October 04, 2008

Ctrl BG: A Shortcut to Financial News 10/3

I've decided to do my write up early this week- just in case something else happens right after I hit "publish."

After European banks started falling last weekend, everything else started falling apart when everyone realized that this credit crisis was not limited to the US. On Monday, Wachovia made a deal with Citigroup with the help of the FDIC to buy their bank deposit arm for $2.16 billion.

On Tuesday, Bailout plan #1 was rejected by Congress, and the Dow Jones fell over 700 points, hitting a record low since the October Market Crash in 1987. It was actually quite exciting- it is definitely not everyday that we see history in the making! This also served as a good shocker for congress members who voted against the plan. Many of them were worried about the "unpopularity" of Bailout plan #1 with their voters, since many people viewed this plan as a bailout plan for Wall Street (many nay-saying congress members are facing re-election this November). What did they think was going to happen if the bailout plan doesn't go through?

With this record crash in the market, people finally realized that this was a bailout plan for the people. This is not a time to place blame and punish those who did wrong (I mean, if we're really going to place blame, I think the people who borrowed the loans knowing they cannot repay them is equally to blame as the banks who made the loans to begin with). This is a time to take action before the effects of the credit crunch affects the rest of the economy. It would be irresponsible for the government to do nothing. Call me selfish, but right now, as a worker and member of the society, I'm more worried about the adverse effects this will have on my job (the just reported the biggest job lose in 5.5 years!), my 401K, my ability to get a loan (not that I'm planning to buy a car/house any time soon, but IF), and just my way of life in general. Even if you don't invest, have a 401K or have/need a loan right now, businesses you're linked to may close down because they are unable to get a short term loan to fund their business operations or their prices would go up because it will be more expensive for these businesses to get a loan and operate.

Good thing voters and congress members finally realized this on Friday, and voted 263 vs 171 for Bailout plan #2, which was created in record time. It is basically the same as Bailout plan #1, except with an extra $150 billion put aside for random tax packages (way to take the "load" off our future generations). They ramped up the FDIC insurance limit to $250,000, put more oversight on the execution of the $700 billion, gave the SEC authority to suspend the "mark to market" accounting standard (so firms don't have to mark down their assets just because the market is crazy these days) and a gazillion little tax breaks benefiting the environmental friendly, middle class, natural disaster hit states, homeowners,educators and businesses. Basically something for everyone- even people with mental health needs and the makers of "certain wooden arrows designed for use by children" (I don't even know what that is). It sounds like basically the same plan to me, except policy makers decided to take this opportunity for "quick action" to randomly put in policies they've been meaning and wanting to pass, to make it sound like a better plan. Oh well, I guess it works out for everyone in the end.


Unfortunately, now even the bailout plan isn't good enough to restore confidence and the market continued to fall after Bailout plan #2 passed on Friday. It's going to take a while for the bailout to take effect. At least there's hope. I'm thinking it is not a good time for Mr. Schwarzenegger to be asking for a $7 billion short term loan to weather CA out until tax comes in, in spring.

On the other hand, while the current economical situation is being compared to scary sounding things like the economic Pearl Harbor, the Great Depression and at the edge of the abyss, Mr. Buffet went on a shopping spree. After buying some of Constellation Energy for $4.75 billion and Goldman Sachs for $5 billion in September, this week, he also bought 10% in Chinese battery and automotive maker, BYD, for $230 million and more of GE for $3 billion. Even though this may sound shocking in this market, Buffet is actually a very sensible shopper. While fashion trends go in and out, the classics will never go out of style. Goldman Sachs and GE definitely qualify as classics, one being THE top bank on the street and the other being literally the backbone of the American economy, dabbling in a bit of everything. One is Hermes and the other is Bergdorfs. And the best part is that he's buying all these quality investments at a BARGAIN price. Another good shopping philosophy is to invest in emerging talents before they're famous and mainstream. BYD with its rechargeable green batteries and electric cars is definitely part of an emerging market. I'm not sure in which category Constellation Energy fits in, perhaps a bit of both? Either way, Buffet is a very sensible fellow shopper. As he said, "I like spending...The cheaper things get, the better I like it. This is a good period for us..go ahead." I can definitely relate to that. If only I knew the market classics as well as I know the fashion classics and had the capital to act on it. Another Buffet philosophy that I agree with, "there's no way a smart person can go broke except through borrowed money. All borrowed money does is help you get it a little faster, but (it also will) help you get poorer a whole lot faster." Credit card debts are definitely not pretty.

