Market Reaction to $700 Billion Bailout House Vote

Updated on 10/19/08
This $700 billion bailout is purportedly needed to stabilize financial markets and get credit flowing again (assuming it was ever really frozen).

The bailout -- first proposed on 9/23/08 -- was approved by the House on 10/3/08 at 1:22 PM EDT.

So, what was the initial reaction?

Anybody still naïve enough to actually believe what The New York Times says would fall for this line:

“Financial markets had a positive but hardly exuberant response to the House action and the prospect that the Federal Reserve would also move to cut interest rates to help the ailing economy. Just after the bill was approved, the Dow Jones industrial average was up about 115 points.”

The data, however, tell another story. Remember, the House approved this bailout at 1:22 PM, EDT.

After 1:22 PM, EDT, all three major stock market indices declined.
Click the chart to enlarge it:

Click here to recreate the above 1 day chart of 10/3/2008.
Update: Intraday charts are only available 15 days back.
This one is no longer available.

Update - 10/19/08:
Paulson made his bailout plea on 9/23/08. The markets reacted negatively.
The bailout was approved on 10/3/08. The negative reaction has been PROFOUND!
Click the chart to enlarge and view the source:

Click here to recreate the above chart.
Select a start date of 1/1/2008 and an end date of 10/19/2008.


The odds of a recession in 2008, as expressed at Intrade,
jumped from 28% to 34%.
Click the chart to enlarge it:

Click here to recreate the chart from the source.

Update - 10/19/08:
Since the bailout was approved on 10/3/08,
the odds of a recession in 2008, as expressed at Intrade,
have risen to 56.3%.
Click the chart to enlarge it:

Click here to recreate the chart from the source.
The “TED Spread” is the closest thing to an indication we have seen to date which INDIRECTLY suggested that MAYBE there existed a “Credit Crunch”.

If bankers expected this bailout to make any difference, would we see maybe at least a slight drop in the “TED Spread”? Nope, After the House vote, the TED Spread ROSE!

Ron Paul got this one right:


FDR took a bad situation, made it worse and prolonged the pain.

Our Congress just GUARANTEED that we will repeat the mistakes of FDR! I doubt this will mean the second coming of the Great Depression. But, what is CERTAIN is that Congress just made our present mess WORSE (as usual).

We told you so!

Nice “work” Congress! I’m betting your 9% approval rating just went LOWER!

How Government Stoked the Mania

Quoting Russell Roberts, a professor of economics at George Mason University
(I inserted the links):

“Beginning in 1992, Congress pushed Fannie Mae and Freddie Mac to increase their purchases of mortgages going to low and moderate income borrowers. For 1996, the Department of Housing and Urban Development (HUD) gave Fannie and Freddie an explicit target -- 42% of their mortgage financing had to go to borrowers with income below the median in their area. The target increased to 50% in 2000 and 52% in 2005.”

“First passed in 1977, the CRA was ‘strengthened’ in 1995, causing an increase of 80% in the number of bank loans going to low- and moderate-income families.”

“Beware of trying to do good with other people's money. Unfortunately, that strategy remains at the heart of the political process, and of proposed solutions to this crisis.”

Click the image & read the rest:

Click here to read the primary post on this topic
(and all the rest).

Here, Little Piggies!

Quoting The New York Post:

“Here, little piggies!

Congressional deal-brookers yesterday slopped a mess of pork into the $700 billion financial rescue bill passed by the Senate last night - including a tax break for makers of kids' wooden arrows - in a bid to lure reluctant lawmakers into voting for the package”

Click the image & read the rest:


More on the Pork and
Commentary From Ron Paul:


$700 Billion Bailout?
JUST SAY NO!

NO BAILOUT!

Congress:

Read my lips!
NO BAILOUT!

I am utterly unconvinced we have an “unprecedented” problem.

But, even if we do, ANY “solution” which YOU come up with will be WORSE than the problem!

Politicians CAUSED THIS!

Do NOT make it WORSE!

LISTEN to this economist and all the OTHERS!

