscene reward of unethical and in many cases illegal business practices.

If you think this is a localized to the U.S. economy, think again, nothing exists in a vacuum and the type of socialized engineering of markets that the Europeans have been doing for years has finally caught up to them as well, the current situation in the U.S. only excacerbates their own mess and now it is beginning to implode there as well.

If the government forces this bailout, it will result in a financial crisis that will make the Great Depression look like a tea party, mark my words.

[Lurker]

Another take on "the sky is falling"...posted yesterday after the failed bailout.  Bolding is mine...

If you don't understand the function of credit, you miss the importance of what is going on.  Otherwise viable businesses fail under circumstances where they are restricted from credit.  No company produces from savings, they use credit to pay for things until they get a return on their production.

The concern is that a large portion of the economy collapses, business fail and jobs disappear.  Such a process can "snowball" as more and more people lose their jobs stop consuming and paying their bills causing more businesses to collapse.

The problem is that the US turned to into a speculative economy, creating more wealth out of stocks and real estate (essentially inflationary, and fed by excessive credit creation) and stopped being concerned with producing goods or ensuring that our trading partners and we were in an equilibrium.

The US has gone off the deep end, at some point in any economy, too much credit offered at too low a rate for too long exhausts demand.  At this point the players who made money by issuing the credit, try to keep the game going by making rates even more attractive, or the ability to qualify easier.  But you cannot get responsible people to borrow when they are fearful of not having funds, or being unable to see a way to a profit in a business venture.  The irresponsible ones, coming to the party late, inevitably end up holding the bag, buying real estate at a top, when prices have gotten way ahead of salaries, and have to fall.  Unable to make the payments and now in a home that is worth less then they agreed to pay, default becomes a likely outcome.

AIG failed, or fell to creditors because their mortgage insurance business killed them.  They didn't expect the number of defaults, and it must be higher than 5% to blow up their model.

There is nothing new about a credit binge expansion and contraction.  If you study economic history, you will see that this was a technique used by banks in the 19th century.  They would expand the money supply in a specific area, enabling businesses to expand and encouraging them to take even greater risks to enhance their profit. At some point, the bank decides to stop handing out loans and even calls in a few. This action reduces the money supply, squeezing otherwise viable businesses which eventually fail and are sold for pennies on the dollar, making an enormous profit for the bank.  This is happening on a world-wide scale, and we aren't at or near the bottom yet.

For the record, I do not want a bail-out, but I don't want to see the credit markets seize up either.  The proper way to deal with this is not a bail out, but a loan program that ensures the government PROFITS, and uses the profits to take care of outstanding obligations like social security or the national debt. If the loans don't perform, the government gets control over the property. Also the businesses must run under restrictions until the debt is paid: no dividends, no lavish salary packages or gifts of stock or options, etc.

Any other solution is irresponsible.  Government should not subsidize failed businesses, but it must protect commerce in general and that means a functional credit market.

Remarkable comment Rick, there is hope for you yet! Your assessment that credit has been too loose is something I have been shouting from the rooftops FOR YEARS! Can credit go away? No, and in fact it shouldn't because too much revenue is based on interest accruing loans which further finance expansion and other businesses. It is ludicrous to think anything other than this would be the case, credit is the engine that drives a free market economy and has done so for centuries, there is nothing wrong with that, Rick is absolutely correct that return on investment is primarily based on credit worthiness and ability to finance your operation rather than come up with hard currency of your own, my aforementioned example of McDonalds is an excellent example, enough liquidity to self finance their own equipment but smart enough to stay cash flush and use their tremendous credit rating to look for return  investment on borrowed money, no capitalist market works any other way, and when lending standards are high, as they should be, it works like a well oiled machine. This problem stems from lack of oversight, loose credit, and sinfully greedy investment bankers and hedge funds that built a house of cards based on credit with no backing, whether it was real provable income on the part of borrowers or RIDICULOUSLY overinflated real property values, which were at the core of this problem because those same greedy investment bankers saw a chance to make a quick and massively huge profit and get out before a puff of wind knocked the whole thing down, specifically a rapidly collapsing housing market that caught these same investment bankers off guard and left them with fully 5% of U.S. housing on their books as bad debt. While this is bad, it is at worst a 150 billion dollar problem, the 700 billion number is one that was pulled out of thin air and includes a couple hundred billion in earmarks that HAVE NOTHING TO DO WITH THIS "CRISIS".