Buffet also made a deal with Wachovia this week, through Wells Fargo (which he owns a lot of). Yes, the same Wachovia that I said earlier in this post, that had just made a deal with Citi on Monday. Wells Fargo upended Citi's offer and offered to buy (the whole of) Wachovia for $15.1 billion without government help. Previous agreements and honor of word aside, this is definitely a better deal for Wachovia and the government since they don't need to help anymore. Wells Fargo is actually one of the few banks that is weathering this market out quite well, having had less exposure to bad debt (they have a much stricter credit requirement- as they should!). Citi, of course, is miffed that their government sponsored bargain deal has been thwarted and are thinking of suing them. Do I see a banking bitch fight coming? Probably not, the government would probably do something. This market doesn't need anymore drama... but it would've been fun to watch :P. It's no wonder that CNBC reputedly has had the best ratings these last two weeks since earlier this decade!

40 Comments:

Anonymous Anonymous said...

Everyone needs to chill. An extremely intense election is about to take place, and there is so much politics mixed in with the economics it isn't funny. The problems are real, but they are being magnified and dramatized, as you so rightly pointed out. Certain people--I won't say which ones--are trying to capitalize on the situation for political gain. I guess they don't care how much pain or panic their "means" cause as long as they achieve their "ends."

10/04/2008 2:26 PM  
Anonymous Ron said...

The problems are real, but they are being magnified and dramatized, as you so rightly pointed out. Certain people--I won't say which ones--are trying to capitalize on the situation for political gain. I guess they don't care how much pain or panic their "means" cause as long as they achieve their "ends."

10/04/2008 3:12 PM  
Blogger notimetoeat said...

Now this is something new.A fashion blog where you can read about politics/financial stuff too..
i kinda like it here:D

Jenna Battson

Jenna Battson, Sac, California 95826 - SSN, Credit Records, Arrest Records, Court Records, Criminal Records ..

10/05/2008 12:09 AM  
Blogger Eunice said...

me too! people often judge that females who are into fashion are shallow.. but this is a proof that we also care about what's happening out there..not only about shopping and sales!

10/05/2008 1:23 AM  
Blogger Mewer said...

love your blog...thanks for doing it right for smart women out there who also love fashion

10/05/2008 3:04 AM  
Anonymous Anonymous said...

Stick with fashion, for your own sake.

10/05/2008 3:44 AM  
Blogger Paulina said...

I agree with Mewer, Eunice, and Notimetoeat!

10/05/2008 4:15 AM  
Anonymous Jen said...

I think this was a great idea to publish this. We need to face the facts, with a bad economy I don't think fashion will reach a high level of interest among people who suffer from this crisis.

10/05/2008 4:35 AM  
Blogger MR style said...

cool blog !! i love it !

10/05/2008 6:34 AM  
Anonymous jazmine said...

This is definitely a cool blog. Good info!

10/05/2008 2:25 PM  
Anonymous Anonymous said...

Barneys Girl-

It's clear you have never studied economics, and know nothing about business, management, or something as simple as cause-and-effect. This bailout only ensures that our recession lasts longer by delaying the fall in value of these bad assets, wastes taxpayer money, and creates an adverse moral hazard.

Please educate yourself before you speak about how great this atrocious bill is.

10/06/2008 1:54 AM  
Anonymous Daily Style Gide said...

Great post! Enjoyed reading it!

10/06/2008 4:44 AM  
Anonymous Bella said...

Dear Anonymous commenter #3,

It is clear by your tone that you are attempting to show off your "intelligence" to others. Additionally, you know nothing and probably have never studied "economics, and know nothing about business, management, or something as simple as cause-and-effect"; or at least, you were not paying attention in class.

I understand that many citizens are against this Bill because, of course, it involves THEIR money, and, heaven forbid, citizens actually doing something for their country. However, it is the best chance the economy has, as of yet. There needs to be concrete money in the economy; right now, the money in the banks are equivalent to credit.

Stop exhibiting your ignorance by educating yourself. Everyone should just appreciate Barneys Girl's attempt to bring "fashionistas" out of their vapid world; she's entitled to her own opinion. If she thinks the bill is great, let it be.

Stop being a jerk or leave. Immediately.

10/06/2008 8:51 AM  
Anonymous Bella said...

Dear Anonymous commenter #2 (and #3),

The same applies to you. Please stop embarassing yourselves. Most likely, Barneys Girl is more intelligent than either of you.

