According to Yahoo!News:
NEW YORK – Wall Street gave Washington’s $700 billion rescue plan for banks, brokerages, credit unions, thrifts and insurance companies a mediocre grade on Monday.
As the House prepared to vote on the package that was finalized late Sunday, stocks were poised to open lower on concerns that the measure, aimed at prying open credit markets, would not pass.
Stock futures fell sharply and demand for safe-haven Treasuries drove yields lower. The dollar was mixed, gold prices rose and oil fell.
President Bush urged Congress Monday morning to pass the banking system bailout bill, saying it is needed to “keep the crisis in our financial industry from spreading” across the economy.
Failure could lead to severe market disruptions, analysts said. But even if credit markets start to stabilize, the realities of a weak economy are likely to weigh on markets, they said.
Just after Bush spoke, the FDIC said Citigroup Inc. would acquire the banking operations of Wachovia Corp.
The move came only days after the government seized Seattle-based Washington Mutual Inc., the largest bank failure in U.S. history, punctuating the urgency of passing the plan.
“When you start thinking of the broader issues, a lot of this is very troubling,” said Joseph Battipaglia, chief investment officer at Ryan Beck & Co. “We have in front of us a recession in the general economy, the consumer is dramatically retrenching their habits by cutting spending, and our financial system has sputtered.
This isn’t necessarily a confidence builder because now everybody knows how precarious the financial system really is.”
- Dutch-Belgian banking giant Fortis NV was partially nationalized with a $16.4 billion rescue from the governments of Belgium, the Netherlands and Luxembourg, after investor confidence in the bank disappeared last week.
- The British government nationalized mortgage lender Bradford & Bingley, taking over the bank’s $91 billion mortgage and loan books. The Icelandic government bought a 75 percent stake in Glitnir, the country’s third largest bank, for $878 million to ensure broader market stability after it suffered liquidity issues.
- In Germany, the country’s second biggest commercial property lender, Hypo Real Estate Holding AG, said it had secured a multibillion euro line of credit from several banks.
The proposed $700 billion bailout is aimed at reviving a market for mortgage-backed securities that has all but disappeared as credit has tightened.
“This gives us a much stronger background to work in compared to the past three weeks,” said Ned Riley, chief investment officer of Boston-based Riley Asset Management.
He added, however, that “we’re still not out of the woods relative to all the other problems facing the economy, and there will be doomsayers who predict this package won’t work.”
- Yes, the doomsayer is almost out in the street…there! There’s one of them… on the street! It’s just another member of the public withdrawing their life savings out from their previously trusted banks.
These are the people that you need to be convinced to put back their money back into the bank in rows after rows and able to give them huge amount of interest…or a simple word call “stability”.
For major banks to use public savings deposits to loan out to other party to gather interest is just one of the ways the banks can earn money but if there are no more savings inside the bank, the liquidity is gone and there won’t be any more money to loan out.
The $700Billion bail out will supply them “unlimited” resources for them to “loan” out with hopes to get interest rates back as “profits” for investors (taxpayers & other countries investors that loan money to USA).
The problem is, will it be enough to win back the confidence of the people? Will the people willing to once again put in their REMAINING hard earn savings into a second round at the “gambling table” after a shocking or devastating loss?
Will more property investors comes back into the game and claim that the bottom had been reached and it’s prime time to invest in property in USA once more as it is the cheapest right now?
Do people really wants to loan money from banks again to finance their property purchase once more even though they know they might not be able to pay back in the future…if their salaries are getting harder to pay for the ever increasing interest rates?
What is the fundamental problems that had initially caused the property market collapse, there are many version or theories to this and the official reason is SUBPRIME Loan which loan money out to people without not much financial backing or reasonable income to support the repayment which resulted in bankruptcy and foreclosure of the property.
However, why do property market crash in value that forced the banks to write off all these as toxic debts instead of getting higher value in the foreclosure of the properties?
Why do property goes down in value? Why can’t the owners sell them at a profit any more?
These are the reason behind this may hit any average American people with the “shock and awe” effects that my theory is very simple…it’s basic demand and supply.
There is oversupply of houses at very inconvenient locations that required costly fuel to travel around town, cities and sometimes may had to take planes around the country just to commute to work.
