SEC, Treasury Throw More Sandbags Into The Wall Street Flood Waters

The SEC has temporarily banned short selling of 799 financial stocks, and the Treasury Department has said that it would guarantee (temporarily?) money market funds up to the amount of $50 billion. The New York Times called this move “startling” because money market funds have long been considered one of the safest investments — about as safe as a savings account.

From the NYT:

“We have acted on a case-by-case basis in recent weeks, addressing problems at Fannie Mae and Freddie Mac, working with market participants to prepare for the failure of Lehman Brothers, and lending to A.I.G. so it can sell some of its assets in an orderly manner,” Mr. Paulson said.

“Despite these steps, more is needed,” he said. “We must now take further, decisive action to fundamentally and comprehensively address the root cause of our financial system’s stresses.”

President Bush admitted that taxpayer money was funding these “decisive actions,” but did add that he expected the money to be paid back:
“These measures will require us to put a significant amount of taxpayer dollars on the line,” Bush said in a statement, “But we expect that this money will eventually be paid back.”


Stocks Surge as U.S. Acts to Shore Up Money Funds and Limits Short Selling
[NYT]

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  1. zigziggityzoo says:

    So… Invest in a mattress, then stuff all your moneys in it.

    Then, tell me where you live…

  2. johnva says:

    If it’s such a good investment for the taxpayers, and the money will eventually be paid back, why can’t they find private buyers?

    • HIV 2 Elway says:

      @johnva: Because few private companies can come up with the funds required. We’re talking a lot of billions. I think a lot of people are failing to realize the huge consequences to everyone worldwide if a company like WaMu went under.

      • johnva says:

        @HIV 2 Elway Resurrected: I realize the consequences. But I also think there are horrible consequences associated with bailing them out, too, and some of those are more insidious and harder to combat. The bailouts *may* be necessary at this point to prevent further collateral damage, but the right thing to do would have been to create and enforce regulations that would have prevented us from getting into this situation in the first place. These bailouts had better be associated with serious reform of regulations.

        • HIV 2 Elway says:

          @johnva: Hate to use a cliché but hindsight is 20/20. We can point fingers all day about what was done wrong and there is certainly plenty of blame to go around. But we need to move forward and, in my opinion, the most important thing that needs to happen right now is to keep banks, and more importantly the FDIC solvent. A run on banks is the worst case scenario but a very real scenario if a giant like WaMu went down.
          Those who cheapen this situation by politicizing it don’t realize the far reaching ramifications if we don’t play our cards right.

          • johnva says:

            @HIV 2 Elway Resurrected: Political blame should and must be assigned. The government is a large part of why this happened. Sorry if that means the side you support might lose power for awhile.

            And you don’t need “hindsight” to have predicted this would happen. It was obvious to anyone paying attention that egregious abuses were taking place in real estate and a huge debt-driven bubble was forming several years ago. Something should have been done THEN to reign in the subprime abuses, rather than waiting for it to blow up first. But nothing was done because the government was enjoying the popularity and good economy associated with a booming real estate market. Again, this situation was very predictable and was predicted.

            • HIV 2 Elway says:

              @johnva: Based on that logic, do you feel that Clinton should have stepped in a did something in the late 90′s when P/E ratios were out of control. Is Clinton responsible for the dotcom crash? Would regulation have prevented it?
              I personally don’t blame Clinton for that crash, and I don’t blame Bush for this one.

              • HIV 2 Elway says:

                @HIV 2 Elway Resurrected: And I shouldn’t be calling it a crash, we’re yet to give up 50% of our gains since 2003.

              • johnva says:

                @HIV 2 Elway Resurrected: Stocks, I think, are somewhat different because they are already highly regulated and the regulations are enforced by a government agency with sweeping enforcement powers. But I’ve read about quite a few concrete examples of where abusive practices in the subprime lending industry and even the credit rating and insurance industries were the direct result of either lack of regulation or lack of enforcement of regulation. Perhaps it’s time to have SEC-level regulation and auditing of every mortgage broker, real estate agent, etc in the country.

              • Notsewfast says:

                @HIV 2 Elway Resurrected:

                I think that the Clinton administration absolutely deserves some of the blame for the lack of oversight and subsequent crash in 2001.

                The fact of the matter is, however (and I say this as a left-leaning independent) the economy means a lot more to the president than the president does to the economy. So while his approval ratings ebb and flow as the market cycles, outside of some favorable legislation, we’ve become a far too global economy to truly think that the president can have any measure of control over the markets. Moreover, like the fed, the President really should not be concerned with what happens to share prices in the stock market.

                The president and Federal reserve should be concerned with maintaining the stability of the economy, not of the Dow Jones industrial average. While I’m well aware that there could be a cascade effect from the collapse of any of these major banks, I also believe that the market will to a better job of fixing this problem in the long run than the federal government will. I think that there should be no interest in protecting shareholder value. As an investment banker, I can tell you many of us who were paying attention saw this coming and stopped buying mortgage securities a couple of years ago, and as an investor you have to accept that you could wake up on Monday and have lost 75% of your principal.

                In conclusion to this (looong) rant, I believe that some amount of federal intervention is necessary, but if we continue to allow good times to run free and then protect the downside, the consequences could be dire.

      • @HIV 2 Elway Resurrected:

        However by assuming all of the loses of every failing financial corporation to protect them from failing, we are putting the Federal Reserve and by extension the US treasury in risk of failure.

    • humphrmi says:

      @johnva: Actually that’s a very good question, because the answer is what’s vexing the treasury and Fed.

      Right now a ‘buying opportunity’ has nothing to do with price. Banks don’t want to buy (or loan, or whatever) because they have to firm up their balance sheets. It doesn’t matter if the investment opportunity is selling at a 90% discount, if you don’t have the cash, you can’t buy. And Banks have to maintain a certain cash ratio, or they’ll be shut down.

      The Fed, on the other hand, can print money. Now that doesn’t mean that there’s a downside… the downside is that printing money means the dollar is worth less against other currencies, which makes imports (like, say, oil…) more expensive and fuels inflation. The other side of the coin though is that a cheap dollar makes US exports more attractive, in theory boosting manufacturing production. The sad thing is, if the US automakers had actually designed a product that people wanted to buy, they’d be booming now – making and exporting cars.

      The Fed won’t print money for ever, and in fact it can reverse the “printing press” very easily (i.e. take cash out of the market, once it’s safe to do so) so in general, economists consider making cash appear out of thin air a pretty safe move, because it’s not permanent.

      The last time the US nationalized debt was during the S&L meltdown, when they formed the Resolution Trust Corp to liquidate bad S&L’s assets, take over their bad debts, and manage them into good debts. The taxpayers generally did pretty good then – RTC made a profit. That doesn’t mean that this “debt nationalization” is going to work the same – it really depends on the people running it.

      • johnva says:

        @humphrmi: I understand that all of what you just said is what the theory is. And I realize that the S&L RTC made a profit. There are several big things, though, that worry me about this. First is exactly what you ended with – “it really depends on the people running it”. I don’t trust the people running it right now to do a good job.

        Second, and perhaps more important, is that I feel there will be long-term negative effects associated with propping up badly run businesses. Eventually, doing that encourages economic inefficiency, incompetence, greed, and even corruption of the government. In other words, why make conservative, safe, lower-yielding investments if you know that the government will just step in and help you out if you screw things up too badly? Maybe the S&L crisis resolution begat this crisis in that way, partially.

        • HIV 2 Elway says:

          @johnva: I think when the dust settles we’ll see these giant banks broken up so, in the future, if a bank fails the blow to the rest of the economy will be reduced.

