thanks for answering my questions so fast. Thanks for the good answers.

I like your view that ultimately the people should should decide what should be done. I agree with that principle as that is what a true democracy is about. It is widely thought in America (based on surveys) that the majority of Americans are AGAINST the bailout.

However, there is also a feeling in America (and I am one of those that feel this way) that our leadership (Bush, Paulson, Bernanke, McCain, Obama, Pelosi) has done a very poor job explaining this situation to the American people. The American people either do not understand or do not believe that this is a bailout of the U.S. economy (Main Street), but rather a bailout of some individual firms and CEOs (Wall Street)

I can only guess at the answer to your questions:

1. It is almost certain that the U.S. and Europe will move into a deeper recession, but probably only a slight chance of a depression (an extremely deep recession meaning, say, 20% or more unemployment). My guess is that the U.S. Congress will sign a bailout bill by the end of this coming weekend. I think the U.S. congressmen realize the mistake they have made in missing the opportunity to stop the banking demise. The optimistic perspective is that the bailout bill signature is just delayed a week, and when it is finally passed, the U.S. banking banking system will slowly improve.

2. Foreign currency trends are always very hard to explain, especially in the short term, especially a foreign currency trend of the USD vs. the BGN. One line of thinking would be that the U.S. dollar has strengthened against the Euro and BGN over the last several months as some Europeans had believed that the U.S. was a better place to invest their currency (driving up the dollar as Europeans buy dollars), relative to Europe, since perhaps the U.S. recession would be shorter than that of Europe. I’m not sure that reason holds anymore. I don’t think foreign currency trends should be your main concern though as a weaker BGN can actually help Bulgarian exports.

States of America, you deserve it. You deserve the pain that You will feel today and You will feel next years.
States of America, here is the shortest list of Your crimes before the face of GOD:

1. Your oil idolatry; oil’s and oil products’ pollution of the Earth. Oil is everywhere: in markets, in news, in politics, in economics, in internal and foreign policy of every government in the world. States of America, you made oil a matter of wealth, a tool of greed and a tool of corruption, a tool of bribing and a tool of sin.

2. Your computer idolatry; young men from all over the world are waiting for a new processor, waiting for “powerful” video chips to bring them into the distorted world of illusions of computer “games”. It is no more “games” when young men kill others as a result of “gaming”. And now You open in Israel the largest fabric of golden idolatry processors in the world, Fab28.

3. Your car idolatry. You reverse the ordinary tool of transportation into the army of iron monsters, who steal million human lives each year around the earth. These monsters are inhabitants of the oil. The other inhabitants of Your sinful oil are: tanks, aircrafts and rockets.

4. Your distortion of the meaning of LAW. Your 8000 pages of what you call “tax law” is more sinful, is more idiotic than pharisees’ interpretation of GOD’s law 2000 years ago in Jerusalem. Your “tax code” is more sinful than ancient pagan Rome empire’s taxation with 200 taxes.

5. Your distortion of human rights last decades. States of America, you WERE the union of defendants of human rights. No more. You TWICE elected for leadership the person who is the liar, thief and who ruined human rights in your country and other countries.

At this moment, when God decided to make You start bear punishment for these and other crimes, is the same moment when GOD decided to make modern Israel bear punishment for it’s crimes before HIM. The court, which make a decision to exile “israelitos” from the HOLY LAND, already completed. Modern state of Israel started from “Balfour declaration”, and this modern Israel recently ended with the court’s verdict on “case of Isabella Belfer”.
The highest court of Israel BAGAZ approved a decision where absolutely innocent 70-years old woman, doctor, grandmother was found “guilty” of transferring her daughter and grand daughter from Israel to Russia.
The israelitos have been WARNED in April 2008 about all their crimes and about the case of Isabella Belfer.
The “guilty” decision of high court of Israel was declared in the morning of 15-th of September 2008. It was not the verdict to Isabella Belfer, it was a verdict to modern Israel, it was a verdict to its justice system. And ACCORDINGLY the same day, for the same reason You, States of America become GUILTY for your long support of the anti-human racist modern state of Israel.
Now States of America you will see the exile of israelitos from the HOLY LAND, You will see the falling of their relatives in the States of America - your bankers, and at the same time You will bear punishment for Your own sins before the face of GOD.
States of America, You deserve it. It is LORD’s JUSTICE on all your crimes.