10/06/2008 8:55 AM  
Anonymous Anonymous said...

whew, i'm anonymous #1 (and #4?)

maybe i should join Anonymous Anonymous..."hi, i'm anonymous. and i know nothing about economics!"

i think it would be a large organization...

;-)

10/06/2008 9:42 AM  
Blogger Savvy Mode SG said...

Although I understand many tax payers are unhappy with the bailout but it is a necessary evil at this point. The market needs liquidity and we don't have that right now. If the gov't does not step to assist with the issue at hand then I fear there is going to be a chain effect affecting even upstanding citizens who pay their bills on time. EX. auto dealerships are dying because they can't get loans to float their inventory, their paying clients couldn't get credit, etc...

10/06/2008 12:09 PM  
Blogger charmaine said...

I totally agree, with America being one of the most powerful global economy in the world, it is crucial that the bail-out plan is carried out to prevent any further global repercussions.

10/06/2008 1:55 PM  
Anonymous Aleyramedispa said...

interesting......

10/06/2008 7:05 PM  
Anonymous Language said...

Nice post....

10/06/2008 7:07 PM  
Anonymous Molly said...

three things

1. Don't live in America but find these posts very interesting, and they are all relevant to everyone in the world anyway

2. do miss the fashion a bit though

3. where is Harrods girl?

Much Love

10/06/2008 9:24 PM  
Anonymous Mexico grl said...

you know, i used to like your blog a lot; now i simple LOVE it.
i think it´s important for everybody to know what´s happening with the economy right now because, like it or not, it affects everybody. Economy is a beautiful little interconnected (and interdependent) web that is so tightly knit it affects everybody´s wallet.
About the bill, i think the gov´t is playing with fire. I´m not saying they´ll get burned, but they´ll have to be really really careful for this to have a happy ending...

10/07/2008 4:10 AM  
Anonymous Anonymous said...

I agree with Anon#3 comment (although the first and last sentence was unnessasary) even though I respect BG's opinions and love her blog.

And now I wait with anticipation for the next entry made by BG, to see what she thinks of the approved 'saving' bailout plan now with the Dow still tanking.

10/07/2008 4:16 AM  
Blogger ZuKi said...

I don't think it's fun to watch all this chaos, even if it will become an appreciable part of history(I'm sure it will!). I don't like today’s economic situation for the same causes you said: it influences my way of life very much, even if I'm not living in US or EU and I'm not a bank employee .I hate instability of prices, inflation and a fear to lose all money I have:(

10/07/2008 5:16 AM  
Anonymous Anonymous said...

I'm anonymous #3.

I'm an economics PhD student, so I think I know a little something about how capital flows through our economy.

The case against the bailout:
1. It costs taxpayers $850 million surely, potentially up to $1.8 trillion.
2. There is no guarantee it will work.
3. It creates an adverse "moral hazard."
4. It simply showers money on the problem, but does nothing to address the specifics.

Barney Girl's explanation of the situation seemed so vapid and baseless, I attacked it as such.

10/07/2008 5:54 AM  
Anonymous Anonymous said...

Anon #3: I'm very curious what do you mean by "adverse 'moral hazard'?"

Anon #1

10/07/2008 8:53 AM  
Anonymous Bella said...

Hi (to anonymous #3),

It's me again. Obviously, we have different opinions about the Bailout Plan. And I can live with that. Maybe you should too. Could you possibly explain why you think this is a "moral hazard"? What does that mean?

Isn't it better to chance a risk in order to help the econonmy instead of doing nothing? Shouldn't America's politicians be doing something (this is why the people voted for them. . .) If you don't agree with this, what plan do you find better to carry out?

"Barney Girl's explanation of the situation seemed so vapid and baseless, I attacked it as such."

Hmm. There are better ways to disagree with people. Other than insinuating that they are vapid and baseless. Really, if you feel that way, why are you wasting your time here? I wouldn't. Your open attack can be seen as a "moral hazard" as well. There is never an excuse to be a jerk to someone else. Especially if you're doing it to show off.

And I don't really care if you are an economics PhD student because:
1. For all I know, you sleep in class and don't listen
2. You can't prove it (i.e. you could be lying. This is the internet after all)
3. If you are an economics student, this may only be the opinion of your profressor. . . in which case, I would tell you to form your own opinions and see if you honestly feel that way.