This is not say the numbers bantied about are not real, they are, but they are a FRACTION of the market, a small fraction and if I disagree with Rick here on one thing it is the AIG model he refers to, the hard number (HUD and AIG'S default insurance statements bear this out) is 5%, the caveat is not the number but the falling value of the real property they insure, which is about a 30% swing from financed amount to devalued amount, it is at this point the paper becomes "bad",  upside down, and where AIG got caught, and investment bankers and hedge funds by extention were left swinging in the wind, as they should have been, risk taking at that level when it fails is massive, and oftentimes is the result of fraudulent inflating of profits which is why, like Rick I think this "bailout" is an obscene reward of unethical and in many cases illegal business practices.

If you think this is a localized to the U.S. economy, think again, nothing exists in a vacuum and the type of socialized engineering of markets that the Europeans have been doing for years has finally caught up to them as well, the current situation in the U.S. only excacerbates their own mess and now it is beginning to implode there as well.

If the government forces this bailout, it will result in a financial crisis that will make the Great Depression look like a tea party, mark my words.

A couple additions...

AIG did not insure the underlying mortgages.  They insured the derivative crap that the major players were bouncing back & fiorth to each other.  When the real estate bubble burst and they couldn't price these exotic securities any more then AIG had to start ponying up the insurance.  That is the root cause of AIG's "loan".

As far as the non-financial companies; I agree that credit is necessary to run the world econonmy.  But as Dan says it has to be good credit.  Credit that can be backed by tracable as well as pricable assets.  Part of the problem here is that these companies got accostomed to unending, low cost borrowing.  And they don't want to have to take on higher rates (costs) which then will get passed through to higher prices which fuels inflation.  Which is antethema to the Fed.  So the Fed has worked diligently to maintain low costs for financial capital.  And has made it cheaper for businesses to borrow than to raise true capital.  An investor wants a 7-8% return (think historical stock market returns), a lender will accept 3-4% (prime or +1); so where would you go to raise money: investors or lenders? 

However at the same time does anyone realize that in a bill passed last week to continue funding our govt that it authorized $50 billion in low interest loans to the auto industry?  That the Fed opened up its lending window to non-financial companies?  That the Fed/Treasury has pumped close to the $700 billion into the world financial markets in the past 2 weeks?  Our govt has taken several steps to provide greater liquidity.  The money supply is in the system but what the govt can't do is force the lenders to lend.  And basically the lenders are saying we won't lend until you (govt) take our mistakes off our hands; then it will be business as usual.  Which means doing whatever it takes (including new shaky loans) to make the maximum profit.  This appears more & more to be a battle between the world's financial community and the world governments.  The question is who will blink first.

[ziggy]

This is the kind of garbage I hate.  We have the bankruptcy of Lehman and AIG gets taken over on Monday and Tuesday, market loses like a 1,000 points, and the world is coming to an end as of Tuesday.  By Friday the Dow makes all of their losses back.
On Monday the Dow loses 777, the world is ending as we know it, and the next day we gain back 424 of the loses.  Reporters are telling you it is the end of the world in one sentence and in the next they tell you it is a good time to buy in.
Now we get the Senate approval of the bill to save us all from "suddenly living on the streets, eating our pets to survive, and selling our children into Chinese slave labor camps" and the market responds with "The Bailout Plan May Not Avert Slowdown".



http://www.bloomberg.com/apps/news?pid=20602013&sid=aY8uG5robjSM&refer=commodity_futures

Oil Pares Gains on Concern Bailout Plan Won't Avert Slowdown

By Christian Schmollinger and Angela Macdonald-Smith

Oct. 2 (Bloomberg) -- Crude oil pared gains in New York because of concerns a $700 billion financial-rescue package passed by the U.S. Senate won't avert an economic slowdown in the world's biggest energy-consuming nation.

