End of the World As We Know It
- Thread starter time
- Start date
Howell
Storage? I am Storage!
Demolition Man? Idiocracy? Why do so many comedic versions of a future distopia have Taco Bell significantly featured?
sechs
Storage? I am Storage!
Money talks.
FYI: Congress fails to pass a plan, markets tank. Film at 11.
FYI: Congress fails to pass a plan, markets tank. Film at 11.
jtr1962
Storage? I am Storage!
Thanks to members of both sides of the aisle acting like infants, the bailout bill failed to pass. San Fran Nan of course had to give her partisan "blame" speech, and in turn the House Republicans acted like a bunch of insulted children and helped vote the bill down (along with 40% of Democrats). Our wonderful government at its best. :sad:
Dow dropped nearly 800 points today.
Oh, and we suspected that the lax lending standards at Fannie Mae and Freddie Mac would cause problems 4 years ago but the Dems didn't even want to hear it. And for their part, the Republicans didn't have the balls to take them on for fear of being called "racist" for making loans to minorities harder. Of course, you won't see this on any of the biased news networks. BTW, Barney Frank is a joke. Right name however-all he needs is the purple suit.
Dow dropped nearly 800 points today.
Oh, and we suspected that the lax lending standards at Fannie Mae and Freddie Mac would cause problems 4 years ago but the Dems didn't even want to hear it. And for their part, the Republicans didn't have the balls to take them on for fear of being called "racist" for making loans to minorities harder. Of course, you won't see this on any of the biased news networks. BTW, Barney Frank is a joke. Right name however-all he needs is the purple suit.
Howell
Storage? I am Storage!
I was thinking Warren Buffet. He's more wiley than Sergei, Larry and Bill combined.
The congressional leadership really dropped the ball on that one. The whole point of the previous week of negociation was to come up with a compromise that could at least be tolerated. They are supposed to know if it does not have the votes, continue negociating, and especially not to bring it up for a vote till passage is relatively assured.
Perhaps the Democrats wanted it to tank, so as to make the upcoming election even more favorable to the Democrats knowing that in bad economic times voters vote out the party in power - The Bush administration/Republicians.
Howell
Storage? I am Storage!
Speaking of Warren Buffet:
"Mr. Bernanke pointed out Wednesday that Mr. Buffett had urged Congress to pass the current bailout plan. I’d point out that Mr. Buffett drove a harder bargain when his own money was on the line."
http://www.nytimes.com/2008/09/25/business/25leonhardt.html
Paulsen and Bernanke got us into this mess. Why are we still listening to these idiots?
"Mr. Bernanke pointed out Wednesday that Mr. Buffett had urged Congress to pass the current bailout plan. I’d point out that Mr. Buffett drove a harder bargain when his own money was on the line."
http://www.nytimes.com/2008/09/25/business/25leonhardt.html
Paulsen and Bernanke got us into this mess. Why are we still listening to these idiots?
Howell
Storage? I am Storage!
Ah CityK, you beat me to it.
Really? There have been a lot of articles; some good, some bad. Anyway, blogs are where its at Merc if you want the real deal and discussion -- I recommend nakedcapitalism, calculatedrisk, MISH, FTalphaville, Thebigpicture. In fact, I use those exclusively to aggregate everything ... supplemented with the headlines from Reuters, Bloomberg and a few of the other mainstream newswires.
In any regard, I skimmed your link and its just a glossy/superficial account ... analogous to me stating we are going to have a mission to Mars and then providing a pencil drawn stick figure picture of a rocket ship blasting off from Earth and arrows pointing to Mars as the detailed basis of my plan ... i.e. a little shy on filling in the essentials like "umm, how you going to do that?" and "why do you think that would work?" type questions.
Well, lets hope they act just as ridiculus the second time around again, cause I assure you that this failure to pass was a good thing. The Paulson plan was just about the worst possible course of action that could have been attempted.
Come on jtr, don't fall for the political games -- the Rep leadership used her comments as an excuse. Fact is, Pelosi is inline lock step with the Bush admin. She's a retard. Fact is 2/3 of the Rep party voted against the bill, and that had nothing to do with Pelosi. The rep. leadership comments after the defeat was just election talk spin.