The basic fundamental of demand and supply had just tested their last straw when oil price broke the $100 mark few months ago and people simply no longer can afford to stay at such a locations that required costly fuel to commute to work, play, study and more.
There are small towns in USA that were used to be bustling with life due to the invention of the automobile and the discovery of that black oil back in the 1950s and the usage or petroleum revolutionize how people move about in the country.
Long distance commuting is then a cheap and affordable task by simply driving to work is is more cheaper than buying a coca-cola off the store.
After the 1970s oil scare and the recent oil spikes passed US$100 per barrel, many once valuable properties became unwanted due to their location and cost of commuting.
Towns and small cities are organizing transition towns to move nearer to their work or starts working at home powered by renewable energies and once they are settled, they don’t move much causing shocks too the ” Property flippers” and caused a discount war across the countries.
Slowly, to encourage more people to buy properties that includes those financially strapped unstable income individuals…the bank pushed their sub prime mortgage loans out with “ka ching” sound of profit in mind.
Halfway through their subprime exercise, someone must had known something is wrong and managed to repackage these toxic loans with other credit to form “securities” and sold it world wide to reduce their own risk and gain more liquidity to LOAN OUT MORE SUBPRIME MORTGAGES.
Now, greed and promise of high interest returns lured even the biggest financial giants and even insurance companies worldwide to play with their client’s money (SAVINGS & Funds & Insurance Premium) into this world of toxic debts.
Earlier back in June – July the stocks exchange suddenly show signs of of public confidence in those banks involved shattered into smithereens, this may be caused by either market rumors or leakage of information from within.
Now, like the domino blocks…one by one the banks around the world shown signs of weakness and the same insider “news” shattered public confidence once more.
Rumors of more rouge traders making huge losses during the deadly game of “high stakes gambling” at the stocks exchange using public funds in certain banks caused serious lost of confidence by the public all over the world.
Why does banks allow traders conduct high risk trading without proper regulation and control in the name of higer returns?
What is the difference between putting your money into these banks & insurance than going to the casino and place a huge $700 billion bet on the roulette?
Win, the world goes back to the yearly high GDP growth world where rich people continue to be rich and powerful and the poor face higher inflation of goods and services with no end in sight.
You might as well strap some kind of dog chains on to these workers and whip them when they are not behaving, suck them dry from their income by ever increasing taxes but stagnet salary.
Poor people in developing countries that have huge land that can survive by doing small farming and eat what they grow but what will result of huge number of “slave” workers (low wage to middle class citizens) end up slaving at 2 jobs to make ends meet and pay for higher cost of food, electricity, transportation and fuel.
The final straw may be civil unrest and chaos that had been predicted by many peak oil believers and geologist that eventually there might be either a prolong civil war that may end up in a global resource war.
We must understand the whole situation and the REAL cause of all these problems, higher cost of fossil fuels bundled with greed of high flyers bank executives and the ever “growth” woshipping politicians and “ultra positive” economist that always uses cost as a way to control demand and supply.
Oil and natural gas are finite non-renewable fossil fuels and is about to face global peak production and goes into inevitable decline in supply. NO amount of money can make more fossil fuels fast enough to satisfy the increasing global demand.
Higher cost oil should cause a global demand destruction but that MEANS economic depression and sudden world wide loss of ability to afford EVERYTHING.
But many countries are surpressing the cost of oil by subsidizing the oil prices such as oil producing countries themselves, their growth in their own oil domestic demand is relentless.
The solution as discussed by previous post by the experts is probably inhumane population reduction or education to learn how to live with less fossil fuels and that means total destruction of cheap food supply, lowering imports & exports, earning much less, curb consumerism, encourage recycling, reuse and reduce, reduce international trade and total melt down of globalization.
Many countries are dependent on globalized economy and without imports and exports may spell doom for many markets including China’s manufacturing and USA ability to purchase China’s goods and starts to localize their own manufacturing to serve their own domestic market.
This may lead to serious implications like protectionism market where countries no longer export excess productions for profit but only to hoard products for local domestic demand.
Many countries will go starving, black out, civil unrest and many more. Doomsayers may get their last laugh with lot’s of food stocked up for months but end up with similar fate as the rest of the world.
Positively, people can invest in the future technology like renewable energy individually to self sustain themselves out of this doomsday event.
Only those who are prepared can survive so get started.
According to Bloomberg:
