Markets react negatively to bailout pace
Stocks take another dive, as markets show their impatience and lack of confidence in the financial bailout measures to be taken by the Treasury. Washington Bureau Chief John Dimsdale asked financial experts what's going on.
New York residents walk by a ticker announcing stock market plunging in New York, on Oct. 6, 2008 (Emmanuel Dunand/AFP/Getty Images)
More on The Economy, Wall Street, Fed. Budget/Govt. Spending, America's Financial Crisis
TEXT OF STORY
Kai Ryssdal: Panic's an awfully strong word. So we're going to use a different one. Fear. There's still a lot of it out there -- bailout plan or no. We'll tell you how the Fed and the markets are reacting. Things aren't so hot in Europe, either. They realized this weekend they've got their own crisis to deal with. Stephen Beard's going to fill us in. And former Lehman Brothers CEO Richard Fuld was on Capitol Hill today. Suffice it to say the reception was less than rosy.
Here's how bad a day it was on Wall Street. The Dow finished down 360 points -- that was about 400 points better than the lows of the day. But the story's not really stocks, it's credit -- as it has been for weeks now. And our Washington bureau chief John Dimsdale reports the government's efforts so far aren't inspiring confidence.
John Dimsdale: The Federal Reserve tried to prime the lending pumps again this morning, dramatically expanding the cash available to struggling banks. Meanwhile, the Treasury Department cranked up the machinery to implement its buyout of troubled bank assets.
But economist Alan Levenson at T Rowe Price says the markets don't think the cavalry is coming to the rescue soon enough.
Alan Levenson: The cold reality is that the Treasury got the legislation it wanted, but it's not going to start buying securities for four or six weeks. So passing that legislation is not an immediate panacea to the problem.
Some Wall Street analysts say markets are looking for more -- like a big interest rate cut, ideally a global one. But Alice Rivlin, a former vice chairman of the Federal Reserve, says interest rates aren't the problem right now.
Alice Rivlin: Our fed funds rate is down to 2 percent. Would going to 1.5 [percent] make a difference? Probably not, because there's been no discernable connection between that and any of the rates we really care about -- like rates at which banks would be willing to lend if they were lending at all.
Others say stock markets are still not comfortable with the government buying parts of so many banks. Encima Global's David Malpass says there's an alternative to a cut in short term interest rates that might bring faster relief.
David Malpass: One thing they can do, for example, is bring mortgage rates down. Treasury now controls Fannie Mae and Freddie Mac, these gigantic global institutions that buy mortgages. They could just lower the rate on mortgages. I think that would help.
A cut in long-term mortgage rates got the endorsement of the head of the Federal Deposit Insurance Corporation, Sheila Bair, today.
Sheila Bair: Let's face it, it's the deteriorating quality of the mortgage assets. Or perceived deterioration that's driving a lot of these other, the illiquidity in these other asset classes. So I think some combination of tools including credit enhancements might be a viable approach for Treasury.
Meanwhile, President Bush today asked for patience, saying the government's rescue should not be set up so fast that it wastes taxpayer money.
In Washington, I'm John Dimsdale for Marketplace.
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From TX, 10/07/2008
The bailout was the wrong thing to pass. It's time to do something right.
Please support this proposal and get your Congressional representative to sponsor this solution to our current monetary crisis.
A complete list from the Detailed Executive Summaries of the National Economic Stabilization and Recovery Act:
http://nesara.org/bill/index.htm
The Federal Reserve System
# The Federal Reserve Act of 1913 is amended
# The Federal Reserve System is abolished and replaced by a new Treasury Reserve System
# Control of the currency is moved from private control of the Fed to public control of Congress and the new Treasury Reserve System
# Congress sets the standards for the new monetary system but the people create as much or as little currency as they need
# Functions of the Federal Open Market Committee are transferred to the Board of Governors of the new Treasury Reserve System
# A new mechanism, the Treasury Reserve Account, is created to provide the Treasury Reserve System Board of Governors a better method to fine-tune the money supply, effectively eliminating inflation
# The Treasury Reserve System Board of Governors will continue using the previous three mechanisms for controlling the money supply: 1. Setting reserve requirements. 2. Setting the national discount rate. 3. Purchasing U.S. Treasury securities on the open market.
