Washington – The financial system could face a meltdown of 1929 proportions unless US politicians succeed in their efforts for a $700bn rescue scheme, experts added.
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The warning came as Republicans and Democrats met in Washington for a rare weekend debating session to attempt to seal agreement on the contentious plan, aimed at preventing a long-lasting recession in the US.
Officials close to Paulson are privately painting a far bleaker portrait of the fragility of the global economy than that advanced by President George W Bush in his televised address last week.
One Republican said that the message from government officials is that “the economy is dropping into the john.” He added: “We could see falls of 3,000 or 4,000 points on the Dow [the New York market that currently trades at around 11,000]. That could happen in just a couple of days.
“What’s being put around behind the scenes is that we’re looking at 1930s stuff. We’re looking at catastrophe, huge, amazing catastrophe. Everybody is extraordinarily scared. It’s going to be really, really nasty.”
Investors fretted about contagion into Europe, where Fortis, which was part of the consortium that bought ABN Amro last year, fired its chief executive after liquidity concerns pushed shares down more than 20pc to a 14-year low. Holland’s ING and BNP Paribas are looking at buying the bank this weekend.
London investors have warned that the FTSE could suffer falls of as much as 1,000 points – a fifth of its value, if the deal falls through.
Peter Spencer, economic adviser to the Ernst & Young Item Club, said: “This is the time you have to bail people out and ask questions later. It is very difficult to see how the US banking system would survive without that.This has the potential to make 1929 look like a walk in the park.”
Senator Harry Reid of Nevada, the majority leader, said: “We hope sometime [Sunday] evening we can announce some kind of agreement in principle. We may not have another day.”
Rebel Republicans – who see Paulson’s proposals as socialism by the back door – were warned they will be responsible for causing an “amazing catastrophe” if they continue to oppose the plans, which would see taxpayers buy up the bad debts of failing banks. Instead they want an insurance scheme for banks, which would spread the cost to private enterprise.
Oh vey
BAIL OUT MAINSTREET YOU WOULD HAVE A GREATER AFFECT ON THE ECONOMY.ANYHOW WALL STREET WILL GET HIT EITHER WAY.
Rush said:
“One of the things that the House Republicans have found in this bill is that it sends 20% of all profits from the bailout to ACORN, the illegal Democrat fraudulent voter registration group that is directly tied to Barack Obama. Well, how can the House Republicans support that?”
If this deal is so wonderful, the Democrats have the votes to pass it on their own and keep the GOP from getting any credit. But they want Republican votes on this bill ’cause Democrats don’t want to be on the hook alone for this.”
This bailout won’t be much help in the long term but as long as it gives a bit of confidence and the markets won’t tank come Monday morning.
Its time to pray!
THE REAL BAILOUT PLAN
1. Let bygones be bygones. Create a plan that will help prevent this from happening again. The government should creat a government backed insurance fund with every bank paying a premium, and the government having to match the total dollar amount at any present time.This would cost far less than 700 billion dollars.
2. Where will the money come from? The Government will create a new tax on new housing. Why? Focus on the cause of the problem. The issue is that people are defaulting on their mortgages thereby making buying debt a bad investment. Why are people deafaulting? Because the value of their house is lower that they paid- who wants to overpay? By taxing new construction- this will push developers to buy old houses thereby avoiding the tax. The result: stablized house market- houses now become in demand evening out the supply demand scale.
3. The result: investors will not be nervous about buying future debt, because a) its insured by the government. Every loaned must be approved by a 3rd party to insure the borrowers eligibility. Only then will the government insurance fund insure it. B) the rate of foreclosures will be drasticly reduced.
In addition the government will make a one time stimulus tax break: up to 1000 dollars of presents this holiday season is tax free. The result: tremendous holiday sales. Which will make good reports which will make the markets go up etc etc…
got to do something
Are these predictions based on any numbers or feelings? Where were these numbers 2 months ago? How about the gov’t buying out the food industry so they can feed the US if 1929 does come around chas vesholom! Who cares about the houses? Food is so what is important! Bail out is only pushing off problem! If you want to. Solve problem then go after the people that underwrote the bad loans!! They knew what was going on!! Go after their 700 billion $ they made the past few years!!! Kesiva vechsima tova!!
