The Bailout caused the panic.

[edhopper]

Paulsen and Bernake could only sell their bailout by convincing everyone that there was a CRISIS RIGHT NOW!! (actually the credit problem has been happening for a year.
You know what, it worked. They convinced everyone that there was a immediate crisis and the result was panic. That's why the passage of the bailout did nothing to stop it.
This is a panic unlike anything since 1929.
And those who supported the bailout need to explain how it's passage did any good. If you think it's a long term solution, explain how $700 bil helps when the problem is $60 trillion in questionable derivatives?

[Occam Bandage]

1. No, I'm pretty sure the collapse of the credit market caused the panic.

The bailout was an attempt to unfreeze the credit market. The credit market remained locked up. The markets continued to slide, as the nation's economic engine is still stalled.

[redqueen]

19. Precisely.

The OP is nonsense. Nonsense with four recs... so far.

:banghead:

[nadinbrzezinski]

24. But popular nonsense

I need to go buy stock in tin foil

[tom_paine]

54. Are you the same nadinbresinski who has been posting on DU all this

time or are you just someone using her monniker?

Sneering Coindicence-Theorist dismissals of a supposed Conspriacy Theorist?

I can't believe my eyes. I guess it felt so good when people dismissed you out of hand as a Conspiracy Nut, that you had to "Pay It Forward".

May I say I am stunned and disappointed in you? I don't have an opinion the particular subject of the OP, so please don't try to engage me on it in reply. What I care about that you are doing to others precisely that which was done to YOU. That which couldn't have been pleasant, at least based on many of your posts I have read this past year.

Look, we are all human beings. Which means that, to a person (and no matter how much we want to believe that WE are different), we are strong in some areas, weak in others, and capable of incredible hypocrisies under the right circumstance, among other things.

This, sadly, I think is one of those "hypocritical circumstances" for you.

You are giving exactly the same kind of dismissive bullshit that I though we BOTH loathed. You may disagree with this individual, but his theory is no crazier than yours and mine are viewed by many others. Why disagree in that distasteful, contemptuous Coincidence Theorist way?

And truthfully, whatever one thinks of it, the OPs theory belongs to the same family of theories, if you ask me, which is the "What Was Once Beyond the Pale Now Must Be At Least Considered Due To The Depths of Criminality and unAmerican Tyranny Our Current Rulers Have Displayed".

Again, let me reiterate: It is not the particular subject matter I am responding to here, but your hypocritical response which basically seems to encapsulate the sneering dismisive attitude of the Coincidenc Theorist that up until now I thought we shared feelings of distaste and diagust for.

Anyway, I am not berating you. Just holding up a mirror and asking you to think about what you see, for this particular thread/response.

I hope you will be so kind in the future when I have similarly stumbled, to nicely point it out to me. Don't stand on ceremony. I would hope you would tell it to me straight, as I am telling you now. Remind me of this day, and I will be sure to listen. I will probably listen anyway, but reminding me of this exchange ensures it.

After all, I am a human being, too.

I hope I have not been mean or insulting to you in this post. I tried very hard not to be. If I was, it was unintentional.

Peace.

:hi:

[BeFree]

55. Butting in here

First, Mr. Paine, let me say that I find you to be among the finest thinkers and writers here on DU. I always find it mentally stimulating reading your posts. I say this with confidence that you won't get a big head over these words.

Then to our friend. It does seem as if the good name has been hijacked. Her using CT as a hammer makes no historical sense when preceded by that moniker.

Anyway, thanks a hundred times for your inputs here.

Peace.

[tom_paine]

56. Yes. It is curious. That is why I want to hear from nadine herself.

And thank you for the kind words.

[johnaries]

32. You're absolutely right. The OP is severely uninformed.

It became serious when the money markets "broke the buck". That's when the credit market locked up and the current downslide began.

[blueclown]

2. The bailout did not cause the panic.

[Geek_Girl]

3. I'm not sure what caused all this but when this number goes up Stocks go down

http://www.bloomberg.com/apps/quote?ticker=.TEDSP%3AIND


http://en.wikipedia.org/wiki/TED_spread

[kirby]

6. Yep, that inidicates banks are scared to loan money to other banks...

They have lost trust in one another. They no longer believe when S&P or Moodys claims someones debt is rated at AAA (Gold level).