Signed,
One VERY Angry VOTER

Please contact your representatives and tell them you oppose this bailout!

Act NOW!

Housing Correction Perspectives - Case-Shiller

The Case-Shiller Home Price Indices examine home prices in 20 large cities. According to those indices, as of July (the most recent data), the only housing market where prices were lower than they were in January of 2000 is Detroit.

All of the media hysteria relates to home values compared to one year ago. What is seldom, if ever, mentioned is that home values were utterly unrealistic one year ago (in SOME locations).

Click the image to enlarge:

I personally created the above chart.
Source: This spreadsheet downloaded from this page
(July 2008 data published on 9/30/08)

Click here for a broader perspective
on the housing correction.

Economist Jeffrey Miron - $700 Billion Bailout - NO!

Quoting Economist Jeffrey Miron
(I inserted the link):

“This bailout was a terrible idea.”

“The fact that government bears such a huge responsibility for the current mess means any response should eliminate the conditions that created this situation in the first place, not attempt to fix bad government with more government.”

“The bailout has more problems. The final legislation will probably include numerous side conditions and special dealings that reward Washington lobbyists and their clients.”

Click the image & read the rest:

Click here for the primary post on the cause of the housing mess.
Click here for the primary post on this terrible bailout proposal.

700 Billion Dollar Bailout and The TED Spread

A metric known as “The TED Spread” may be what caused Secretary Paulson to panic and request a $700 Billion Bailout. If so, I wish he would have mentioned it when addressing the Senate Banking Committee.

Quoting Wikipedia:

“The TED spread is a measure of liquidity and shows the degree to which banks are willing to lend money to one another.”

Click here for a chart of “The TED Spread” and examine the 5 year history.

Click here (for a somewhat dated chart) and note that recent spreads in excess of 300 basis points are higher than levels reached during what some call “The Crash of 1987”.

But, click here for a chart of the S&P500 Index and put the so-called “Crash” of 1987 in perspective.

Personally, I am NOT convinced that “The TED Spread” justifies this $700 Billion Bailout. But, at LEAST we now have a somewhat legitimate metric to debate and discuss.

Speaking of which, quoting Felix Salmon:

“I think… so long as banks can borrow from the central bank overnight, the TED spread is largely unrelated to their real-world cost of capital. Which doesn't make me an optimist, by any means. But I do think that the TED spread can remain elevated for some time without the world coming to an end.”

Click here to read the primary post on this topic.

700 Billion Dollar Bailout - Economists Say NO!

Quoting WorldNetDaily:

“At least 165 economists have signed a letter to Congress members warning of three pitfalls in the Bush administration's $700 billion proposal to deal with the Wall Street crisis.

The economists say they are well aware of the current financial situation and agree there's a need for bold action but ask Congress ‘not to rush.’ ”

Click the image & read the rest:

Click here for the primary post on why this bailout is a TERRIBLE idea.
Click here to learn what caused this housing mess.

700 Billion Dollar Bailout - Poll

Quoting Rasmussen Reports:

“Only 30% of U.S. voters think the federal government should step in to rescue the country’s troubled financial markets, according to a new Rasmussen Reports national telephone survey.”

Click the image & read the rest:


Also See:

Click here for the primary post on why this bailout is a TERRIBLE idea.
Click here to learn what caused this housing mess.

What Price Stability?

Quoting James Dorn
(emphasis mine):

“The US Treasury's takeover of Fannie Mae and Freddie Mac, the nation's largest mortgage financers, was predictable.”

“In the past, Fannie and Freddie showered large sums on members of Congress to win votes and retain their privileged position. Although those payments are now illegal, Fannie and Freddie have many friends on Capitol Hill who believe the GSEs are essential to [so-called] affordable housing; they will fight hard to maintain the status quo.”

“Preserving the status quo by maintaining Fannie and Freddie's crony capitalism would expand the size and scope of government, rather than make individuals responsible for their mistakes.”

“The takeover of Fannie and Freddie could cost taxpayers US$200 billon to US$300 billion - and far more if housing prices fail to stabilise.”