In truth, we've got a case of bizzaro world: the majority of the idiot Dem. supporting the bill and the majority of Rep voting against it. The democrats supporting Wall Street and the Repubs supporting mainstreet. Go figure.
the equity markets are deluded and filled with a bunch of cry babies: whawwwwwwwwwwwwww, I want my bailout.
In any regard, the equity markets are unimportant -- its the credit markets that matter.
There have been a fairly large number of folks that have been warning about this impending crisis for well over ten years. Even up to as of last year, many were still being ridiculed as being delusional or discredited. Then there are retards like Bush, Helicopter Ben, and Hanke Panke -- who the record clearly shows, and as I've said above, continuously denied that there were problems -- its all contained; won't impact the economy; the worst is over; fundamentaly sound ....
Most certainly is.
what he needs is a severe beating. he is a good example of a weasal politician.
agree
well, that might have been their agenda, but the whole point SHOULD have been to try to find the best possilbe course of action to take .... instead, everything was done behind closed doors and in the consultation with the very same economic/financial expert retards who have participated so wonderfully in getting to this very messed up point in time.
Well, I certainly wouldn't say they got us into this mess, but as I implied just above, they most certainly have been pulling their share of the weight of the disaster. These guys have absolutely no credibility. Ben is clueless and Paulson is a blatant liar.
Mercutio
Fatwah on Western Digital
I came to that link after looking through bunches of mainstream media sites for some kind of layman's description of the bailout package. As of Sunday night there just weren't any. It's moot at this point, but overall I was highly disappointed by the summary I read.
What I really want to see some very high level of civil and criminal accountability for the corporations and officers whose actions have essentially made this action necessary.
What I really want to see some very high level of civil and criminal accountability for the corporations and officers whose actions have essentially made this action necessary.
As a final note about the down day in the equity markets: this was nothing ... much of the sell off was retrenchment of the gains already baked in with respect to the assumption that a bailout was a sure thing...The real deal is yet to come.
As for tomorrow, wouldn't surprise me if we get a bit of a dead cat bounce...but it will be short lived (hours? day at most I'd imagine).
As for tomorrow, wouldn't surprise me if we get a bit of a dead cat bounce...but it will be short lived (hours? day at most I'd imagine).
ddrueding
Fixture
Yup. This was less than 10% by any measure. Nothing, really.
Howell
Storage? I am Storage!
Jeffrey A. Miron is senior lecturer in economics at Harvard University. A Libertarian, he was one of 166 academic economists who signed a letter to congressional leaders last week opposing the government bailout plan.
http://www.cnn.com/2008/POLITICS/09/29/miron.bailout/index.html?iref=mpstoryview
http://www.cnn.com/2008/POLITICS/09/29/miron.bailout/index.html?iref=mpstoryview
Howell
Storage? I am Storage!
I figure satire is always apprciated around here. And since I coudl not find it already posted behold:
http://www.buymyshitpile.com/
With our economy in crisis, the US Government is scrambling to rescue our banks by purchasing their "distressed assets", i.e., assets that no one else wants to buy from them. We figured that instead of protesting this plan, we'd give regular Americans the same opportunity to sell their bad assets to the government. We need your help and you need the Government's help!
Use the form below to submit bad assets you'd like the government to take off your hands. And remember, when estimating the value of your 1997 limited edition Hanson single CD "MMMbop", it's not what you can sell these items for that matters, it's what you think they are worth. The fact that you think they are worth more than anyone will buy them for is what makes them bad assets.
http://www.buymyshitpile.com/
With our economy in crisis, the US Government is scrambling to rescue our banks by purchasing their "distressed assets", i.e., assets that no one else wants to buy from them. We figured that instead of protesting this plan, we'd give regular Americans the same opportunity to sell their bad assets to the government. We need your help and you need the Government's help!
Use the form below to submit bad assets you'd like the government to take off your hands. And remember, when estimating the value of your 1997 limited edition Hanson single CD "MMMbop", it's not what you can sell these items for that matters, it's what you think they are worth. The fact that you think they are worth more than anyone will buy them for is what makes them bad assets.
sechs
Storage? I am Storage!