[nadinbrzezinski]

4. there are days....

[RoyGBiv]

14. I think Phil Gramm is here ...

... and he's started possessing bodies now.

[nadinbrzezinski]

15. It has gotten really, really bad

as in really bad

On the bright side, if I am readying the Dow Jones correctly and I am FAR from an expert, we may find a floor... today

Though it was amazing, idiot in chief speaks, it went down. Hoover had that effect as well

[kirby]

5. "This is a panic unlike anything since 1929." - we are not even close...

I wish people, at this point, would stop say that. The market hasnt even returned to 9/11 levels (around 7000), much less Depression era.

[edhopper]

9. It's not the number it's the percentage

No one is saying the market is returning to 1929 levels. That won't happen due to inflation. We are seeing a Dow that might be falling 50% or more. When has that happened outside of the Depression?

[nadinbrzezinski]

16. 1875 and 1907 come to mind

they were depressions too

[edhopper]

18. And how does that contradict

"since 1929"?

[kirby]

45. Lets be realistic...

The market, at this point, hasn't even hit the 7000 level that happened after the panic of 9/11/2001. It is not anywhere near the 1929 panic. Overall in 1929, the market lost 89%!!! Maybe we are headed that way, but I dont think people tossing around 1929 is a fair comparison.

[HamdenRice]

7. Can you explain precisely why you think these derivatives are dangerous?

Or is it just a big scary number? What exactly do you think the risk is with them?

Most DUers seem not to know, but like to toss the number around as a kind of shorthand for the left wing version of the rapture.

[edhopper]

11. When you borrow

$62 trillion based on near worthless assets, eventually those holding the derivatives will ask for payment. There won't be any. All those financial institutions are on the line for far more than they will ever have. The write downs would wipe them out.

[nadinbrzezinski]

17. I will ask a more basic question... you know what a derivative is?

[edhopper]

21. Yes

http://en.wikipedia.org/wiki/Derivative_security

But more than me. People like Nouriel Roubini, Dean Baker, Barry Ritholtz, Paul Krugman,etc. know. And that is who I listen to.

[nadinbrzezinski]

23. I listen to them too, but they are not mostly worthless

depends on which class you are talking about.

and they KNOW that

They also know they are dangerous

Now since you listen to them... you also know that Krugman RELUCTANTLY supported this too... was he that wrong about it and fell for the trap?

[edhopper]

26. He supported it

with great reluctance and only because of the bank equity part. He is saying today that the British plan is far superior to the US plan. He also said that Paulsen and Bernake were trying to scare the Congress into passing the original very bad plan.
Roubini always thought the bailout was a bad idea.

[nadinbrzezinski]

28. And I know he's read the bill

the authority to go for the british plan is in there... and they are talking about it

The authority they have will be used not in the TARP.. but without it, they would not have the authority

By the way, this is caused by a wide word market freeze in credit, just like oh 1929

[HamdenRice]

22. You realize that derivatives are not "borrowing" or "debt"?

At least the kind that everyone has worked themselves up over. Unfortunately, people are using the word, "derivative" vaguely, but that multi-trillion number refers to what are basically future orders or obligations to buy or sell underlying shares. They are not debt. Most are designed to expire without ever actually being exercised. Many are issued by subsidiaries that are insulated from parent companies such that if the subsidiary is bankrupted by derivative obligations, it will have no effect on the parent.

Really, what's most people are saying is just "xx trillion is such a scary number" and not much else.

[4 t 4]

47. The only derivatives anyone should

be referring to, having to do with this giant debacle are, Credit Default Swaps which Are derivatives. The first two below have a physical underlying commodity the third doe's not. They are the problem. They are bets not something you can ever hold in your hand.


Common derivative contract types
There are three major classes of derivatives:

Futures/Forwards, which are contracts to buy or sell an asset at a specified future date.
Options, which are contracts that give a holder the right to buy or sell an asset at a specified future date.
Swappings, where the two parties agree to exchange cash flows or returns

[JCMach1]

20. Why aren't they saying OUTLAW derivatives forever and ever???

:grr:

[HamdenRice]

29. Because when regulated and used widely they are very useful

Here's an example of the use of derivatives I once came across at work. An American company entered into a multi-year contract with a South African company to purchase some metal. The price would be in South African currency, which is the Rand. The American buyer could not know whether the dollar would rise or fall against the rand. So he purchased currency options -- the right to purchase rands at certain intervals at a set price in dollars for several years. As a result, he did not have to worry about the dollar falling against the rand.