          • yorick328 says:

            @HIV 2 Elway Resurrected: I agree that these huge monopolies must be disassembled using our anti-trust laws. By allowing a few entities to become so large and controlling, the results are self-evident. The greed of wall street knows no bounds.
            How about a bailout of all homeowners (not speculators) who realize they cannot now afford to pay for a house that has negative equity?

  3. JN2 says:

    What’s my return on this investment? Will I see a dividend check? OH CRAP! Am I going to owe taxes on the windfall?

  4. laserjobs says:

    Great, lets just shift all the risk to the taxpayer

    Privatize the Profits and Socialize the Losses

  5. jdmba says:

    Bush also said that those found selling short would be “persecuted.” His command of the English language continues to amaze me.

  6. HIV 2 Elway says:

    Glad I covered my short sale yesterday. $$$

  7. MissTicklebritches says:

    Safe as a savings account at WaMu?

    Actually, I’m sticking with WaMu for the time being. I’m going to see where this all ends up. So far, my checks have been honored and my debit card transactions have gone through w/o trouble.

  8. ThickSkinned says:

    “These measures will require us to put a significant amount of taxpayer dollars on the line,” Bush said in a statement, “But we expect that this money will eventually be paid back.”

    And he expected things to go well in Iraq. You’re doing a heck of a job, Bushie!

  9. snoop-blog says:

    Republicans are all about welfare for the big corporations but will do anything they can to take it away from the poor people.

    • lightaugust says:

      @snoop-blog: I was thinking that this morning… some poor person who mismanages a few hundred dollars is a blight on society, some rich people who call it investing do it, and we have to bail them out right now… so sad.

      • HIV 2 Elway says:

        @lightaugust: Again, it was poor people borrowing who contributed to this mess. Understand the situation and realize that there is a lot of blame that needs to be shared with a lot of people, poor and rich, greedy and vain.

        • Oranges w/ Cheese says:

          @HIV 2 Elway Resurrected: It was poor people borrowing because the banks freaking LET THEM DO IT. Normally, these people wouldn’t have been able to even get half the amounts they were handily being loaned.

          It’s called PREDATORY LOANING. They staked these people out because the banks make money when people don’t pay from interest and the like (look at credit card companies.. they make MILLIONS if not more, each year from people not paying their bills), they just didn’t expect it would boom as it did and then pop on them so suddenly.

          It’s the banks fault, mainly.

          • HIV 2 Elway says:

            @Oranges w/ Cheese: Anyone with common sense knows when they are borrowing more than they have afford. I’m not saying the banks aren’t to blame, nor I am saying that elected officials shouldn’t shoulder the blame. What I’m saying is that a lot of people contributed to this mess; investors, lenders, and borrowers. Its not as simple as just blamming the lenders.
            @Secret Agent Man: I agree 100% that the president has little to no control over markets. Still, I think the moves made in the last 48 hours will prove to be helpful. I don’t view it as much as protecting shareholder value, hell, thats already gone. I view it as protecting the solvency of our banking system. If the FDIC takes a massive hit due to a bank failing and there is a run on existing banks there will be instant chaos.

            • Notsewfast says:

              @HIV 2 Elway Resurrected:
              When I was talking about shareholder value, I wasn’t referring to AIG, Fannie or Freddie specifically, Obviously that’s pretty much toast. I am more fearful of the federal government (and apologies for the cliche) paying too much attention to wall street and not enough to main street.

              I think the banks have to remain solvent, but I think there is a lot of push to make sure the guys in charge of these companies are walking away safely and not just securing the assets and making sure the markets can still function.

              I think in the case of AIG, taking 80% equity is too generous. I honestly think that they should have taken 100%, allowed the company to operate until conditions improve and then sell of the pieces. That way AIG still goes under, but business is allowed to continue.

              • lightaugust says:

                @Secret Agent Man: Main street part is dead on… every economist I’ve heard this week says this won’t all be over until the housing crisis rights itself. This doesn’t do a thing for the cause, but it treats all the symptoms.