I'd like to blame that Boehner guy. He just seems really slimy.
Howell
Storage? I am Storage!
What has he done?
Gilbo
Storage is cool
You know one thing I like about this crisis?
Republicans, Democrats, everyone can agree that these people are scum, and that our politicians have been asleep at the wheel and better wake the hell up.
That makes me happy. The United States is starting to wake up and remember that it's a democratic country. I still doubt the politicians are going to do what's right for their constituents, but I'm beginning to believe they aren't going to outrigh, overtly screw all their tax paying citizens in the ass (excuse my language, but nothing else is suitable).
Republicans, Democrats, everyone can agree that these people are scum, and that our politicians have been asleep at the wheel and better wake the hell up.
That makes me happy. The United States is starting to wake up and remember that it's a democratic country. I still doubt the politicians are going to do what's right for their constituents, but I'm beginning to believe they aren't going to outrigh, overtly screw all their tax paying citizens in the ass (excuse my language, but nothing else is suitable).
Stereodude
Not really a
I don't agree. Look at the bail-out plan. The Senate version has a pile of pork and other crap put in it in attempts to buy the votes needed in order to pass it. One way or another we're getting this bail-out plan regardless of whether the people of the country want it or not.
Mercutio
Fatwah on Western Digital
I think it's a crappy deal too.
One of the "other craps" that's in the Senate bailout bill is a provision that will require health insurers to give parity of coverage to mental health issues. As stupid as I think the bailout bill is, that's something I really would like to see turned into law.
One of the "other craps" that's in the Senate bailout bill is a provision that will require health insurers to give parity of coverage to mental health issues. As stupid as I think the bailout bill is, that's something I really would like to see turned into law.
Nor I.
The senate bill was a complete farce.
I'm absolutely disgusted.
I'm sickened by the:
- manipulation of media sources to obfuscate the issues and false portrayal of the bailout bill
- CNN, CNBC etc cheerleading for a bailout
- the political and regulatory manipulation and interference in market operations
- tactics employed by the Bush administration to push this
- the faulty logic arguments used by the dumbass politicians (i.e. "the markets reaction on Monday proves we have to pass this")
- apathy of many citizens
- the utter failure to consider other approaches
- the political power grabs
- the contentious claims that this will benefit the little guy or that it will make a profit
- corporate lobbying ... everyone trying to push this, as well as lining up to get their piece of the pie
- moral hazzard ... moral what?
- etc etc etc.
WAKE UP PEOPLE OF AMERICA! YOU'RE BEING SCREWED
I'm done commenting on this as it just makes me want to vomit
Mercutio
Fatwah on Western Digital
Well, there's not much we can do about it. There really, really isn't. The IT Admins for Congress actually took the step of throttling how much constituent E-mail is being delivered to congresscritters, in the face of the overwhelming public outcry against this plan.
From an ideological standpoint this is just about the worst of everything they could've done.
From an ideological standpoint this is just about the worst of everything they could've done.
CougTek
Hairy Aussie
The most stupid part is the tax cut for businesses included in the second bail-out plan. Your government doesn't have enough money already to operate properly, your expenses are way too high and now they cut the income once more.
This bail-out plan should be renamed the check-mate plan. You're being screwed with a baseball bat. The softball kind. You'll all shit strait-pipe soon.
This bail-out plan should be renamed the check-mate plan. You're being screwed with a baseball bat. The softball kind. You'll all shit strait-pipe soon.
mubs
Storage? I am Storage!
For a guy who claims to not know English, you're pretty articulate and make your point quite forcefully, Coug :grin:
No matter what happens or doesn't, Americans are screwed. It's a clear-cut case of lose-lose.
Okay, I lied. Two things:
1) Right now, the overnight markets are not doing so hot (Asian and the futures). Don't be surprised if tomorrow is another [strike]manufactured[/strike] down day ... think of a hostage situation (equity markets) with a crazed gunman (banks) negotiating with the authorities (congress) -- "I'll do it man! If you don't give me that bailout, I'll blow his f#$King head off! I swear, I'll do it!"