All of this can be traced back to Fannie Mae and Freddie Mac playing fast and loose with the numbers and encouraging banks to make mortgage loans with 0% down, interest-only, low-rate ARMs that adjust in a year or less! Lots of people with zero credit who had no business buying a house got loans, and many others got loans for purchases far above their ability to pay. All this extra cash chasing the existing housing stock drove up the prices to unsustainable levels.
Lots of mortgages were lent out to people with no credit, or for houses too expensive, or on adjustable terms that that could not be sustained, with no money down, interest only, etc.
Fannie Mae and Freddie Mac bought all the bad paper and recycled it into the economy. Since they were taking it up, many banks said “what the hell – offer more interest only ARMs”. Sure, some people were sucked in by predatory lenders, but not all, and not most. Most of these folks made a bad decision based on the expectation that houses, like tulip bulbs, would continue to skyrocket in price. I know several people who bought houses in 2004 and 2005 just to flip them. Lesson to be learned – when everybody starts talking about a boom, the upside is already past. Now, the boom has gone bust, as they always do. But this time, the numbers are big, and because Fannie Mae and Freddie Mac covered it up, and injected all this bad stuff into the financial bloodstream, the credit markets have seized up. Each lost dollar of assets means 10 dollars of lost liquidity – money that cannot be lent or circulated in the economy. Something has to be done.
So it remains to the 90% of homeowners, like me, who paid their bills on time and have reasonable mortgages, to bail out the other 10% in some way. What I want to make sure is that however it is done, it does not encourage bad, irresponsible behavior in the future.
let it crash
mortgage and debt moratorium for a while
outlaw and void derivatives, shorting, speculating
usury limit 2% over cost
guarantee pension funds and deposits
re-fund a new government-held Bank of the US based on reworked WHOLE mortgages, and then do other kinds of debts totally readjusted and rightened.
We need to get rid of the banks and their fantasies, and keep the middle class.
I doubt the worst is going to happen, but Congress is playing Russian roulette, and what was once impossible has instead become only improbable.
Liquidity is the life-blood of the “real” economy as well as of the financial economy, and without it, the real economy will spiral quickly into deflation, massive joblessness, and the end of many things we take for granted.
not even that it would’t help, it’ll make it much worse, thats not suppose 2 b the federal govmnt.’s problem, people do bussines on “nothing” …. that should’of been a lesson 4 them 2 think & b sure everything’s right “b4” they do it, & now that this happend they should HOCK THEIR KUP IN VANT… & DONT SELL STOCKS ON A GEMBLE nextime…
funny thing, these experts, because 5 pages worth of experts from hundreds of colleges and universities are saying this plan is horrible.
THE only answer is Teshuva
Yeah, Let’s see an end to Wall Street excesses.
1, Limit salaries
2, Limit bonuses
Wall street excesses have changed our city and country into a world of Entitled people. The wives shop all day while the limo blocks traffic waiting. The husband sits in his office making major decisions and is paid for his brilliance, limo outside, while his brilliance now has to be bailed out.
Condo apartments in the millions?
A city full of double parked limos?
Rush is not a liar. All that he said is available for public viewing online as well as heard directly from numerous people involved in the talks. There is more to the bill that angers the Conservatives than just the 20% donation to the Obama Acorn Thugs. Face it, the conservatives are NOT for wealth redistribution.
I don’t understand Y the democrats need the republican vote here???? as rush said: “if this deal is so wonderful, the Democrats have the votes to pass it on their own and keep the GOP from getting any credit. But they want Republican votes on this bill ’cause Democrats don’t want to be on the hook alone for this.”
What’s the problem the fed can print a few more trillion dollars
Hey Straight Talker #17 ,
You neglected to say exactly what did the bad little Democrats did in the last half a year to cause this mess? That’s quite a bit of pretzel twisting you accomplished.
I think you’d be better off trying to twist it the other way; i.e., why don’t you say that the Democrats did all the evil things 8 years ago before Bush came into office?
Either way, it’s quite a twist.
Oh well. “My team, right or wrong.”