The market isn't crashing because of the vote, it's crashing because 700 Billion in not enough

[RollWithIt]

From MSN Money.

http://blogs.moneycentral.msn.com/topstocks/archive/2008/09/29/markets-to-congress-700-billion-isn-t-enough.aspx

Legislation forged this weekend to try to resolve the U.S. credit crisis is far from the comprehensive bailout or rescue plan that its promoters claim, and instead is little more than a larger version of the failed attempts that have come before, according to analysis by independent banking experts.

Rather than putting another little $10-billion piece of adhesive tape on banks' gaping wounds, it is more like a $700-billion, hospital-quality patch -- but it is still far from what is necessary to resolve the big problems that plague the banks. It's a joke. It's a scandal. It's a disaster. But what did we expect once Congress got involved?

Here's the problem: For the 15 months, the Federal Reserve has been trying to turn banks' bad mortgage loans into cash by allowing them to turn them in as collateral for Federal loans. With each new program with names like "term auction facility," the Fed has lowered its requirements for the quality of the loans it would take, widened the number of financial institutions eligible for the program, and stretched out the amount of time the institutions could keep the laundered money.

The only change in the new plan -- called the "troubled asset recovery program," or TARP -- is that the Fed will accept almost any kind of loan, from virtually any financial institution, and now it is just giving the money away rather than making a loan. That's why this one costs so much more.

But it still doesn't get at the two root problems in the banking system:

-- When banks get the new money, they will still be fearful of lending it out, and who can blame them, considering there seems to be a recession on, and considering that loans even to major institutions like Lehman Brothers have blown up?

-- When banks sell the loans to the government, they will result in a sizeable write-down, or loss. That decreases their shareholders equity, also known as bank capital. And since the amount that banks can lend is based on their amount of bank capital -- typically at a ratio of around 8.5 to 1 -- the markdown of loans results in a smaller base from which they can make new loans. That's a double whammy, again reducing their willingness to lend.

[Johonny]

1. It's crashing because they were told to panic!!!!!!!!!!!!!!!!!!!!!!!!

The market responds to panic time and time again.