The Senate approved legislation that links the rescue plan to an increase in bank-deposit-insurance limits and $17 billion in tax breaks for solar power, wind energy and heavy oil refineries. The House of Representatives may take action Oct. 3, said Brendan Daly, a spokesman for House Speaker Nancy Pelosi.

``With the bill passed, you'll see some hope and then a sell off,'' said Jonathan Kornafel, a director for Asia at Hudson Capital Energy in Singapore. ``There is a lot of bearish pressure on crude right now.''

Crude oil for November delivery traded at $99.24, up 71 cents, at 1:02 p.m. Singapore time in after-hours electronic trading on the New York Mercantile Exchange. It earlier rose as much as 1.9 percent to $100.37 a barrel before the vote and traded as low as $99.01 after the bill was passed.

Prices are down 32 percent from the record $147.27 a barrel reached on July 11. Yesterday, the contract dropped $2.11, or 2.1 percent, to settle at $98.53 a barrel after a U.S. report showed a bigger-than-forecast supply increase and that fuel consumption dropped to the lowest since 2001.

Inventories rose 4.28 million barrels to 294.5 million last week, the Energy Department said. Stockpiles were forecast to climb 2.75 million barrels, according to a Bloomberg News survey. Imports and refinery operations increased after storms curtailed supplies last month.

Historic Volatility

Brent crude oil for November settlement rose $1.70 cents, or 1.8 percent, to $97.03 a barrel on London's ICE Futures Europe exchange. It was at $95.80 a barrel at 12:23 p.m. Singapore time. It declined $2.84, or 2.9 percent, to settle at $95.33 a barrel yesterday.

Oil prices are more volatile than at any time since the first Gulf War in 1991 as the market grapples with signs of falling demand and the expectation of an economic recovery following the passage of the bailout plan.

Historical price volatility during the last year for New York crude futures measured over 10, 30, 50 and 100 days. All are at their highest since January 1991 when U.S. and allied forces fought to expel Iraqi troops from Kuwait.

``With the bailout passing, people feel that maybe the market will stabilize, the economy will be rescued and crude prices will go up,'' said Anthony Nunan, assistant general manager for risk management at Mitsubishi Corp. in Tokyo. ``This removes some of the uncertainty, but the big problem is going to be the House.''

`Heightened Expectations'

Oil futures plunged 9.8 percent on Sept. 29, the biggest drop in seven years, after Congress voted to reject the bank rescue plan. A week earlier, a record 16 percent jump led regulators to say they were on the lookout for price manipulation. Crude fell 28 percent in the third quarter, its worst performance in 17 years.

``Everyone is expecting the market to dump, and it's not, so everyone is sitting'' and waiting, said Hudson Capital's Kornafel. ``So, in that sense, you have heightened expectations and that always raises volatility.''

Fuel use over the past four weeks averaged 19 million barrels a day, the lowest since October 2001, according to the Energy Department. That is 7 percent less than last year.

Gasoline stockpiles rose 901,000 barrels as refinery output climbed because units returned to service after being shut down following Hurricanes Ike and Gustav. Distillate supplies declined by 2.4 million barrels, more than the 1.5 million barrels estimated by analysts.

Refining Profits

Refineries operated at 72.3 percent of capacity last week, up 5.6 percentage points from the previous week, the report showed. It was the biggest weekly rise in utilization since October 2002.