That's why derivatives exist, not just to gamble.

[4 t 4]

40. Options can be assigned or exercised

and you end up owning the underlying. If you have an option on a rand future depending on if it's a put or call and if your long or short you can actually end up with rand futures which are based on the rand currency itself! Another words they are real and concrete commodities. Derivatives are nothing like that. They are made up, unregulated and bullshit. Futures options are regulated. What your talking about with the rand trade is a hedge. Derivatives were set up to be some kind of a insurance for high risk mortgages, but they're really not that at all.

[HamdenRice]

44. OK, so you don't know what "derivatives" are

This is a problem plaguing DU right now. Derivatives can be based on all sorts of underlying assets, like commodities, securities, currency or currency exchange rates. The term derivative is a catch all phrase.

Even if you want to limit your definition of derivatives to derivatives whose underlying asset is a security, the same example applies -- if I have to deliver 100 shares of IBM as collateral next year, I could buy a call option, which is a derivative to protect myself.

Not all derivatives are benign, as I wrote, but they can serve a useful purpose if regulated. They are generally regulated as commodities because the first derivatives were puts and calls on crops and other agricultural goods traded mostly in the Chicago.

You are referring, I believe, to credit default swaps, which are neither regulated as insurance nor as derivatives on the commodity exchanges.

[4 t 4]

46. The only derivatives I believe

anyone has been refering to lately are the credit default swaps. I would think that when most DUers say derivatives we can more or less guess what they mean without them having to write derivatives-credit default swaps.

[HamdenRice]

49. No

When people say "derivatives," the mean "derivatives." When people say "credit default swaps," they mean "credit default swaps." Otherwise people start citing the amount of outstanding derivatives as the amount of outstanding credit default swaps.

[4 t 4]

50. Credit Default Swaps ARE Derevatives!

The first two below have a physical underlying commodity the third doe's not. They are the Problem. They are bets not something you can Never Hold in your Hand.



Common derivative contract types
There are three major classes of derivatives:

Futures/Forwards, which are contracts to buy or sell an asset at a specified future date.
Options, which are contracts that give a holder the right to buy or sell an asset at a specified future date.
Swappings, where the two parties agree to exchange cash flows or returns

[HamdenRice]

52. Just like humans are hominids

That doesn't mean you are justified in saying that all humans gather leaves, and climb up in trees and make their beds in branches just because gorillas do and gorillas are hominids.

I know this may be difficult to grasp, but words have meanings, and specific financial words have specific financial meanings. You are confusing the specific with the general.

[bemildred]

8. It certainly didn't help. nt

[RoyGBiv]

10. OFFS ...

:banghead:

[leftofthedial]

12. the panic was created to allow the passage of the bailout

as contrived by the neoroyalists, the problems existed previously, but the paulson panic tipped the markets over the edge.

as contrived by the neoroyalists, the panic caused idiot "democrats" in Congress to do what king george wanted.

the bailout was theft.

[Occam Bandage]

25. You realize, of course, that something akin to 15 trillion dollars has been lost so far.

700 billion does not *begin* to cover the losses Wall Street has suffered. If that's a plan for theft, it was the stupidest plan anyone has yet conceived.

[leftofthedial]

27. I never said they were smart.

But I doubt that the thieves were invested in stocks.

[RoyGBiv]

33. They're not smart, but ...

They somehow managed to orchestrate and coordinate a global financial panic.

There seem to be some steps missing in your theory.

[leftofthedial]

35. you say "orchestrate," I say "trigger"

[RoyGBiv]

36. And the difference is?

Still got some holes in the theory I'm not seeing.

[leftofthedial]

37. intent

they create crisis, fear and panic because they know how to make money from crisis

(9-11, Iraq...same thing)

through stupidity, incompetence and indifference, the crisis spins out of control.

they're like a kid playing with matches--if they can start a scary looking fire, they can steal cookies from the kitchen while their mom is running around looking for the garden hose. once in awhile, though, the fire blows up in their faces.