Click the image & read the rest:

Click here for the primary post on why this bailout is a TERRIBLE idea.
Click here to learn what caused this housing mess.

Socialized Risks, Private Rewards (at Fannie and Freddie)

Click the image & listen to James Dorn on
“Socialized Risks, Private Rewards” (at Fannie & Freddie)

This is NOT a time for panic and haste!
SHAME on Paulson & Bernanke for caving in to hysteria!
Click here for the primary post on why this bailout is a TERRIBLE idea.
Click here to learn what caused this housing mess.

700 Billion Dollar Bailout - Credit Crunch? Where?

All charts were updated on 2/21/09.
Some of the data reveal a sudden surge in lending after the bailout was approved. Perhaps this injection of liquidity resulted, to some extent, in additional lending. But, an unprecedented “credit crunch”? The data indicate it simply NEVER EXISTED! PERIOD!

My fellow Americans, we’ve been HAD!

Click here for my previous commentary on this $700 billion bailout.

Today, 9/24/08, the talk at the Senate Banking Committee was mostly about the so-called “Credit Crunch”.

Again, lots of allegations and anecdotes flew. Again, there was NO HARD DATA presented!

Again, the data which I have access to does NOT support the thesis that a $700 Billion Bailout is needed!

WHERE is the Credit Crunch? Why are present circumstances, in the words of Paulson, “unprecedented”? If Secretary Paulson has more recent data than I have access to, PRESENT IT! The following is the most recent data which I have access to:

Total Consumer Credit Outstanding
(Through the end of December)
Click the image to enlarge & view the source:

Sorry Paulson, nothing “unprecedented” here!
Click here for a broader view of the same metric.

Consumer (Individual) Loans at All Commercial Banks
(Through January 1st)
Click the image to enlarge & view the source:

Sorry Paulson, nothing “unprecedented” here!
Click here for a broader view of the same metric.

Commercial and Industrial Loans of Weekly Reporting Large Commercial Banks
(Through February 4th)
Click the image to enlarge & view the source:

Sorry Paulson, nothing “unprecedented” here!
Click here for a broader view of the same metric.

Total Commercial and Industrial Loans Including Foreign Related Institutions
(Through February 4th)
Click the image to enlarge & view the source:

Sorry Paulson, nothing “unprecedented” here!
Click here for a broader view of the same metric.

Commercial and Industrial Loans at All Commercial Banks
(Through January 1st)
Click the image to enlarge & view the source:

Sorry Paulson, nothing “unprecedented” here!
Click here for a broader view of the same metric.

Real Estate Loans at All Commercial Banks
(Through January 1st)
Click the image to enlarge & view the source:

Sorry Paulson, nothing “unprecedented” here!
Click here for a broader view of the same metric.

Total Loans and Leases of Commercial Banks
(Through February 4th)
Click the image to enlarge & view the source:

Sorry Paulson, nothing “unprecedented” here!
Click here for a broader view of the same metric.

Click here and here for the latest data on each chart.

Secretary Paulson - WHERE is the
“unprecedented” Credit Crunch?

Was it the “TED Spread” that spooked you?

Please Register Your Opinion -
Please contact your representatives and tell them you oppose this bailout!

From the above link, I suggest you copy and paste the following into the form:

I oppose the $700 billion dollar mortgage bailout because the data do not support the thesis:
http://sbvor.blogspot.com/2008/09/700-billion-dollar-bailout-for-what.html
http://sbvor.blogspot.com/2008/09/700-billion-dollar-bailout-credit.html

Act NOW! Congress will probably vote in just a few days (at MOST)!

700 Billion Dollar Bailout - For WHAT?

Please register your opinion with your representatives.
Please ask your friends & neighbors to do the same.
It is QUICK and EASY! See the bottom of this post.

Quoting Treasury Secretary Paulson in his statement
before the Senate Banking Committee on 9/23/08
(Emphasis Mine):

“ We must now take further, decisive action to fundamentally and comprehensively address the root cause of this turmoil.

