Recession? Depression? meanwhile it's Suppression…

I like your style.. I think you are absolutely right in that the duo are trying to suppress the people's sentiment.
They come out and say "We'll spend 700 billion and be done with the crisis".. How is this finishing the crisis? What are they doing in the form of gutsy legislation?
I want to hear that Short selling will reduced dramatically. I want to see that futures trading be used only for insurance against live commodity trading risks, and not as a government sanctioned casino.
I think it was longTermInvestor that said the government is at fault for letting the cats (money mongering wall street suites) guard the milk. They deregulated, they need to regulate.
I'm not looking for scape goats going to prison, we need to see some hardcore law making and a serious change in the way this market works, otherwise these are just another 700 billion stolen from the people so that wall street can can start doing it all over again.
The people are angry!

I think the solution is debt payment by community service. People keep thier homes, but have to work for thier creditors to make up the payment shortfall. Allow this part time work for credit to be tax free income untill the financial hardship is less. Allow the work due to replace the bad debt on balance sheets, instantly transforming it back into solid asset form, and with no bailout required.

Those who refuse to work off thier debts should be put into camps and forced to work the debt off. The Federal Reserve would cease to be a viable system, as the majority of comsumers would be much more careful about borrowing.

Kind of draconian but it would work and do so without destryoing the economy or the constitution. Not paying debt should be a crime. And since there would be less debt, interest rates would be lower.

For corporations, debt should be limited. A ceiling should be placed on how much equity can be risked. This would prevent overleveraging.

FInally, I would implement a CEO tax package that would give CEOs and corporation immense tax breaks for adding employess, balance by regulations and oversight to prevent the abuse of overhiring to make more $$ and damaging shareholders.

I think the implementation of these simple reforms would instantly reignite our economy as it solves all of the problems.

As far as short selling goes, without short sellers the market will have a hard time finding a bottom. nothing rallies the market like a mob of shorts panicking out and buying to close.

By the way, guygamzu, we may consume 25% of the resources, we also represent 25% of global GDP. (CIA Fact book -2007)

DJD - this is a debtor's prison scenario you're describing - we had it through about 1890 - worked fine. You're basically saying individuals need moral hazard too - I agree with you.

Another thought to control the debt is to limit the deductibility of interest which would then tilt your capital structure in favor of equity which is generally more expensive but more "permanent" if you willl.

I wasn't imaging prison, I think that's archaic. You would do it in stages. Let's say you owe a bank a few thousand. The debt court sentences you to the appropriate number of hours to work off the debt. As long as you show up 4 hrs every weekend you're all right. You keep your house, and if you start doing better then you can start paying and get your 4 hours back.

If you're chroninc no-show, then you get ssigned to day camp. You would have to show up and work under the supervision of a court official or authorized rep.

For hard core offecders, there would be siezure of assets, and mandatory residential work camp until the balance of debt was paid.

Good lawyers could always negotiate...

Not sure about DowJonesDave work camps.... however, I completely agree that a new order is needed for debt - at all its colors and flavors.

The main point here is Risk. The way we measure it, the way we communicate it, and the exact implications of the fulfillment of a risk.

Once this is sorted out, the next thing is the alignment of interest of all stakeholders when debt turns out to be a bad debt.

Debt, Derivatives and other financial instruments are great, but can be very dangerous too when abused. A derivative like a spot can be used to hedge and help an importer insure his currency exposure for instance, but can also be used to speculate and create an un-natural shift in the price of the underlying asset.

Similarly, Debt can be used for capital investment and enable growth. And at the same time it can be used to 'party' (i.e. pay huge salaries, dinners, and flights).
Debtholders should get far better transparency to the use of funds as well as their collateral. When you only collateral is the Stock of an entity / the house of someone & the risk is similar - you may want to consider becoming the owner of the Stock or the House....

Bernanke just put a number on outstanding loans...

17 trillion

I think we will be fine. I am buying blue chip energy and defense stocks. If the market wants to sell them to me down 50%...fine by me.

The effects seem obvious this will cushion the downside to the US and world economy but limit the upside for years to come for the US. Finance is like science in some ways. For every action there is an equal and opposite reaction. The reaction to the bail out and socialization of wall street will be to create commodity inflation. Why hold cash when your government is going to print it into infiniti?

I like DJD's idea of extra taxation of short and derivative activity.
As for Guy's suggestion / warning. Every exporter needs to open an LC = line of credit. Why not allow spot trading that correlates with the size of your credit line.. In order to trade, you need a special LC backed bank account.

Contrary - have you seen the downward move in TXT? good gawd that's a very sweet company - UTX too.

I'm inclined to agree with the "leverage tax" idea too. Nice way to curb excess. i.e. 5 times leverage results in a special X% increased in bracket.