I only care if you can present a credible argument (which you are not). You are only repeating yourself from before, making no attempts to clarify yourself. By your last post, you do not sound at all like an economics student. There are more erudite students in my high school AP economics class.

I cannot respect you until you clarify your points and put forth a credible argument (which Barneys Girl has at least done more successfully than you).

10/07/2008 8:53 AM  
Blogger vakeraj said...

I think I can clarify what anonymous #3 had to say about moral hazard. Moral hazard states that by intervening to correct irresponsible behavior by businessmen that did poor management jobs, Congress merely perpetuates that behavior by implying the existence of a "safety net." Apparently, the knowledge that the Feds would rescue Fannie Mae and Freddie Mac should they go under led those two to ignore risk management and make irresponsible loans over the past several decades.

Also, I there really isn't any assurance this bailout package will work. It just assumes that pumping money into the system will fix the problem. What needs to happen is that the price of bad assets have to fall, while good assets rise in value. Any attempt to delay this market correction will, in my opinion, make the recession last longer.

10/07/2008 11:41 PM  
Blogger vakeraj said...

In the interest of full disclosure, I'm a libertarian. I would say that I would rather have my politicians do nothing than do something with adverse consequences, or just the same, waste taxpayer money. Doing something just for the sake of doing something gets us nowhere.

Doesn't this seem the same sort of rushed herd mentality that followed 9/11? The Patriot Act, the Iraq War Resolution, all these bills that Congressman didn't even bother to read and just voted for because it was "urgent" or else the sky might fall?

10/07/2008 11:45 PM  
Anonymous Anonymous said...

I agree there should definitely be more emphasis on personal responsibility and consequences, but when the consequences threaten not just the perpetrators, but the innocent people who had no role in suprime lending or borrowing, or anything else that led to this "crisis," then is it prudent to let the chips fall where they may? Is laissez-faire always the answer?

Anon #1

10/08/2008 1:29 AM  
Anonymous Anonymous said...

This is all very depressing and who knows where it will end and who is really behind it all and who stands to gain. Tough times, but we must have faith. It's all we can do.

10/10/2008 4:08 AM  
Anonymous Anonymous said...

I totally oppose(d) the bailout, it's an awful plan that will most likely lead to hyperinflation.

I just can't believe how many citizens think that the people who got us into this mess can get us out. Where's the logic?

10/11/2008 10:49 AM  
Anonymous Anonymous said...

My understanding is that it was the policy of the Democrat-controlled Congress carried over from the Clinton administration to promote subprime lending, even so far as to harass banks that resisted. I absolutely agree that it is illogical to look to the Democrats to fix the mess they made. Throw the bums out.

10/11/2008 11:52 AM  
Anonymous Anonymous said...

Democrats in congress' fault? Please... if it was them, then that means that they would be the rich fat-backs in the crisis. And who's wallets were lined quite nicely?

it was all the greedy house flippers and real estate agents trying to make quick bucks and selling houses to naive(ie. stupid, uninformed) people. Oh and don't forget the greedy devil bankers who have been raping america with drastic hikes in interest.

10/16/2008 11:44 AM  
Blogger belhana said...

Thank you for the wonderful effort

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7/05/2009 7:18 PM  
Blogger belhana said...

Thank you for the wonderful effort

إني تذكـرت والذكرى مؤرقـة *مجـداً تلـيدا بأيـدينا أضعـناه

أنَّى اتجهتَ للإسـلام في بـلـدٍ * تجْده كالطيرِ مقصـوصًا جناحـاه

كـم صرفتنا يـدٌ كنـا نـصرفها * وبات يـملكنا شعب مـلكناه

بالله سل خلف بحر الروم عن عرب * بالأمس كانوا هنا واليوم قد تاهوا

وانزل دمشق وسائل صخر مسجدها * عمن بناه لعل الـصخر ينعـاه

هذى معـالم خرس كـل واحـدة * منهن قامت خطيبـا فاغرا فـاه

الله يعلم ما قلبت سـيرتهم يومـا * وأخطـأ دمـع الـعين مـجراه

يا من يرى عمـراتكسوه بردته * الزيت أدمٌ لـه والكـوخ مـأواه

يهتز كسـرى على كرسيه فرقـا * من خوفه ، وملوك الروم تخشـاه

يا رب فابعث لنا من مثلهم نفـرا * يشـيدون لـنا مـجدا أضعنـاه

7/05/2009 7:42 PM  
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9/25/2009 8:32 PM  
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