And that root cause is the housing correction which has resulted in illiquid mortgage-related assets that are choking off the flow of credit which is so vitally important to our economy.”

Click the image & read the rest:


If “the housing correction” is the best excuse Paulson can muster for a $700 billion bailout, I say NO WAY!

1) Last July, I commented on Media Housing Hysteria vs. Their Own Source.

2) The following represents the latest data for Median Sales Price of Existing Homes:

Click the image to enlarge:

I personally created and uploaded the above chart.
The data used in the above chart are found in
this spreadsheet downloaded from this page.

Contrary to media hysteria, the data clearly demonstrate that this “housing correction” is already bouncing back WITHOUT any $700 billion bailout!

2A) 10/5/08 - Update to the original post of 9/24/08:

The latest data indicate home prices declined again in July and August. However, February still represents a bottom. New data will be released around 10/25/08.


Click the image to enlarge:

I personally created and uploaded the above chart.
The data used in the above chart are found in
this spreadsheet downloaded from this page.

3) Furthermore, there are very few states where there existed any “housing correction” at all! The condition of the housing market in each individual state can be graphically verified in the previous link. Why should the entire nation pay for the follies of a very few states?

As an example, here is California in blue and Florida in red mapped against Colorado in green:

Click the image to enlarge & view the source:


4) Data from the St. Louis Federal Reserve on the condition of the nation’s banks does not seem to justify a $700 billion bailout:

Click the image to enlarge & view the source:


5) Although some large financial institutions have failed this year, the following data present further evidence suggesting that the overall banking system is not in crisis:

On 9/19/08 CNN reported the 12th bank failure of the year. According to the data presented by CNN, 1/10th of 1% of the banks insured by FDIC have failed this year (12 failures, 8,451 insured).

From this FDIC page, I produced a detailed report including the total assets associated with each failure for each year.

From that report:

1) 2008 - 11 Bank failures totaling $40,443,315,000 in assets.
The 12th failure, reported on 9/19/08, is not yet in their database.

2) 1989 - 534 Bank failures totaling $164,180,003,000 in assets.

Note: At the FDIC link, the assets are reported in thousands of dollars.

Update: On 9/26/08 it was reported that Washington Mutual, with assets of $307 Billion, “failed”. The Federal Deposit Insurance Corp. seized Washington Mutual. But, WaMu’s assets were sold to JP Morgan Chase in a transaction which did not cost the FDIC anything.

What really counts in these failures is not the “Total Assets” but the “Estimated Loss” paid out by the FDIC. That metric is not yet available for 2008. But, we know two things for sure:

* The “Estimated Loss” to the FDIC cannot exceed the Total Assets.

* Washington Mutual will add a grand total of $0.00 to the “Estimated Loss” metric.

6) The condition of the overall economy also does not support this draconian $700 billion bailout.

The Conclusion -
Sorry Secretary Paulson - NO SALE! You are welcome to try again. But, next time, SHOW ME SOME DATA!

Also See -
For LOTS more information, click here & see my original reaction to this proposed bailout.

Please Register Your Opinion -
Please contact your representatives and tell them you oppose this bailout!

From the above link, I suggest you copy and paste the following into the form:

I oppose the $700 billion dollar mortgage bailout because the data do not support the thesis:
http://sbvor.blogspot.com/2008/09/700-billion-dollar-bailout-for-what.html

Act NOW! Congress will probably vote in just a few days (at MOST)!

700 Billion Dollar Bailout - Just Say No

Click the Cartoon to Enlarge:

The answer is a resounding NO!
1) Paulson’s claims regarding “the housing correction” are unconvincing.
2) I can find no data supporting Paulson’s claim of an “unprecedented” credit crunch.
9/29/08 Update: Was “The TED Spread” what panicked Secretary Paulson?
3) Click here for all my posts on why this is a terrible idea.

Click here to learn what caused this mess & read this commentary.
The Democratic Congress is already on a spending binge that we cannot afford.
And, it is a mathematical certainty that we CANNOT tax our way out of this!

Click here for more cartoons.