Off-Topic: The great great depression

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	Name:	water_watcher -
	Subject:	The great great depression
	Date:	9/27/2008 10:43:35 AM

First I deal with SunTrust capital markets with bond financing backed by letters of credit and rate swaps with counter parties to fix interest rates for 20-30 years. I just recently locked $20 million of tax exempt bonds at 2.97% using a rate swap at 67% of LIBOR for 25 years.

Depends on what you are calling "wall street". This problem has been compounded by accounting rules under S-OXS to mark to market. As defaults started to happen on bad loans, financial institutions had to start writing down those loans. The ability to sell those loans to raise liquidity dried up causing further mark downs. This started to spread in to good loans that people were paying on, but since there was not a "market" to sell them, they had to be marked down. This started to freeze up the mortgage market even for excellent credit. So the value of those loans had to keep being written down.

Bank regulations require a certain debt to capital ratios. As the write down continued then needed infusion of capital to meet the requirements. Even though the feds had made credit facilities available, it was not the capital that the banks needed so they were in default and started to be taken over by the feds, closed or sold off.

The bailout package allows the feds to buy those marked down loans at the depressed levels which takes them off the banks books and gives the banks the capital and liquidity they need. The feeling is when they start to buy them it established a market and others will step in to start buying them too. They are not all bad loans so the feds should be able to resell them in the open market at a later date at a significant profit. This will not all be on the backs of tax payers .... in fact the feds may make money on this.

The resistence you hear on the republicans parts is they want to address a fix to the problem ... including revising the mark to market rules under S-OXS. But instead the dems want to pile on more give away programs that does not fix the underlining problem. Don't forget the republicans proposed a bill in 2006 to try and fix the hand writing on the wall and the dem congress laughed and shot it down.

So the reference to wall street is because the market will fall another 2,000 to 3,000 points, maybe worse if this bailout is not approved. That will hurt everyone. there will be bank failures and runs on banks like 1929 and business as we know it today will not be able to function. That will lead to mass layoffs and plant closings. Not just because of high unemployment, but there will not be capital to lend so people will not buy and will just keep adding to the problem. It is predicted that banks will just start closing credit card accounts to protect themselves.

Without some bailout, we could easily surpass the 30% unemployment of the great depression.