2) Outside of a zillion other discussions about how crap the bailout proposal is, naked capitalism has an excellent piece about some further unintended consequences, namely crowding out in the commercial paper market. Read the user comments too!:
http://www.nakedcapitalism.com/2008/10/more-discussion-of-why-bailout-bill.html
My feeling towards the bail-out is that the government needs to additionally collect some form of ownership in the companies for the bad debts that it is taking on. Somewhere equivilent to the original value of the debts should be transfered as stock or a % of the company. What the purchase of the debt does is re-capitalize to financial institutions so they can continue in business and the stock transfer makes sure that it is the owners of the company/corporation itself that suffers the cost rather than the taxpayer.
I recognize that philosophicly there will be large scale issues for some with the govt owning such large amounts of the private sector because it is heading to a more socialistic state. However, I really don't expect the govt to keep that money but rather over time sell their stake back to the general public as the companies more and more healthy.
I recognize that philosophicly there will be large scale issues for some with the govt owning such large amounts of the private sector because it is heading to a more socialistic state. However, I really don't expect the govt to keep that money but rather over time sell their stake back to the general public as the companies more and more healthy.
Fushigi
Storage Is My Life
Along those lines, Mark, a person sent a letter to the editor of the Chicago Tribune stating the gov't should just wait for the failing bank's stock to drop below $1 and then buy them up. His reasoning was that way we (the collective 'we' who in theory own the gov't; at minimum the 'we' who winds up paying for all of this) would at least be buying some good debt along with the bad. And could hopefully sell off the stock at profit later on, further reducing the debt incurred for taking on the bad debt.
Stereodude
Not really a
That's because in the Senate they combined the bail-out bill with two others. One that was popular with the left side of the aisle, and one that was popular with the right side. The mental health and addiction bill now inserted into the bail-out plan is popular with the left, and the tax cuts / breaks and AMT relief is popular with the right.
Bend over and grab the ankles...
jtr1962
Storage? I am Storage!
mubs
Storage? I am Storage!
At least some people are fired up. I got this in an email today:
Another way to help the economy?
I'm against the $85,000,000,000.00 bailout of AIG.
Instead, I'm in favor of giving $85,000,000,000 to America in a We Deserve It Dividend.
To make the math simple, let's assume there are 200,000,000 bonafide U.S. Citizens 18+.
Our population is about 301,000,000 +/- counting every man, woman and child. So 200,000,000 might be a fair stab at adults 18 and up..
So divide 200 million adults 18+ into $85 billon that equals $425,000.00. My plan is to give $425,000 to every person 18+ as a We Deserve It Dividend.
Of course, it would NOT be tax free. So let's assume a tax rate of 30%.
Every individual 18+ has to pay $127,500.00 in taxes. That sends $25,500,000,000 right back to Uncle Sam.
But it means that every adult 18+ has $297,500.00 in their pocket. A husband and wife has $595,000.00.
What would you do with $297,500.00 to $595,000.00 in your family?
Pay off your mortgage - housing crisis solved.
Repay college loans - what a great boost to new grads
Put away money for college - it'll be there
Save in a bank - create money to loan to entrepreneurs.
Buy a new car - create jobs
Invest in the market - capital drives growth
Pay for your parent's medical insurance - health care improves
Enable Deadbeat Dads to come clean - or else
Remember this is for every adult U S Citizen 18+ including the folks who lost their jobs at Lehman Brothers and every other company that is cutting back. And of course, for those serving in our Armed Forces.
If we're going to do an $85 billion bailout, let's bail out every adult U S Citizen 18+!
As for AIG - liquidate it. Sell off its parts. Let American General go back to being American General. Sell off the real estate. Let the private sector bargain hunters cut it up and clean it up.
Here's my rationale. We deserve it and AIG doesn't.
Sure it's a crazy idea that can "never work."
But can you imagine the Coast-To-Coast Block Party!
How do you spell Economic Boom?
I trust my fellow adult Americans to know how to use the $85 Billion. We Deserve It Dividend more than I do the geniuses at AIG or in
Washington DC.