# All U.S. Treasury securities purchased by the Treasury Reserve System Board of Governors will be immediately turned over to the U.S. Treasury and cancelled out of existence.
Monetary Policy
# People are provided with several alternatives for currency
# Constitutional currency is restored
# Currency becomes debt free as the people stop paying interest payments for their use of a public utility
# Unlike previous policy, the new Treasury Reserve Board is provided one very specific mandate: maintain a stable currency
# Expansion of the economy is returned to the free market
# Private coinage is encouraged
# Exchange ratios for the various currencies are published at least weekly
# Printing of redeemable gold and silver certificates is allowed
# Postal money orders are made available in denominations of gold and silver coin
Banking
# Returns the banking industry to serving public interests
# For secured loans, compound interest is outlawed and replaced with a monetization fee
# Provides stricter banking controls by imposing excise taxes to discourage high or runaway monetization fees
# On secured loans obtained from a fractional reserve bank, principal must be paid in full before the bank begins collecting its monetization fee
# Eliminates the facade for banking insurance (FDIC)
# Except for fraud and criminal activities, virtually eliminates bank failures
# Banks are prohibited from using as reserves any commercial paper
# Only Treasury credit-notes can be used as bank reserves
# Banks are prohibited from purchasing government issued debt, effectively removing banks from influencing monetary policy
# Checking accounts against gold and silver deposits are prohibited
# Commingling of funds among the various money accounts without owner’s permission is prohibited
# All currency deposits with banks are general warrant deposits and custody accounts.
The Income Tax
# The Income Tax Act of 1939 is amended
# People need no longer fear the IRS
# Billions of hours of nonproductive labor are eliminated
# Mounds of paper work are eliminated
# The cost of the income tax is no longer hidden and embedded in the cost of doing business and passed down the chain with the consumer paying the final tab
# Most likely eliminates state income tax plans because state income taxation piggybacks on federal income taxation
# The IRS is reformed into the National Tax Service
# Volumes of complicated tax code are history
# Eliminates personal income taxes
# Eliminates corporate income taxes
# Eliminates gift taxes and estate taxes
# Eliminates capital gains taxes
Sales and Use Tax
# Tax rate of 14%
# Government entities are exempt
# Government mandated expenses such as licenses, permits, passports, are exempt
# Sales of bullion, coin and currency are exempt
# Sales made by or to nonprofit schools are exempt
# Sales of prescription drugs, medical supplies and services are exempt
# Real estate rents and leases are exempt
# Sales of groceries are exempt
# Sales of plants, livestock and fish used in the production of food for human consumption are exempt
# Insurance sales are exempt
# Segregated portions of labor in retail service contracts are exempt
# Incidental or occasional sales such as garage or rummage sales are exempt
# Sales for the purposes of recycling are exempt
# Meals provided by companies at company expense are exempt
# Sales that are nonprofit in nature are exempt
Immediate Relief and Results
# Eliminates more than $1 trillion of the nation’s public debt
# Reduces future private debt by more than $1 trillion
# Immediately eliminates some private debt, especially for many homeowners
# Workers maintain better control of their earnings
# Production is no longer taxed, just consumption
# Most of the necessities of life are not taxed
# Encourages production thus revitalizing industry in America
# Encourages rebuilding of inner cities
# Discourages wasteful uses of natural resources
# Exposes the true cost of government
# Greatly eliminates the struggle between tax “protesters” and bureaucracy
# Allows the “underground” to resurface and become a viable contribution to production of goods and services
# Greatly restricts the influence of special interests and lobbyists
Please do not confuse this with a hoax with a similar name. Tell your congressional representative to sponor this proposal and submit it as legislation. It's time we as the people took back our monetary rights. Tell your representatives and senators, and the candidates they are running against, that you will not vote for them if they do not opening support and sponosor this bill themselves. It's the only short and long term solution for our current crisis.
From Bar Harbor, ME, 10/07/2008
Perhaps I'm overly ignorant, but isn't it "traditional" for the markets to decline in October? Granted that we are seeing some historic declines, but couldn't some of that be due to the normal "freaking out" investors do this month?
From FL, 10/06/2008
Treasury needs to mandate that a percent of every dollar banks get in exchange for their assets will get lent out to within 6 to 9 months. This will unfreeze the credit markets and ensure the money makes it to mainstreet. I put a post about this on my blog at www.irishlightning.com
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