Bailout Rejected, Stocks Crushed; What Can You Do With $700 Billion?

Congress will be voting on the bailout bill again tomorrow and I hope it doesn’t pass. I can’t condone such an enormous sum of money in the form of what is essentially a blank check, to save these financial institutions who have run themselves into the ground. When a business fails, it fails; our government shouldn’t be handing out lifelines that we cannot even afford.

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“Even before the opening bell, Monday looked ugly. But by the time that bell sounded again on the New York Stock Exchange, seven and a half frantic hours later, $1.2 trillion had vanished from the United States stock market. What had started 24 hours earlier, with a modest sell-off in stock markets in Asia, had turned into Wall Street’s blackest day since the 1987 crash. The broad market, as measured by the Standard & Poor’s 500-stock index, plunged almost 9 percent, its third-biggest decline since World War II. The Dow Jones industrial average fell nearly 778 points…Across Wall Street, no one could quite believe what was happening on the floor — the floor of the House of Representatives, not the New York Exchange.”
[For Stocks, Worst Single-Day Drop in Two Decades via the NYT]

“Stocks had fallen from the get-go Monday morning. In addition to expectations for the bailout, there was also news that troubled Wachovia had to sell its banking assets to Citigroup. A number of European banks also collapsed.” [Stocks crushed via CNN]

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The effect of the U.S. financial crisis on the global economy:

• Bailout plan rejected – supporters scramble via CNN
• Global markets rocked by US bailout rejection via ABC
• Global banks expect to fall under U.S. bailout umbrella via IHT
• Bank bailouts sweep Europe via CNN

“Global central banks scrambled to relieve a severe squeeze in money markets by more than doubling the amount of dollar funding to $620 billion as banks hoarded cash, bracing for more trouble ahead in the worsening credit crisis.”  
[U.S. bailout blow triggers stampede to safety via IHT]

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According to the latest issue of TIME magazine, this is what you could do with $700,000,000,000:

• Give each person in the U.S. $2,300
• Pay the income tax of every American making less than $500,000
• Fully fund the Defense, Treasury, Education, State, Veterans Affairs, and Interior Departments – as well as NASA
• Buy gasoline for every car in the U.S. for 16 months
• Buy every NFL, NBA, and MLB team, build each a new stadium, and then pay the players $191 million a year
• Or, you could pay off 7% of the $9.8 trillion national debt

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Also, these 7 Questions About the $700 Billion Bailout are answered via TIME:

1. Will it really cost $700 billion?
2. How long will the money last?
3. Is this kind of bailout unprecedented?
4. How will the Federal Government know what price to pay for the mortgages it buys?
5. What happens if the cost tops $700 billion?
6. Will all of the federal wheeling and dealing come with transparency and oversight?
7. Do the Wall Street executives get to keep their bonuses?

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A recap of the last two weeks (the ones that broke Wall Street): The crisis: A timeline via CNN

A “Brave New World of Digital Intimacy” With Social Media Networks

Taking a sidestep from the leadership and financial disasters as of late, I read this intriguing article published earlier this month in the New York Times, called the “Brave New World of Digital Intimacy“. It offers great socio-anthropological insights into these new social awareness tools and delves into all aspects of their use. Some excerpts to follow.

On the aggregate phenomenon of Twitter/Facebook: “This is the paradox of ambient awareness. Each little update — each individual bit of social information — is insignificant on its own, even supremely mundane. But taken together, over time, the little snippets coalesce into a surprisingly sophisticated portrait of your friends’ and family members’ lives, like thousands of dots making a pointillist painting. This was never before possible, because in the real world, no friend would bother to call you up and detail the sandwiches she was eating…”

On the formation of weak ties and the pro/cons thereof: “As I interviewed some of the most aggressively social people online…many maintained that their circle of true intimates, their very close friends and family, had not become bigger. Constant online contact had made those ties immeasurably richer, but it hadn’t actually increased the number of them; deep relationships are still predicated on face time, and there are only so many hours in the day for that. But where their sociality had truly exploded was in their…loose acquaintances, people they knew less well.”