And remember, the plan only really costs $59.5 Billion because $25.5 Billion is returned instantly in taxes to Uncle Sam.
Another way to help the economy?
I'm against the $85,000,000,000.00 bailout of AIG.
Instead, I'm in favor of giving $85,000,000,000 to America in a We Deserve It Dividend.
To make the math simple, let's assume there are 200,000,000 bonafide U.S. Citizens 18+.
Our population is about 301,000,000 +/- counting every man, woman and child. So 200,000,000 might be a fair stab at adults 18 and up..
So divide 200 million adults 18+ into $85 billon that equals $425,000.00. My plan is to give $425,000 to every person 18+ as a We Deserve It Dividend.
Of course, it would NOT be tax free. So let's assume a tax rate of 30%.
Every individual 18+ has to pay $127,500.00 in taxes. That sends $25,500,000,000 right back to Uncle Sam.
But it means that every adult 18+ has $297,500.00 in their pocket. A husband and wife has $595,000.00.
What would you do with $297,500.00 to $595,000.00 in your family?
Pay off your mortgage - housing crisis solved.
Repay college loans - what a great boost to new grads
Put away money for college - it'll be there
Save in a bank - create money to loan to entrepreneurs.
Buy a new car - create jobs
Invest in the market - capital drives growth
Pay for your parent's medical insurance - health care improves
Enable Deadbeat Dads to come clean - or else
Remember this is for every adult U S Citizen 18+ including the folks who lost their jobs at Lehman Brothers and every other company that is cutting back. And of course, for those serving in our Armed Forces.
If we're going to do an $85 billion bailout, let's bail out every adult U S Citizen 18+!
As for AIG - liquidate it. Sell off its parts. Let American General go back to being American General. Sell off the real estate. Let the private sector bargain hunters cut it up and clean it up.
Here's my rationale. We deserve it and AIG doesn't.
Sure it's a crazy idea that can "never work."
But can you imagine the Coast-To-Coast Block Party!
How do you spell Economic Boom?
I trust my fellow adult Americans to know how to use the $85 Billion. We Deserve It Dividend more than I do the geniuses at AIG or in
Washington DC.
And remember, the plan only really costs $59.5 Billion because $25.5 Billion is returned instantly in taxes to Uncle Sam.
timwhit
Hairy Aussie
That's some pretty interesting math. When I did the math it worked out to be $425 each.
Mercutio
Fatwah on Western Digital
That's 'cause you're better at math than that guy is.
On the other hand, those stupid rebate checks they gave us back in May accounted for the last "up" financial quarter we're going to see for a while, and those were probably something like $600 apiece.
On the other hand, those stupid rebate checks they gave us back in May accounted for the last "up" financial quarter we're going to see for a while, and those were probably something like $600 apiece.
Gilbo
Storage is cool
You are, at this point, clearly correct... This is so insane that they're just going to get away with this.
Stereodude
Not really a
And now the cycle is complete!
sechs
Storage? I am Storage!
I don't think that you guys understand what the problem is.
Of course, I question whether this is going to fix it. But someone had to do something, and Berkshire Hathaway simply doesn't have that much money on hand....
Of course, I question whether this is going to fix it. But someone had to do something, and Berkshire Hathaway simply doesn't have that much money on hand....
I think I have at least some concept of what the problem is. And no this bail out won't fix the base problem, but it will give some breathing room to the credit markets by re-capitalizing the mortgage/banking sector and thereby gaining some room for the entire economy.
Our economy runs on credit and the expectation of growth. The rules for our financial sector require that each institution have enough capital to cover any bad loans it has plus a % of the depositor moneys. Any surplus of capitol can be used for investment purposes such as loans. The problem is that the size and quantity of bad loans are forcing the institutions to stop making loans because they don't have enough surplus capital to cover everything. If the capitalization is low enough then the institutions can and will go belly up.
Buying the bad loans instantly frees up investment capital so that loans can continue. Those loans are needed to keep other businesses running that operate off of loans. Examples would be Department stores, or jewelry stores of which the vast majority operates on a daily basis with loans with their inventory as collateral. You really didn't think that Automobile dealerships actually own all their inventory -- no they buy them off credit with those autos as collateral; when they sell something, then they use that money to make payments to the bank; buy another and still make some profit.