Profits from producing motor fuels at refiners have plunged as demand has dropped. The price difference, or crack margin, between crude oil and gasoline fell to 66 cents a barrel today, 80 percent less than last year.

``If you look at the refinery margin right now, it's basically trading next to zero and that's with the hurricanes shutting a number of facilities,'' said Hudson Capital Energy's Kornafel. ``In that situation you'd expect it to blow out, but it's continued to weaken and that points to the demand expectations in the U.S. better than anything.''

[Lurker]

This is the kind of garbage I hate.  We have the bankruptcy of Lehman and AIG gets taken over on Monday and Tuesday, market loses like a 1,000 points, and the world is coming to an end as of Tuesday.  By Friday the Dow makes all of their losses back.
On Monday the Dow loses 777, the world is ending as we know it, and the next day we gain back 424 of the loses.  Reporters are telling you it is the end of the world in one sentence and in the next they tell you it is a good time to buy in.
Now we get the Senate approval of the bill to save us all from "suddenly living on the streets, eating our pets to survive, and selling our children into Chinese slave labor camps" and the market responds with "The Bailout Plan May Not Avert Slowdown".

I am with you ziggy.  Not only did they approve the bailout but they added $150 billion of additional spending; i.e deficit.  Maybe if our government didn't keep soaking up all the available credit to fund huge deficits there would be money available to lend to others.  Here's another article that shows that the recession was coming long before this credit crisis and that the bailout will do nothing to avert it.

http://www.marketwatch.com/news/story/recession-now-certain-economists-say/story.aspx?guid=%7B19786F11%2D56EF%2D4FCF%2D94CA%2D88189A007276%7D&dist=TNMostRead

Recession now certain, economists say
Consumer spending on track for first quarterly decline since early 1990s
By Rex Nutting, MarketWatch

WASHINGTON (MarketWatch) -- Even before the latest squeeze in the credit markets, the U.S. economy had slipped into what could be a relatively lengthy recession, economists say.

The latest data, covering activity in August and September, make it all but certain that the academic economists will eventually declare that the economy is in a recession.

The big economic forecasting firms are in the process of updating their forecasts following the release of key data on consumer spending. While the final numbers aren't available yet, forecasters say it doesn't look good.  The economy seems to be on the "edge of the abyss," said Joel Prakken, chairman of Macroeconomic Advisers, which will update its forecast on Friday.

"Anyone who's wondering if there's a recession should stop wondering," said Nigel Gault, U.S. economist for Global Insight, which will release its updated forecast on Monday. "The recent data were deteriorating sharply" even before factoring in the latest impact of the credit squeeze.

Global Insight doesn't think the recovery will be quick or powerful. The economy will likely contract for three quarters and then show weak growth in the second quarter next year.

If the recession lasts from December 2007 until April 2009, as Gault suspects it will, it would be the longest since the Great Depression. And the recovery, when it comes, won't feel anything like a boom.  "It's difficult to see a real rapid recovery, certainly at the beginning," Gault said. Typically, the economy recovers when the Federal Reserve lowers interest rates to stimulate credit-sensitive consumer purchases of housing and autos. See earlier story on why the recession will be protracted.

But with credit markets jammed and consumers already reeling from too much debt, lower rates won't have the usual impact on the economy. "The Fed won't have any ammo left," Gault said.   Fed policymakers may not try to stimulate the economy too much anyway, figuring that the current crisis stems from exactly that medicine: The Fed kept rates too low for too long after the 2001 recession in a bid to drag the economy out of the jobless recovery.

Contrary to the conventional wisdom, a recession is not defined as two consecutive quarters of declining gross domestic product. So far, we've had just one quarter of negative growth (the fourth quarter of 2007), although revisions next summer could certainly drop one or two quarters this year below zero.

Rather, the economists at the National Bureau of Economic Research, who are the arbiters of recession dating, say that "a recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales."
Four of those indicators have been declining significantly since the first of the year. Employment has fallen at a 0.7% annual pace, incomes are down 1% (even with the rebate), output is down 2.8%, and sales are down 1.3%.