[RoyGBiv]

39. Wait, what?

The difference between "orchestrate" and "trigger" is intent?

What I'm questioning is how people who don't seem to be very smart managed to do all this with intent. This isn't a board game here. This is a global economy in a state nearing complete collapse. One piece of legislation did not "trigger" that. And I find it remarkable that one wants to argue a piece of legislation that hasn't actually been put into effect yet has done anything so massive in scale.

[leftofthedial]

42. it was their intent to orchestrate a crisis in which they could steal another trillion bucks

(like it or not, they've proven themselves "smart" enough to steal)

it was not their intent to trigger the collateral damage of a global financial meltdown.

[RoyGBiv]

48. Okey doke ...

I'm still seeing an A - Z with B - Y missing.

And what this has to do with the OP, I have no idea.

[leftofthedial]

51. Whatever.

my original post here said that the paulson panic was orchestrated to enable the bailout.

the OP said the bailout created the panic, which is backwards.

[BeFree]

13. It did

And we were told that if we don't have a bailout NOW there would be a crisis. And that after they had held the plan for months and months. Well, they got the bailout and now the word is "wait a coupla weeks" before we do a damn thing. Lies, upon lies upon lies.

Makes me think that they engineered the crisis and the bailout to go hand in hand so they could make a killing at their own time and place. Can you tell I don't trust them for one second?

[Occam Bandage]

30. Who, exactly, has made a killing in the past few weeks?

Was the Vast Right-Wing Conspiracy all short-selling?

[cwydro]

31. The bailout was a mistake.

I am so glad that AIG execs were able to spend $450,000 on spa treatments at a posh resort thanks to our tax dollars.

My congresswoman first voted against and then voted for. I will not be voting for her.

I can believe so many were duped.

[gasperc]

34. no, leaving Lehman to thier own devices triggered it

when the market saw that the FED was going to pick and chose "who or how" some might get bailout, they immediatedly realized that they would be put in cement at a time that you clearly needed to be liquid. The "bailout" has NO framework for bieng fair or even handed. All the banks and lenders know is that somebody's getting fucked and they don't want it to be them.

[progressive_realist]

38. I think you are exactly right.

Lehman was too big to allow to fail. Now all the institutions are afraid to deal with each other because no one knows anyone else's ultimate exposure to the fallout from that failure. All anyone knows is that it is a big game of musical chairs where the losers are going to go bankrupt. Can't blame them for not wanting to play.

[Hidden Stillness]

41. Totally Corrupt CEOs, Management, Boards of Directors, etc.

Although I think that everything corporate-type Republicans and "Democrats" have done over the past 30 years or so to lower the standard of living for most Americans and weaken the foundations of the economy--deregulation, outsourcing good-paying jobs, stagnant wages, rising unemployment unaddressed, tax-shifting, the killing of the idea of the public good, etc.--has led us to this collapse generally, something I heard during one of the Congressional hearings, and then on a C-SPAN "Washington Journal" segment, has taught me about something I did not realize, that was explained very well, and that I will try to sum up.

The person's name was Nell Minow, who started http://www.thecorporatelibrary.com/ and who testified at the Waxman hearings a few days ago, explained how outrageous, excessive CEO "compensation" (pay, bonuses, stock, etc., etc.), is not merely a symptom of the problem, but an actual cause. It unbalances the kinds of investments made by these firms, based only on volume, not on what it even is or if it is sound; other things are lost to have to keep up payments to these bloated accounts, etc.; they appoint Boards made up specifically of unqualified people who are ignorant of what should be done, so that they will be a reliable vote the CEO (etc.) needs, and who will not complain or try to change things, etc. This situation is the actual cause. It was very well explained, with much more detail, but I am pretty much over my head already here. This is who should be Secretary of the Treasury; she was very impressive at the hearing and on "Washington Journal," and had a strong ethical sense.

[redqueen]

43. Thanks ...

I'll definitely check that site out.

[depakid]

53. Actually, failing to prop up Lehman brothers caused the panic

Most analysts I've read who've looked at the repercussions of that consider it Paulson's biggest mistake.