Those types of businesses will just plain collapse if the credit markets dry up. Of course they are not the only businesses that operate off credit. There’s also the mortgage industry; auto loan; School loans; etc. Each one of those effect their industries and the lack of credit will devastate them.
So the point is we need the financial institution well capitalized or expect a massive depression on the horizon. Buying up the bad debt does that and thereby gives the economy needed breathing room. It does not address the reason why those institutions have lost their capitalization; it just recapitalizes them. The reason why, needs to be addressed separately.
Our economy runs on credit and the expectation of growth. The rules for our financial sector require that each institution have enough capital to cover any bad loans it has plus a % of the depositor moneys. Any surplus of capitol can be used for investment purposes such as loans. The problem is that the size and quantity of bad loans are forcing the institutions to stop making loans because they don't have enough surplus capital to cover everything. If the capitalization is low enough then the institutions can and will go belly up.
Buying the bad loans instantly frees up investment capital so that loans can continue. Those loans are needed to keep other businesses running that operate off of loans. Examples would be Department stores, or jewelry stores of which the vast majority operates on a daily basis with loans with their inventory as collateral. You really didn't think that Automobile dealerships actually own all their inventory -- no they buy them off credit with those autos as collateral; when they sell something, then they use that money to make payments to the bank; buy another and still make some profit.
Those types of businesses will just plain collapse if the credit markets dry up. Of course they are not the only businesses that operate off credit. There’s also the mortgage industry; auto loan; School loans; etc. Each one of those effect their industries and the lack of credit will devastate them.
So the point is we need the financial institution well capitalized or expect a massive depression on the horizon. Buying up the bad debt does that and thereby gives the economy needed breathing room. It does not address the reason why those institutions have lost their capitalization; it just recapitalizes them. The reason why, needs to be addressed separately.
jtr1962
Storage? I am Storage!
Another thing which needs to be addressed is why so much of the economy is so dependent upon credit. I know people who bought houses 20 or more years ago. They should own those houses free and clear by now. Instead many took out every dime in equity to finance a lifestyle well beyond what their salaries say they should have. They spent it all on consumer crap, cars, or vacations. That's the problem. People, businesses, and government should learn to live within their income. It's going to take a while but we'll all be better off once we do. It's one thing if a business needs a loan to cover a major capital improvement project which will pay for itself in the long run. But loans to purchase inventory? That's just plain poor money management.
And two other things need to be addressed as well. One is the general shortsightedness and lack of planning of most CEOs. The only thing they know how to do is make companies profitable in their tenure. Usually this means cutting R&D and customer service, things which don't bring in any revenue on their own. Short term, profits go up. Long term the company is screwed but by then the CEO is long gone. Maybe golden parachutes should be paid out in the decade or two following a CEO's departure with the caveat that they are only paid if the company remains profitable. It would encourage company presidents not to gut a company just to satisfy Wall Street.
The second thing is this asinine idea that a company is a failure if it doesn't "grow" by x percent per year. At some point all companies reach saturation in their market. Why risk everything by maybe branching out doing other types of business you're not familiar with just to make your company grow? And why isn't a company which just makes a reasonable profit year in and year out considered a success? It should be, even if it doesn't grow one iota. Look at all these investment firms. Wow, they really grew their business by leaps and bounds via questionable, risky practices. Now they're bankrupt. Doesn't sound like a good long-term business strategy to me.
Neither a borrower nor a lender be is a time tested strategy just as relevant today as it was 1000 years ago.
And two other things need to be addressed as well. One is the general shortsightedness and lack of planning of most CEOs. The only thing they know how to do is make companies profitable in their tenure. Usually this means cutting R&D and customer service, things which don't bring in any revenue on their own. Short term, profits go up. Long term the company is screwed but by then the CEO is long gone. Maybe golden parachutes should be paid out in the decade or two following a CEO's departure with the caveat that they are only paid if the company remains profitable. It would encourage company presidents not to gut a company just to satisfy Wall Street.