Why maintain an online presence?: “It is easy to become unsettled by privacy-eroding aspects of awareness tools. But there is another — quite different — result of all this incessant updating: a culture of people who know much more about themselves. Many of the avid Twitterers, Flickrers and Facebook users I interviewed described an unexpected side-effect of constant self-disclosure. The act of stopping several times a day to observe what you’re feeling or thinking can become, after weeks and weeks, a sort of philosophical act. It’s like the Greek dictum to “know thyself,” or the therapeutic concept of mindfulness….Having an audience can make the self-reflection even more acute, since, as my interviewees noted, they’re trying to describe their activities in a way that is not only accurate but also interesting to others: the status update as a literary form.”

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Social media networks are slowly, but surely infiltrating our lives. There have already been situations in which social media trumps traditional media in both accuracy & efficiency for the distribution of breaking news and emergency information.

• Student ‘Twitters’ his way out of Egyptian jail via CNN
• Facebook ‘more effective than emergency services in a disaster’ via the Telegraph
• Report: In Emergencies, People Turn to Facebook via RWW
• The Rise of Twitter as a Platform for Serious Discourse via RWW

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“I’m not sure what we should call this group of apps. Presence updaters? Microbloggers? Social networkers? ” [Jaiku/Twitter/Facebook/Kyte/Plaxo - Pay Attention! via WebProNews]

“Personal publishing is more than just text, it spans all media…Sites like MySpace and Facebook are better bigger than blogging sites because they enable people to connect, communicate and share with each other in richer and easier ways than blogging does.”
[Why Facebook is Bigger Than Blogging via 25hoursaday]

Social media networks take advantage of and cleverly fulfill the human need to communicate. At the moment, the only problem is that there are so many options – these social media websites tend to have distinct functions – that your online presence is doomed to be fragmented. You’d get social-media-overload from trying to maintain accounts on WordPress and Facebook, Twitter, Youtube, Dopplr, PlaceShout, MySpace, Jaiku or any combination of the slew of online applications available for communication, collaboration, multimedia, and entertainment. The other problem would be all of your friends’ updates saturating your mailbox or friend-feed.

“At what point do we finally peak and have some universal social media dashboard?…The Facebook news feed comes closest, but it only highlights some of the updates even from people I want to follow closely.” [To Twitter or Not to Twitter? via WebProNews]

“One day, I can imagine Google, Yahoo, and Microsoft offering full search/social/traditional media advertising packages that pull all of these things under one roof – a managed campaign offering.” [Microblogging: What Is It Good For? via WebProNews ]

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What we need next is something to organize all these different applications in one place. Facebook has the potential to become that all-encompassing social media network that will aggregate and sieve through everything. I suspect that in the future everyone will be connected to the internet 24/7, which by then, will be massively mobile social media network feeding us updates about people and events happening around the world…in effect, feeding us reality. (At least, that’s what I thought, before the layout changed and I was no longer able to find anything I wanted to access! Darn you, Mark Zuckerberg.)

We will be constantly connected to each other. Together we will form so many intersecting points in a politico-econo-socio-cultural web. The datastream will be instantaneous, perpetual and unbearable unless we are able to effectively collect & filter out all the noise. Something infinitely better than Facebook is necessary; there stands an incredible amount of profit for whomever can come up with the next best social news feed.

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Monday, September 22, 2008
Dow Falls More Than 370 Points Amid Bailout Skepticism
Stocks fell sharply and oil prices spiked, closing up more than $16 a barrel, as a battle seemed to be shaping up in Washington over the details of the biggest government bailout in history. The dollar also slid against the euro.
[via the NYT]

Still worried about the 700 billion dollar bailout plan, which now includes foreign banks. There’s a standoff in Congress. Take your time, guys, because that’s an incredible price-tag.