Only GDP has bucked the trend, rising at a 1.8% annual rate. How can that be? Can the economy really contract while GDP is growing?  The answer is yes, under certain circumstances like now, when exports are booming while domestic consumption and investment are weak.

GDP is the total value of goods and services produced in the United States, including domestic consumption and investment as well as goods and services sold overseas and unsold goods put into inventories. We get the income from making exports and inventories, but we don't get the utility from using those goods and services.

Gault of Global Insight notes that gross domestic income, which should by definition equal GDP, has not been nearly as strong as the economy measured from the output side. GDI is up just 0.2% from a year ago compared with 2.1% for GDP. Gault suspects that GDP will ultimately be revised lower to match the weaker income figures.

In the past year, our economy has come to look like a banana republic's: All the output goes to exports, and not to domestic consumption and investment.  In the past year, most of the GDP growth has come from increased exports and a reduced appetite by Americans for foreign-made goods. Consumer spending, which typically accounts for 70% of the economy, has contributed only about 40% of the growth over the past year.
 
And consumer spending seems almost certain to decline in the third quarter, which ended Tuesday. We won't see September consumption data for another month, but the trend through August was horrible. With auto sales dropping to a 16-year low and chain-store sales weak, September may have been even worse. And that was before the credit markets really seized up.
 
We haven't seen even one quarter of declining consumer spending since 1991, but it could fall as much as 2.3% annualized in the third quarter, said economists for Morgan Stanley. That could be enough downdraft to offset any upside from exports. Housing will continue to be a drag, and business investment seems to be weakening as well.
The unemployment could reach 7% before it's all over, said Prakken.
 
The major risk now is that the downturn could worsen if the credit squeeze is not fixed. "The further tightening of credit conditions and declines in equity markets will weigh heavily on the outlook for growth in the coming quarters," said Prakken of Macroeconomic Advisers.  "It could be much worse in the short-term," said Gault, adding that the deeper the contraction is now, the sooner the healing process could begin. 

[Reality]

WASHINGTON ? More than half of all homeowners who had their loans modified to make the payments more affordable in the first half of the year are already in default again, banking regulators said Monday.
The new data raise questions about whether government money may be better spent on creating jobs, rather than averting foreclosures, said John Reich, director of the federal Office of Thrift Supervision office at a housing industry forum sponsored by his agency.

[jemagee]

As we all know, when you want to create jobs, you want the US Government on the case...

[rickortreat]

As we all know, when you want to create jobs, you want the US Government on the case...

When Capitalism fails, pragmatists go Socialist!  The problem with Socialism is that it is inherently corrupt and lacks proper incentives. The problem with Capitalism is that when people feel uncomfortable taking risks in business, they stop hiring people or trying to build companies, precisely when people need work the most!

We have multiple problems coming together at the same time: The financial crisis is already well under way. Terrorism is still going strong and has the potential to get much worse- watch Pakistan, The world is still running out of oil, even if commodities are dirt cheap now, they will not remain so. Global warming, man-made or not is present and will continue to impact our lives. 

The US is still trying to come to grips with it's situation and while I think Obama really understands what needs to be done, the time to act is now, not two months from now.  Congress is filled with boobs who were happy to pony up money to Paulson for the banks, but are refusing to give money to the auto companies. 

From the standpoiint of what's best for the average American, Ted's idea to help people with their mortgages makes much more sense then helping the banks make good on their derivatives. And keeping Gm going and employing people is more important to the economy than keeping Citibank afloat!  The banks should be allowed to fail, and the government can allow or even create new banks to take their place.  That is a lot easier than re-establishing a car company!  You should be very afraid because your leaders are idiots. The decisions made now are very serious and mistakes will be manifested as trouble in the real economy.

[jemagee]

I vote for collectivism