Frank

Yes...beany. I have noticed. They have gotten caught in this downdraft along with a lot of other solid companies. Look at what they make...Bell Helicopter, Cessna, plus anyone that keeps an eye on integrated defense systems knows that TXT is right in the middle of all the high tech build out. They are involved in UAV's (Unmaned arial vehicles) as well as with Boeing on several joint ventures...including support fot the V-22 Osprey program...one of the key components to mobility and support of ground units. They are buying back stock and down 52% YTD. Yes...that is one place I am going to put new money...along with BA and SPR.

BTW...beany. Your picture looks like the area in New Mexico where I used to live...

No. I guess those are hay bales and not pinon pine trees.

For those that have been living the high-life off of home equity for the last decade, it sure is gonna feel like a depression!

For the rest of us, yeah a recession is in the bag. I personally think we are already in one.

I agree that we are already in a recession. If the bailout passes and we print 700 billion dollars to pay for it, (which by the way the initial amount with this administration has always been sandbagged) we will need the help of the Chinese to pay for it again.

If the Chinese decide that they own too much of our dollars and they won't take on anymore, then the Fed will print up the money anyway via Monetization.

Monetization means that the Federal Reserve would step in and crank up the printing press, put in more worthless paper and add more ink to print new money to buy the Treasury debt. If that occurs, monetary growth rates would soar which will create high inflation. Rising inflation forces interest rates up, and rising interest rates always have devastating consequences for the prices of financial assets such as stocks and bonds as well as the economy.

Once that happens, the OPEC nations will stop pegging oil to the dollar. If you thought $4 - $5 gas was high wait until that happens. Of course, the high prices we saw in the grocery stores this summer would be low compare to how high it would be once that happens. At that point we would be in a Depression.

I really think we are backed into a corner here. If we don't do anything we will have massive liquidation in the markets, if we do something we end up with massive inflation in 2-3 years. What a difference eight years makes....

"At that point we would be in a Depression."

Even worse, an inflationary one. The last big one was deflationary, so at least food and oil were cheap if you had the money to pay for it. Now we may enjoy high prices along with high unemployment.

Bailout is looking worse than no bailout in my opinion, at this point.

Quite honestly.. If there is any meaningful bounce after this bill gets passed, and *some* bill will get passed, I'm going to close out most of my equities positions. At least any that have any strong connection to the USA.

The macro situation is not going to be ignored for much longer. Fed/Treasury are desperately trying to ram this $700 through because the biggest buyers of Treasuries are, in all likelihood, calling them every hour with the message -- get Congress to pass this, or we are insolvent.

And if the big treasury buyers go insolvent... oops.

I'll probably add to precious metals positions and, via ETFC, move some dollars into yen.

The financial system desperately wants to implode and their best move would be to allow a semi-orderly unwind with maybe a cushion here or there. But then again, with US debt commitments, any breakdown of capital circulatory currents (i.e., liquidity) would probably mean immediate disaster.

Watch closely kids! This is either going to get ugly fast or we'll have a little bounce and continue the trend downward.

Wish it weren't so..

rojack - "Monetization means that the Federal Reserve would step in and crank up the printing press, put in more worthless paper and add more ink to print new money to buy the Treasury debt. If that occurs, monetary growth rates would soar which will create high inflation"

My only ?? on all this is whether the capital destruction from write downs would have any counter-balancing affect on the $$ creation via the press. I have no idea how to figure that.

But I agree with your overall negative assessment. Ugh. Depressing. Bed time.

Thank you all for your comments. These are valuable posts to a gloomy outlook...

We need to work out the best investment strategies.
- I'm bullish on GLD
- I still research opportunities on solvent emerging markets
- I'm going back and learning more about the Dow Theory (compounding)

guliamo,

What?

Markets are driven by supply and demand. If you speculate against this you will pay! Futures, derivative markets are very important to judge the correct "price" the point where supply meets demand. Once you mix government up in this you get all sorts of problems. No offense intended, you need to read some economics text books. Even better learn about Austrian Economics.

DJD - mandatory residential work camp? How is that different from prison? :-) It does sound more palatable I'll give you that. ha! Anywaywe're on the same page there.

Contrary - yes those are hay bales - 6 foot rounds. From my old farm in Vt. - never should've sold it.

Per my earlier comment -- "My only ?? on all this is whether the capital destruction from write downs would have any counter-balancing affect on the $$ creation via the press. I have no idea how to figure that."

While that may matter over the longer term, I think market sentiment and high volatility will overwhelm any creep in M3.

beancounter - yeah, that looks like a great place to be for the next few decades. wood burning stove, grow your own produce. *sigh*

arawak - you're exactly right - chickens and miniature cattle, and your own well...

"I have no idea how to figure that."

From my POV deflation is ruling the roost at the moment. Stock and home equity declines are a much more dominant economic factor than the inflation of basic goods (and salaries are stagnant).

Think of it this way, what hurts worse, losing 100k of equity on your home in a year or paying a 1-2k more at the gas pump and grocery store?