Wall Street Bailout: $700 Billion Won't Be Enough
Three Experts Criticize Proposed Rescue of Financial Institutions
Full details have yet to be released, but the New York Times reports that the proposal includes the initial release of $250 billion to wipe bad debts off the balance sheets of financial firms.
The remaining $450 billion will be disbursed after a report by the president on the progress of the bailout is issued and a specific request by the president is made for the money.
Congress will have the authority to deny the Treasury the money ("Breakthrough Reached in Negotiations on Bailout," New York Times, Sept. 28, 2008).
But will $700 billion be enough? According to Marc Faber, publisher and editor of "The Gloom, Boom & Doom Report," it'll be a drop in the ocean.
"Looking at the size of the credit default swap market, which is around $62 trillion now, and the world wide derivatives market which is now $1,300 trillion dollars, I very much doubt that $700 billion would make any difference at all," he told CNBC ("$700 Billion May Not Be Enough: Dr Doom," Sept. 26, 2008).
Martin Weiss, president of Weiss Research, shares a similar view. He said in a Sept. 25 press release that not only would the amount not be enough to end the crisis, but "the additional burden of a $700 billion bailout (would put) major upward pressure on U.S. interest rates, aggravating the ... debt crisis."
According to the press release, 1,479 U.S. banks and 158 U.S. thrifts are at risk of failure, with total assets of $3.2 trillion. There are also multiple problems with U.S. interest-bearing debts valued at $51 trillion.
"Reckless people have deluded themselves that this was a subprime crisis," Nouriel Roubini, professor of economics and international business at the NYU Stern School of Business, told the Globe and Mail. "But we have problems with credit-card debt, student-loan debt, auto loans, commercial real estate loans, home-equity loans, corporate debt and loans that financed leveraged buyouts."
In other words, as business guru Jack Welch told the World Business Forum in New York on Wednesday, "I now believe we are in for one hell of a deep downturn."
He said the first quarter of 2009 will probably be "brutal," according to Reuters. "Get ready for real tough times. They're coming. There is no credit available."
Published by Jeremy Rutherfurd
An experienced reporter and editor who has worked for the Economist Intelligence Unit, Foreign Trade magazine, a China business-news site and several trade publications, I have been freelancing for the past... View profile
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10 Comments
Post a Commenti was against this bailout from the beginning. im not smart about the stock market and things of that nature but it just didnt smell right to me from the beginning. i couldnt see how it could possibly have helped the situation somehow. the only thing i could figure was everyone involvved was going to get a cut and run like hell. and nothing else would be "bailed out". so far i havent seen anything that tells me that that 's not exacly was has happened. poor dummied down americans. will we never learn?
i agree.
The final version of the bailout in my opinion should have protected the taxpayer from greedy wall street execs' golden parachutes. Reigning in AIG weekend partidge shoots is not enough. First such wastes of money should be equated in legal terms with stealing and fraud. It should have been spelled out really clear that those working at AIG and any other financial company that benefited from the federal bailout were effectively Government employees. As a Governement employee I can tell you that lavish trips and $700 hotel rooms doesn't happen. The CEO's should have been demoted to the equivelent of a NYS GR 25 ~80K a year. Take it or leave it. What was done is criminal, it's fraud. They may have circumvented legal prosecution but it was theivery. If the derivatives amount to hundreds of trillions of dollars, we're looking at an economic titanic
After "deliberation" our legislators decided to throw in another $100,000 Billion debt! I am flabbergasted. Paulson's urgent insistenc
I will comment with what I wrote on someone else's article on the same subject: I fear we are headed for something worse than a recession. I pray it doesn't happen, but I fear it greatly!
what a mess! Great read..thank you
I left the banking industry a few months ago because I was disillusioned with how the banks monitor risks. I was an operational risk Manager. Concerns raised by my department were brushed under the carpet with the full support of the head trader backed by the managing director. Don't kid yourselves there is still a bucket load of bad debt that's being hidden in the balance sheets of many financial organisations which will eat into the 700 billion The next big downturn will be within the collateralised derivatives markets a third of the organisations I worked with couldn't even value their assets making the so called credit support annex agreements worthless!
I have serious reservations about the bailout plan. There is a crisis of trust, as evidenced by many polls and surveys done in the last week. Also, the way the money is allocated does not do enough to protect those about to face foreclosure while it does protect the Golden Parachutes (money even upon severance) of CEOs of companies that made terrible economic decisions. When people lose trust in the economy or have serious doubts, the economy stays wobbly. Just my take.
Derivatives and greed are two powerful things and they are ruining our economy quite quickly. Sad and scary!
A second great depression will happen. There is no avoiding it. 1300 trillion in derivatives debt. That can also be stated as 1.3 quadrillion dollars; quadrillion is probably a term a lot of people have never heard. There is not that much money in the world, so that debt cannot be paid off. This house of cards we call the economy is coming down.
Things are getting really scary. I can't imagine why anyone would want to be president and inherit this mess.