Why Obama’s new Tarp will fail to rescue the banks + Will America fall apart?

[MikeWB]

Given the current financial crisis and given the release of the new Obama financial plan which will be absolutely devastating, will USA survive another depression or will states and various regions start seceding? I think many states will give up on the Federalism and shackles of the federal reserve and federal government and I think some will try to secede. Now, the question is, how will the federal gov react to that?

How will the people react when they realize that ALL of their savings are gone, half have lost jobs, their houses are worth less than half of what they paid for them and on top of all their debt (through the Fed) has skyrocketed to over $50K per person?

What many people don't know is that the reason why majority of Europeans left Europe for US was to escape debt, not for religious reasons! Now imagine today... were will people go to escape the debt? They have no where to emigrate! They will be saddled with this parasitic debt that they'll NEVER be able to pay off... interest will grow so high, they won't be able to pay it off!

You have been studying primarily bankruptcy for the last 20 years. Why bankruptcy?

Because bankruptcy is about financial death and financial rebirth. Bankruptcy is the great American story rewritten. We're a nation of debtors. Why do you think people left Europe to come to the United States? They left because they were in debt. We like to describe it as, "Oh, it was about religious freedom." No, it was about debt. They were looking for a way to escape their debts.

And so they founded this nation, and when they got into financial trouble, you know what they did? They moved west. And they moved west, and they moved west. And by the end of the 19th century, there was no place else to move, and creditors could pretty much reach their debtors ... anywhere around the country, and that's when we finally put our first national bankruptcy law into effect. And we've had one ever since. It's the way that people say: "I got out there; I borrowed the money; I did my best; I used that money to start a small business or to keep myself going in my job. ... You rolled the dice with me. ... It didn't work. You can have most of what I own, and that's it, though. We'll stop there. We'll declare the default. You write off the part of the debt I can't pay, I'll take my human energy ... and go right back into the game again." That's the whole premise behind bankruptcy. It's about death and rebirth.

So where do you go? The answer is... you don't go anywhere, you just change the laws and you leave the US and its debts.

Here is what Financial Times' Martin Wolf (probably the greatest financial and economic journalist alive) has to say on new TARP:

Why Obama's new Tarp will fail to rescue the banks
By Martin Wolf
Published: February 10 2009 18:06 | Last updated: February 10 2009 18:06


Has Barack Obama's presidency already failed? In normal times, this would be a ludicrous question. But these are not normal times. They are times of great danger. Today, the new US administration can disown responsibility for its inheritance; tomorrow, it will own it. Today, it can offer solutions; tomorrow it will have become the problem. Today, it is in control of events; tomorrow, events will take control of it. Doing too little is now far riskier than doing too much. If he fails to act decisively, the president risks being overwhelmed, like his predecessor. The costs to the US and the world of another failed presidency do not bear contemplating.

What is needed? The answer is: focus and ferocity. If Mr Obama does not fix this crisis, all he hopes from his presidency will be lost. If he does, he can reshape the agenda. Hoping for the best is foolish. He should expect the worst and act accordingly.

Yet hoping for the best is what one sees in the stimulus programme and – so far as I can judge from Tuesday's sketchy announcement by Tim Geithner, Treasury secretary – also in the new plans for fixing the banking system. I commented on the former last week. I would merely add that it is extraordinary that a popular new president, confronting a once-in-80-years' economic crisis, has let Congress shape the outcome.

The banking programme seems to be yet another child of the failed interventions of the past one and a half years: optimistic and indecisive. If this "progeny of the troubled asset relief programme" fails, Mr Obama's credibility will be ruined. Now is the time for action that seems close to certain to resolve the problem; this, however, does not seem to be it.

All along two contrasting views have been held on what ails the financial system. The first is that this is essentially a panic. The second is that this is a problem of insolvency.

Under the first view, the prices of a defined set of "toxic assets" have been driven below their long-run value and in some cases have become impossible to sell. The solution, many suggest, is for governments to make a market, buy assets or insure banks against losses. This was the rationale for the original Tarp and the "super-SIV (special investment vehicle)" proposed by Henry (Hank) Paulson, the previous Treasury secretary, in 2007.

Under the second view, a sizeable proportion of financial institutions are insolvent: their assets are, under plausible assumptions, worth less than their liabilities. The International Monetary Fund argues that potential losses on US-originated credit assets alone are now $2,200bn (€1,700bn, £1,500bn), up from $1,400bn just last October. This is almost identical to the latest estimates from Goldman Sachs. In recent comments to the Financial Times, Nouriel Roubini of RGE Monitor and the Stern School of New York University estimates peak losses on US-generated assets at $3,600bn. Fortunately for the US, half of these losses will fall abroad. But, the rest of the world will strike back: as the world economy implodes, huge losses abroad – on sovereign, housing and corporate debt – will surely fall on US institutions, with dire effects.