The $700 Billion Bailout

“Every day brings another financial horror show, as if Stephen King were channeling Alan Greenspan to produce scary stories full of negative numbers. One weekend, the Federal Government swallows two gigantic mortgage companies and dumps more than $5 trillion — yes, with a t — of the firms’ debt onto taxpayers, nearly doubling the amount Uncle Sam owes to his lenders. While we’re trying to get our heads around what amounts to the biggest debt transfer since money was created, Lehman Brothers goes broke, and Merrill Lynch feels compelled to shack up with Bank of America to avoid a similar fate. Then, having sworn off bailouts by letting Lehman fail and wiping out its shareholders, the Treasury and the Fed reverse course for an $85 billion rescue of creditors and policyholders of American International Group (AIG), a $1 trillion insurance company. Other once impregnable institutions may disappear or be gobbled up…”

“…How did we get here? How do we get out of it? And what does all this mean for the average joe? So take a deep breath and bear with us as we try to explain how financial madness overtook not only Wall Street but also Main Street. And why, in the end, almost all of us, collectively, are going to pay for the consequences.”
[How Financial Madness Overtook Wall Street via TIME]

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“Unveiling its plan to rescue the nation’s financial system from near-paralysis, the Bush administration is asking Congress for the authority to spend $700 billion and for powers to intervene in the economy so sweeping that they have virtually no precedent in U.S. history. The proposal , set out in a spare 2 1/2 -page document sent to congressional leaders Saturday, would in effect allow the Treasury secretary to set up a government investment bank to buy up the billions of dollars of the mortgage-backed securities now clogging the arteries of the global financial system.

The dollar figure alone is remarkable, amounting to 5% of the nation’s gross domestic product. But the most distinctive – and potentially most controversial – element of the plan is the extent to which it would allow Treasury to act unilaterally: Its decisions could not be reviewed by any court or administrative body and, once the emergency legislation was approved, the administration could raise the $700 billion through government borrowing and would not be subject to Congress’ traditional power of the purse.”

[Tab for financial bailout: $700 billion via LA Times]

Washington is racing to pass a historic intervention – and there are still more questions than answers. [$700B bailout: The latest via CNN]

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“Let’s assume for now that Paulson finds a mechanism to extract the poison from the banks, without enfeebling them in the process. Can we all then breathe a sigh of relief and assume our economic prospects will improve markedly? Sadly, I don’t think so. Banks, money managers, controllers of trillions of dollars on behalf of the cash-rich states of Asia and the Middle East have all had a painful lesson in the meaning of risk over the past fortnight. They will for an extended period – possibly years – be less willing to fund our banks without demanding a significant increment in what the banks pay them. That’ll increase the cost of money for all of us, which will make most of us feel quite a lot poorer for some time. Also, you can kiss goodbye to the kind of financial creativity, innovation and competition that accelerated the growth of the UK and US economies over the past few years.” [Preston's Picks via BBC News]

The UK prime minister said on Sunday that one of the lessons from the global financial crisis is the need for international regulation to be brought up to date. Gordon Brown told the BBC: “We’re in a new economy, a global financial economy, the world is changing very fast, but the governance of the global financial system has not caught up with it and that’s what’s got to change.” [Paulson wants a speedy debt deal via BBC]

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• Winners and Losers in the Wall Street Mess via TIME 
• The downturn in facts and figures via BBC News

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Latest Breaking News Alerts from the The New York Times:

Saturday, September 20, 2008
Rescue Plan Seeks $700 Billion to Buy Bad Mortgages
The Bush administration is asking Congress to let the government buy $700 billion in troubled mortgages, according to a draft of the plan. The proposal would raise the statutory limit on the national debt to $11.3 trillion from $10.6 trillion.

Friday, September 19, 2008
Week of Tumult Ends With Stock Surge
Responding to moves by the Federal Reserve, the S.E.C. and the Treasury to stabilize money markets, investors bid stocks up sharply on Friday. The Dow Industrials closed with a gain of about 370 points.

Friday, September 19, 2008
S.E.C. Issues Temporary Ban on Short-Selling
The Securities and Exchange Commission issued a temporary ban Friday morning on short sales of 799 financial stocks, following a similar action in Britain the day before. Short selling — a bet that a stock price will decline — has often been blamed for forcing prices down in times of market stress.