                • HRHKingFridayXX says:

                  @lightaugust: Yes, and really it they had made an effort to preemptively tackle the housing/labor issues we might not be in such bad shape. It was simple really- why would you make an adjustable (rising) rate loan to the general population whose income is actually decreasing? If they had fixed either side of the equation we probably would have been ok. If anything, the over supply of housing would have naturally pushed prices down and more people would be able to own a home.

  10. theblackdog says:

    Here’s the thing I wonder, Congress hasn’t set up the FY09 budget for federal agencies, are all of these bailouts really going to screw up the budget for FY09 and beyond? I know they’ll likely do a “continuing resolution” to keep us going, but eventually they’re going to have to debate and come up with next year’s budget.

  11. HIV 2 Elway says:

    Is going to be a post to read comments kind of afternoon?

  12. mac-phisto says:

    @meg: awesome photo! “ohcrapohcrapohcrap…” lmao. can i get this on a0 paper so i can frame it & hang it on my wall?!?

  13. DWalk says:

    Hmmm… Another George Bush government – S&L meltdown, nationalized debt, and wasn’t John McCain part of the Keating Five???

    Oh, and John McCain was criticized by the Senate Ethics Committee for having exercised “poor judgement”.

    And we want this man to be the President? I’m moving to Sweden.

  14. DWalk says:

    I want an “ohcrapohcrapohcrap” poster too.

  15. lonebannana says:

    So let me guess…

    Obama will win the election, and will try hard to fix all this stuff. He will most likely set things in motion that will fix things in 5-10 years.

    But the people will (be told to) believe that since things are still bad, that Democrats suck.

    We elect a Republican in 2012, who will take responsibility for all the fixes and corrections, and will be re-elected.

    I can tell the future because it keeps on repeating…

    • Oranges w/ Cheese says:

      @lonebannana: Oh, like the “do nothing congress” crap they’re trying to shove down our throats because the president keeps vetoing everything they try to pass? Yeah..

      Not looking forward to that one.

  16. lonebannana says:

    Also, we need to stop stuffing this whole idea of “owning your home” as the American Dream.

    People are NOT “owning” their home, they are owning a lot of debt.

    • @HIV 2 Elway Resurrected: Anyone with common sense knows when they are borrowing more than they have [can] afford.

      Absolutely not. There is no intelligence test required in order to get a loan from a bank. In fact, the level of education the average person has about financial affairs like loans, adjustable APRs, and the process of owning a home is apalling.

      Loansharking (outside of payday loans) is illegal. We allow certain kinds of banks to make loans – and any customer with the required income to pay back that loan should be able to get one regardless of intelligence level, skin color, etc. People go to a bank for a loan in order to have financial professionals assess their income versus the amount they want to borrow.

      The point is, you don’t have to know much more than how to mail in your check each month in order to get a home loan if you have sufficient income and collateral. We have banks to tell us what we can afford – and many banks actively promoted the idea that “you can afford more home than you think” eager as they were to make money.

      It’s easy to lay off the blame against ignorant loan consumers for this mess, and I don’t absolve the greedy serial house flippers or others who sought to deceive who suddenly found themselves with ballooning payments and an inability to pay. I just don’t think there’s a legitimate argument that lets you place any blame on people who were not savvy enough to understand that they couldn’t afford a house when their banker told them they could.

      We place our trust in banks and Wall Street because those entities are supposed to act within a framework of laws and trust in order manage cash and cash instruments, along with all sorts of other investments, derivatives, etc. Many of the laws put in place after the 1929 crash were largely dismantled by Republicans and Democrats alike during the 1990s and early 2000s (led by Phil Gramm, McCain’s former economic adviser, who safely called Americans stuck in this crisis “whiners”)

      While that’s an important component of the current crisis, it wasn’t caused by Janey and Joey walking out on their home. It was fostered and encouraged by greedy bankers who knew better.

