Comments on: Recession Alarm Sounds As Economy Shrinks

GDP Has Worst Showing Since 2001; Consumers Cut Spending By Largest Amount In 28 Years

[zaniacloclo]

How naive are people thinking that the president has something to do with our economic crisis. Alan Greenspan was in charge of the Federal reserve for a very long time and his monetary policy created this bubble. The fact that Americans are too stupid to see this and they seem to think that Obama can fix this that is even worse. Obama''s plan is only about spending. To regenerate this economy you need to produce. Create Growth not redistribute it. And yes we need controls in the financial sector to make sure that we as citizens are protected.. No more libertarian economic policies. But socialism is not the answer either.... Good luck with what Obama may bring... Huge Unemployment

[au_fait]

Yes, the last eight years have created a big mess. Senator Obama is well aware of the mess. A President needs to know what the issues are, know how to negotiate and find quality people to work with and beside him with the skill sets needed in each particular area. When I look at the candidates, Senator Obama has all of those qualities while Senator McCain does not. With Senator Obama there seems to be hope again. America needs that.

Posted by ERoosevelt08

Where is he finding these people? You mean two fo his advisors who initiated this housing/credi meltdown?

[eroosevelt08]

Yes, the last eight years have created a big mess. Senator Obama is well aware of the mess. A President needs to know what the issues are, know how to negotiate and find quality people to work with and beside him with the skill sets needed in each particular area. When I look at the candidates, Senator Obama has all of those qualities while Senator McCain does not. With Senator Obama there seems to be hope again. America needs that.

[jon_mccain]

Additional Thoughts on the Bailout
We hang the petty thieves and appoint the great ones to public office.

By Paul Craig Roberts

Just as the Bush regime%u2019s wars have been used to pour billions of dollars into the pockets of its military-security donor base, the Paulson bailout looks like a Bush regime scheme to incur $700 billion in new public debt in order to transfer the money into the coffers of its financial donor base. The US taxpayers will be left with the interest payments in perpetuity (or inflation if the Fed monetizes the debt), and the number of Wall Street billionaires will grow. As for the US and European governments%u2019 purchases of bank shares, that is just a cover for funneling public money into private hands.

[jon_mccain]

The explanations that have been given for the crisis and its bailout are opaque. The US Treasury estimates that as few as 7% of the mortgages are bad. Why then do the US, UK, Germany, and France need to pour more than $2.1 trillion of public money into private financial institutions?

If, as the government tells us, the crisis stems from subprime mortgage defaults reducing the interest payments to the holders of mortgage backed securities, thus driving down their values and threatening the solvency of the institutions that hold them, why isn%u2019t the bailout money used to address the problem at its source? If the bailout money was used to refinance troubled mortgages and to pay off foreclosed mortgages, the mortgage backed securities would be made whole, and it would be unnecessary to pour huge sums of public money into banks. Instead, the bailout money is being used to inject capital into financial institutions and to purchase from them troubled financial instruments.

[jon_mccain]

It is a strange solution that does not address the problem. As the US economy sinks deeper into recession, the mortgage defaults will rise. Thus, the problem will intensify, necessitating the purchase of yet more troubled instruments.

If credit card debt has also been securitized and sold as investments, as the economy worsens defaults on credit card debt will be a replay of the mortgage defaults. How much debt can the Treasury bail out before its own credit rating sinks?

The contribution of credit default swaps to the financial crisis has not been made clear. These swaps are bets that a designated financial instrument will fail. In exchange for %u201Cpremium%u201D payments, the seller of a swap protects the buyer of the swap from default by, for example, a company%u2019s bond that the swap buyer might not even own. If these swaps are also securitized and sold as investments, more nebulous assets appear on balance sheets.

[jon_mccain]

Normally, if you and I make a bet, and I welsh on the bet, it doesn%u2019t threaten your solvency. If we place bets with a bookie and the odds go against the bookie, the bookie will fail, as apparently happened to AIG, necessitating an $85 billion bailout of the insurance company, and to Bear Stearns resulting in the demise of the investment bank.

Credit default swaps are a form of unregulated insurance. One danger of the swaps is that they allow speculators to purchase protection against a company defaulting on its bonds, without the speculators having to own the company%u2019s bonds. Speculators can then short the company%u2019s stock, driving down its price and raising questions about the viability of the company%u2019s bonds. This raises the value of the speculators%u2019 swaps which can be sold to holders of the company%u2019s bonds. By ruining a company%u2019s prospects, the speculators make money.

Another danger is that swaps encourage investors to purchase riskier, higher-yielding instruments in the belief that the instruments are insured, but the sellers of swaps have not reserved against them.

Double-counting of assets is also possible if a bank purchases a company%u2019s bonds, for example, then purchases credit default swaps on the bonds, and lists both as assets on its balance sheet.

[jon_mccain]

The $85 billion Treasury bailout of AIG is small compared to the $700 billion for the banks, and the emphasis has been on banks, not insurance companies. According to news reports, the sums associated with credit default swaps are far larger than the subprime mortgage derivatives. Have the swaps yet to become major players in the crisis?

The behavior of the stock market does not necessarily tell us anything about the bailout. The financial crisis disrupted lending and thus comprised a threat to non-financial firms. This threat would reflect in the stock market. However, the stock market is also predicting a recession and declining earnings. Thus, people sell stocks hoping to get out before share prices adjust to the new lower earnings.

The bailout package is a result of panic and threats, not of analysis and understanding. Neither Congress nor the public knows the full story. If the problem is the mortgages, why does the bailout leave the mortgages unaddressed and focus instead on pouring vast amount of public money into private financial institutions?

The purpose of regulation is to restrain greed and to prevent leveraged speculation from threatening the wider society. Congress needs to restore financial regulation, not reward those who caused the crisis.

[renonv5]

I am betting it will sink even further.......

[rbburnerjr]

Millions of high paying industrial jobs have been sent to China. How are minimum wage jobs supposed to make house payments. Maybe George and John can figure out how to outsource flipping hamburgers next. Billions have been sent to the bankers for their bonuses and billions more have been sent to George and his oil company cronies. No money is left for health care, roads, schools and house payments. George is going to giggle all the way to Texas.