The second thing is this asinine idea that a company is a failure if it doesn't "grow" by x percent per year. At some point all companies reach saturation in their market. Why risk everything by maybe branching out doing other types of business you're not familiar with just to make your company grow? And why isn't a company which just makes a reasonable profit year in and year out considered a success? It should be, even if it doesn't grow one iota. Look at all these investment firms. Wow, they really grew their business by leaps and bounds via questionable, risky practices. Now they're bankrupt. Doesn't sound like a good long-term business strategy to me.
Neither a borrower nor a lender be is a time tested strategy just as relevant today as it was 1000 years ago.
sechs
Storage? I am Storage!
Like I said, I don't think that you guys understand the problem.
The issue is confidence. Nobody trusts anybody when it comes to commercial lending anymore.
Investors got so scared of lending to commercial institutions, that they were willing to pay to keep their money in treasuries. That's right. People willingly lost money just to be assured that what they had left would be there the next day. That's crazy!
The idea behind this plan is to take away the questionable assets and replace them with something that's liquid. That way, everyone will know and feel better about what an institution has and feel free to lend to it. Then, that institution can turn around and lend money to others, and the system can start up again.
I agree that individuals shouldn't need to run on so much credit; but, for businesses, it's ridiculous to think that way.
How many cars at $300 of profit does a dealership have to sell in order to buy the next car to sell? For a car that costs them $9000, that's 30. So, you have to buy $270,000 in cars to sell enough to buy the next one. Where does that money come from? Are 900 cars going to fall out of the sky to be sold?
The issue is confidence. Nobody trusts anybody when it comes to commercial lending anymore.
Investors got so scared of lending to commercial institutions, that they were willing to pay to keep their money in treasuries. That's right. People willingly lost money just to be assured that what they had left would be there the next day. That's crazy!
The idea behind this plan is to take away the questionable assets and replace them with something that's liquid. That way, everyone will know and feel better about what an institution has and feel free to lend to it. Then, that institution can turn around and lend money to others, and the system can start up again.
I agree that individuals shouldn't need to run on so much credit; but, for businesses, it's ridiculous to think that way.
How many cars at $300 of profit does a dealership have to sell in order to buy the next car to sell? For a car that costs them $9000, that's 30. So, you have to buy $270,000 in cars to sell enough to buy the next one. Where does that money come from? Are 900 cars going to fall out of the sky to be sold?
jtr1962
Storage? I am Storage!
The problem is any business which depends largely upon loans is based on a poor business model. In your example the answer is simple-buy new cars to sell only when you have accumulated enough sales profits to do so. And don't start the business at all if you can't afford to buy the initial inventory of cars with cash. If you're dependant upon loans then if business is slow for a few months you can actually have a negative cash flow since the loan still has to be paid. Doing it the way I suggested just means slow months are less profitable. Granted, you'll always have a lot of money tied up in inventory, but you'll ultimately get it back once you sell the business.
One of my mom's cousins did some similar kind of nonsense with real estate. She would buy a house with a loan, rent it, eventually use the equity in that house to get another loan to buy more houses, etc. All good and well until one or two people stop paying their rent. Then the whole deck of cards collapsed. She ended up with nothing. Even the house she had lived in since the early 1970s didn't fetch her much money after she paid off the equity loans. Occasionally borrowing money if you're in business for long-term capital projects which pay for themselves is probably a sound strategy. Being dependant upon loans to buy inventory is a long-term recipe for disaster.
One of my mom's cousins did some similar kind of nonsense with real estate. She would buy a house with a loan, rent it, eventually use the equity in that house to get another loan to buy more houses, etc. All good and well until one or two people stop paying their rent. Then the whole deck of cards collapsed. She ended up with nothing. Even the house she had lived in since the early 1970s didn't fetch her much money after she paid off the equity loans. Occasionally borrowing money if you're in business for long-term capital projects which pay for themselves is probably a sound strategy. Being dependant upon loans to buy inventory is a long-term recipe for disaster.
Stereodude
Not really a
Perhaps you can explain how this plan is going to fix the liquidity problem. This plan assumes that by improving the balance sheets they will start lending again. There's no guarantee of that. The might just deposited the money and sit on it.