  17. papahoth says:

    Zip-a-dee-doo-dah, zip-a-dee-ay
    My, oh my what a wonderful day!
    You’re getting Obama even if a Christian and pray!
    Zip-a-dee-doo-dah, zip-a-dee-ay

  18. howie_in_az says:

    “But we expect that this money will eventually be paid back.”

    Luckily, investors aren’t the kind of people to walk away from investments. In fact, they’re a lot like homeowners in that regard.

  19. FMulder says:

    Notice how the Government rushed in to save rich folks from their own follies, far quicker than it rushed in to save people living on their roofs with no freshwater surrounded by dead bodies and hurricane katrina’s floodwaters…

    Why are so many ‘free-market’ people unwilling to let the market fall free of government bail out? But when the discussion is helping american citizens, most often the same people believe that the government should encourage self-reliance, and people must deal with their own mistakes.

    It is ridiculous when the wealthy con so many not-wealthy people into believing that if their wealth isn’t saved, then the country will collapse, and as some commenter implied, the whole world will suffer.

    Taxpayer money should not be used to prop up the ‘free-market’ when the only trickle down is into the pockets of the wealthy. The taxpapyer money given and to be given so quickly to these wealthy companies is not money we’ve seen freely given to provide for the health, education, housing of american citizens in need. If “Welfare” is to be given, let it be given to those people in need, not to those people and organizations that will simply use it to make sure they can still afford their third home, or another multi-million dollar set of perks for their CEOs.

    If the market and these companies were thriving, would poor people be lauded? Nope, that would be the money-folks who’d get the credit. Now poor people are to blame for the mismanaged and corrupt lending practices of corporations that had a choice, as compared to people who were struggling to have a roof over their heads? Those who admire greed can’t help but spin this situation to protect their perception.

    Lehman Brothers was built on slavery, thrived on corrupt mortgage practices, and died because the greed overtook best practices for managing financial exploitation.

  20. This is not the job of the feds! They should have had better regulation over this crap the past 15 years and the situation would have never happened and people would be living in homes they could afford or still be renting.

    Both Obama and McCain won’t be fixing this any time soon and at this rate our grandkids will be getting home loans from the Feds instead of banks.

    Bleh, maybe if more people took Ron Paul seriously.

  21. u1itn0w2day says:

    Why not just suspend trading & withdrawls from money markets for a couple of days for transactions over a certain amount.

    And I thought there were computer safeguards put in place to prevent this.

    But to anyone who has clipped coupons,bought generics,payed rent,waited for sales,lived with someone,saved for what they wanted,payed off a credit card or two or more importantly payed their mortgage on time,bought a house they could afford should totally insulted by this handout & charity for the greedy.

    Even more insulting is to see alot of pundits and analysts who would always lean twards free markets and NOT socialism,communism or welfare all the sudden want government intervention and yet they didn’t say a word when people were loosing their house and yet their accounts and broker buddies get into trouble all the sudden the welfare state is OK.

    Then these same pundits and commentators would worship alot of these hedgefund managers and their creative financial instruments like derivatives and credit default swaps didn’t say a word.

    AND all because people were using creative credit to compensate for OVERPRICED housing.

    F U,F U TO ALL OF THEM !!!

  22. AlphaWolf says:

    Agreed. Good luck getting the corporations or the government to respond to anyone in the middle class, whether that is a tragedy, or scam, or anything. In fact it is ok for the individual to get screwed over again and again and it is their individual problem.

    Meanwhile when the fat cats start to loose money ever weekend is spent in backroom deals to save them with our money.

    The free market thing was always a scam from day one.

  23. u1itn0w2day says:

    Not only do I hear they want ONE overseer but now I hear politicians talking about adding stipulation or tacking on a jobs creation bill.

    THEN I hear media members crying we got to get the house prices back up-dumb fracks-the housing prices were artificially HIGH due to things like the sub prime and flippers.As a home owner you have a right for a place to live and not a place to resell at a profit.Fraken cake eaters.