Personally, I have little doubt that the second view is correct and, as the world economy deteriorates, will become ever more so. But this is not the heart of the matter. That is whether, in the presence of such uncertainty, it can be right to base policy on hoping for the best. The answer is clear: rational policymakers must assume the worst. If this proved pessimistic, they would end up with an over-capitalised financial system. If the optimistic choice turned out to be wrong, they would have zombie banks and a discredited government. This choice is surely a "no brainer".

The new plan seems to make sense if and only if the principal problem is illiquidity. Offering guarantees and buying some portion of the toxic assets, while limiting new capital injections to less than the $350bn left in the Tarp, cannot deal with the insolvency problem identified by informed observers. Indeed, any toxic asset purchase or guarantee programme must be an ineffective, inefficient and inequitable way to rescue inadequately capitalised financial institutions: ineffective, because the government must buy vast amounts of doubtful assets at excessive prices or provide over-generous guarantees, to render insolvent banks solvent; inefficient, because big capital injections or conversion of debt into equity are better ways to recapitalise banks; and inequitable, because big subsidies would go to failed institutions and private buyers of bad assets.

Why then is the administration making what appears to be a blunder? It may be that it is hoping for the best. But it also seems it has set itself the wrong question. It has not asked what needs to be done to be sure of a solution. It has asked itself, instead, what is the best it can do given three arbitrary, self-imposed constraints: no nationalisation; no losses for bondholders; and no more money from Congress. Yet why does a new administration, confronting a huge crisis, not try to change the terms of debate? This timidity is depressing. Trying to make up for this mistake by imposing pettifogging conditions on assisted institutions is more likely to compound the error than to reduce it.

Assume that the problem is insolvency and the modest market value of US commercial banks (about $400bn) derives from government support (see charts). Assume, too, that it is impossible to raise large amounts of private capital today. Then there has to be recapitalisation in one of the two ways indicated above. Both have disadvantages: government recapitalisation is a bail-out of creditors and involves temporary state administration; debt-for-equity swaps would damage bond markets, insurance companies and pension funds. But the choice is inescapable.

If Mr Geithner or Lawrence Summers, head of the national economic council, were advising the US as a foreign country, they would point this out, brutally. Dominique Strauss-Kahn, IMF managing director, said the same thing, very gently, in Malaysia last Saturday.

The correct advice remains the one the US gave the Japanese and others during the 1990s: admit reality, restructure banks and, above all, slay zombie institutions at once. It is an important, but secondary, question whether the right answer is to create new "good banks", leaving old bad banks to perish, as my colleague, Willem Buiter, recommends, or new "bad banks", leaving cleansed old banks to survive. I also am inclined to the former, because the culture of the old banks seems so toxic.

By asking the wrong question, Mr Obama is taking a huge gamble. He should have resolved to cleanse these Augean banking stables. He needs to rethink, if it is not already too late.

[high_treason]

MikeWB I thought you supported Obama....did you change your stance regarding him?

[mobes]

:mrgreen: Talk about 'change'. The only change that is coming is the way of life everyone will enjoy (cough), once his presidency is over.

[MikeWB]

MikeWB I thought you supported Obama....did you change your stance regarding him?

Voting for someone so that someone else doesn't win is different than supporting someone. McCain was a total zionist tool and an insane maniac who has cancer and would have been succeeded by a crazy religious nutcase. McCain would have attacked Iran by now as well.

Back on topic plz...

[Ralph Furely]

lol

[MikeWB]

lol

What's so funny Ralph, please tell us so we can all laugh.

[Ralph Furely]

i was laughing at the back on topic plz.. quote.  why?  whats wrong?  oh, you probably thought i was laughing at you saying you didnt support obama i guess..
naw, just the quote actually.

[MikeWB]

i was laughing at the back on topic plz.. quote.  why?  whats wrong?  oh, you probably thought i was laughing at you saying you didnt support obama i guess..
naw, just the quote actually.

You're banned for a month for sending me this:

are u fucking kidding me???   who the fuck are you?  your giving me a warning for saying lol???  is your pride hurt?  are you upset?  did i hurt your feelings??

you can give me all the warnings you want you little cry baby.  kick me off the board. i dont answer to you.  i made a fucking comment, you apparently are a little pussy and got your panties in a bunch over it, and your telling me you got me warned by an admin??  LOL!!!

go fuck yourself pussy.

Funny... you're calling me a pussy and yet you didn't have the balls to post this in public so other see what kind of an asshole you are.

Bye-bye and chill the fuck out. Come back in 30 days & all will be forgiven. It's time to clean this board of all the assholes, trolls and idiots.