Thursday, September 18, 2008
Dow Swings Back, Closing Up About 400 Points
Investors jumped back into the stock market Thursday afternoon after the world’s central banks embarked on a coordinated effort to ease the fear coursing through the global financial system, sending the Dow industrials up more than 400 points. Still, there was little relief from the paralysis that has gripped the credit markets.

September Wall Street Woes

Failing investment, insurance, and financial giants are selling themselves like no tomorrow. As if our housing crisis (so many foreclosures) wasn’t enough – there goes our national economy. The next president has a lot of work to do.

On the up side, Bank of America, now has largest brokerage in the world after the acquisition of Merrill Lynch. I’m glad that my bank is doing well, unlike WaMu), for example. Anyway, here is the month of September, as presented by a selection of Breaking News Alerts from the The New York Times.

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Wednesday, September 17, 2008
Stocks Plunge; Dow Off Nearly 450 Points
Stocks fell sharply as the Federal Reserve’s rescue of the giant insurer A.I.G. failed to calm jittery financial markets; prices for Treasury bills, gold and oil rose sharply.

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Tuesday, September 16, 2008
Fed to Give A.I.G. $85 Billion Loan and Take 80% Stake
In an extraordinary turn, the Federal Reserve agreed Tuesday to take a nearly 80 percent stake in the troubled giant insurance company, the American International Group, in exchange for an $85 billion loan.

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Tuesday, September 16, 2008
Fed Leaves Key Interest Rate Unchanged
The Federal Reserve said the strains on the financial markets have increased significantly, but it kept its key short-term interest rate unchanged at 2 percent.

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Monday, September 15, 2008
News Alert: Dow Closes Down More Than 500 Points
The Dow Jones industrial average fell more than 500 points on Monday in the first day of investor reaction to some of the most dramatic developments in the history of high finance.

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Monday, September 15, 2008
Crude Oil Declines, Trading Below $100
After more than six months in triple-digit territory, oil prices dropped sharply, falling under the symbolic $100-a-barrel threshold as financial woes raised concerns about slowing oil demand.

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Monday, September 15, 2008
Dow Falls 300 Points Within Minutes of Opening
The Dow Jones industrials fell more than 300 points shortly after the open as the markets reacted to turmoil at major Wall Street investment banks.

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Monday, September 15, 2008
Lehman Brothers Announces It Will File Chapter 11 Bankruptcy
Lehman Brothers, the storied Wall Street securities firm, announced on its Web site early Monday that it will file for Chapter 11 bankruptcy protection.

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Sunday, September 14, 2008
A.I.G. Seeks $40 Billion in Fed Aid to Survive
The American International Group is seeking a bridge loan from the Federal Reserve as it faces a potential downgrade from credit ratings agencies.

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Sunday, September 14, 2008
Bank of America in Talks to Buy Merrill Lynch
Bank of America is in advanced talks to buy Merrill Lynch for $25 to $30 a share, people briefed on the negotiations said on Sunday.

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Wednesday, September 10, 2008
Lehman Sees $3.9 Billion Loss and Plans to Shed Assets
The struggling investment bank Lehman Brothers said that it would report a $3.9 billion loss for the third quarter and would sell a majority stake in its investment management unit as it struggles to stay afloat.

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Monday, September 8, 2008
U.S. Takeover of Mortgage Giants Lifts Markets
Following rallies in Asia and Europe, the Dow Jones industrial average jumped more than 340 points, or about 3 percent, within two minutes of opening.

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Friday, September 5, 2008
Government Preparing Plan to Seize Fannie Mae and Freddie Mac, Officials Say
Senior officials from the Bush administration and the Federal Reserve informed top executives of Fannie Mae and Freddie Mac, the mortgage-finance giants, that the government is preparing a plan to seize the two companies and place them in a conservatorship, officials and company executives briefed on the discussions said.

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Friday, September 5, 2008
Economy Shed 84,000 Jobs in August; Unemployment Rate Jumped to 6.1%
The government said Friday that the American economy lost 84,000 private nonfarm jobs in August, the eighth straightmonth of job losses. The unemployment rate jumped to 6.1 percent in August, the highest in nearly five years. Both figures were worse than economists had forecast.