I’m from Bulgaria. Of course I’m worried about the financial problem rising in US. As all we can see markets in Europe also take their part in the story (FTSE -5.5% or something like that, Paris - 4.5%, etc…)

I saw your previous Blog discussions, and I think now I found someone who could give a good answer to 2 questions that I have (and I cannot answer without some help :))

I’m not a financial guy but a programmer. I have liitle knowledge about markets, but as far as I feel this whole thing is leading US + Europe to a new enormous recesion.

Q1: Correct?
A1:

Q2: What is the reason for the USD currency increasing its value against the Bulgarian Lev (BGN) during this crisis development?

29.09.2008 : 1.33 BGN = 1 USD
30.09.2008 : 1.36 BGN = 1 USD
A2:

Steve,
sorry in advance if the questions might seem “dummy”, but as I said I have little Financial Markets knowledge.

Thanks in advance….
Greetz,
Pavel

Thanks for note on the reposting of the above students blog on the SchoolFinder Blog. I enjoyed the sarcastic sense of humor!

Steve

Yes, credit unions, commercial banks, and savings & loans are all at risk of not being able to make loans. This “credit dry up” does not discriminate and is affecting all financial institutions.

A credit union is a “private member bank”, but they are inter-bank dependent as well and are fully integrated into the larger banking structure and mortgage markets. Credit Unions are also under the regulatory jurisdiction of the FED.

Perhaps for you, the good news is that the bailout bill may be signed early this week which should, in my opinion, improve your personal chances of being in a better position to get an educational loan next year.

Thanks for your first post!

Good questions!

As you can imagine, there is plenty of blame to go around! Republicans are blaming Democrats and Democrats are blaming Republicans. Many are blaming household decision makers, greedy executives, and bank regulators asleep at the switch. In short, everone is blaming everyone except for themselves. I have yet to see one person blame themselves, their agency, or their companies!

I see the answers to the “what went wrong” question as a multi-faceted answer. Keep in mind that these 6 reasons are my opinions and many would disagree with the order and would also add to the list:

1. Inappropriate regulatory law allowed the financial institutions to carry too high a ratio of mortgage-backed securities to collateralized debt.

2. Banking regulators (Banking Committee, FED, regulators, etc.) should have screamed louder earlier! Although there are many documented attempts that did, in fact, identify the concern, it was more a whisper than a scream.

3. Private lenders got greedy lowering or violating their own lending standards in hopes of making more interest income by loaning to people who were very risk bets.

4. New law had been passed several years ago, urging that Fannie Mae and Freddie Mac make more loans to lower income households that carried much more risk.

5. Households borrowed more than they could afford. Citizens that borrowed need to share the blame with lenders, although I place lenders at a higher standard than borrowers.

6. New accounting regulations under Sarbanes Oxley (regulation passed after Enron) are too conservative causing assets like mortgage-related securities to be valued less than their economic value (true worth), which caused the bank debtor run on the bank.

Well, 6 reasons are about as good as I can do…..’cause there is a lot of blame to go around on this one!

You ask some great questions, and I would be lying if I said I knew the answers to them. It also concerns ME that the government may well end up with a taxpayer asset of approximately $700B that they are responsible for either collecting or selling. But I believe we should take that chance to avoid more serious consequences.

How will the (stock) “market” react to the Government holding these assets is another good question, but early indications are that the stock market is not overly concerned about it for now, at least based on the professional firms swooping up stocks this week as they feel the bailout bill is getting close.

Having the government manage anything is always a concern and this deal is outside their “wheel of expertise”. That is why many respected economists propose a $700B preferred stock cash purchase from the selected financial companies so the companies will get the cash. In this alternative, the Government (tax payer) will receive an investment stake in the company which can be sold for cash at a later date, as well as a standard dividend rate, say 10%, on their purchase, but the government will not have to manage the assets since the financial institutions can keep them.

I feel the most confident about your last question or observation. The financial system needs credit to survive! Credit is a “good thing” enabling businesses to form and expand, and households to move future income streams into current purchases. Of course, you are probably thinking, and you are correct, that excessive credit got us into this situation in the first place! I use the analogy of a car: a car is not a bad thing because it kills people. Credit is not a bad thing if used correctly, it is actually essential to economic growth. Many economies, like Russia, have slowed their standards of living by being reluctant to borrow. A world without credit would be a giant step backward as households and businesses would be unable to leverage their future earnings power into the present. Without credit, World War II would have been lost, you might not start college until you are 44 or never at all, you may not be able to own your first home until you are 88!

Regards,

Steve