Japan's malaise was prolonged by excessive government intervention, as was our own "Great Depression."

Sometimes the best medicine is simply letting the body work the way it is designed to work.

Dave - depends on which body you're talking about.

If you're talking about letting Wall Street work its own way out of this without federal intervention fine, I'm all for that.

If you're talking about allowing Congress to do its work and put this bailout in place thats a different story. That body was in need of major surgery long before the current fiasco came into play.

I'm not at all in favor of reading about "King Henry" in American History.

The methods used by Norway and Sweden seem preferable to me. It's not a big blanket buyout. Their govenments went into the banks and sorted the good and bad paper, selling the bad to bottom-feeders and keeping the good. They capitalized the banks that did not fail during this process...and life went on with greater government oversight. (Yes, some banks did fail. Is that bad?)

You cannot compare the Japanese financial system to the US. It is culturally, politically and sociologically an entirely different beast.

Although, of course, the idea of the company heads committing seppuku to atone for their corporate sins has its appealing side, LOL.

We could change our regulations and get out of this crisis without a direct bailout. But that would require some understanding of the financial system by Congress (and the taxpayers), which is unlikely.

Hi Turnage,

If you're talking about allowing Congress to do its work and put this bailout in place thats a different story.

Definitely NOT referring to Congress as a "healthy body system." It is, after all, primarily populated by attorneys (and No offense intended to our resident attorneys... who I believe will agree with me as explain that the one of the primary industrial cultures of the business of law is simply to resist and argue, regardless of authentic beliefs or values. A harmonious community void of strife spells starvation for lawyers.)

Our founding fathers intended Congress to be comprised of part-time amateur representatives who's livelihood was earned in their own local communities, in their own seperate careers (farming, building, printing, etc. etc.) Today we have an inward spiral of inbred corruption at the political cultural level (and I mean at EVERY partisan angle and side.)

Our current financial troubles are derived from government intervention, and we cannot solve it with more intervention. The banking failures are NOT because of runaway greed... runaway greed is naturally crushed by the competitive markets when there is no prevention of that competition occuring.

The very idea of the Federal Reserve handing down artificially manipulated interest rates (think about it folks) is the ULTIMATE core-corruption of the economic free market model. Its the floating turd in the middle of the wading pond. As long as we maintain the hallucination that any one person, or committee of persons, can come anywhere near the dynamic responsiveness in economic balancing that the naturally traded credit and bond markets can.... we are simply doomed to repeat this boom-to-bust cyclic swing, further & wider each time.

We live inescapably in natural cycles... we can learn to swing WITH them, or we can struggle... but we cannot escape them.

When people realize this, it is very natural to start asking oneself; "why are we paying for so much attempts to struggle???"

When this question is asked, politicians realize a pink slip is near.

This question (and the prevention of the common man asking it) is precisely the reason for the governmental scramble to create the urgency for their saviourism right now.

Cheers,
Dave Donhoff
Leverage Planner

Am I the only one who sees irony in a "Leverage Planner" criticising attorneys for stirring up trouble?

Hi Quandary,
They say a joke is no fun if you have to explain it... but I'm lost to the irony (perhaps that *IS* the irony???)

Can you spell it out s-l-o-w-l-y so that a "Leverage Planner" can understand it?

Gracias!
Dave Donhoff
Leverage Planner

Leverage is defined as the potential to increase financial gains as a percentage of an investment by operating or financing largely on borrowed funds, i.e. borrowing your way to prosperity.

Many people attribute this pending financial collapse to leveraging; by households, businesses and government.

Hi Quandary,
Fair nuff.... however;
A) Leverage is also defined as the extension of productive and defensive power.

B) The dangerous over-leveraging that occured did so due to the artificially government-reduced interest rates, and the artificially government-reduced appearance of actual risk (which, dramatically unfortunately, turned out to not be merely implied, but confirmed.)

C) Leverage itself isn't turning out to be the problem, but rather the significant mismanage of it by by a few over a large basis.

Leverage Planners don't have an industrial culture of "stirring up trouble" where there was none. Rather, good Leverage Planners design optimized safety for both current and future financials.

There's an age old joke (among volumes written) about/by attorneys; A small town may not have sufficient business to support a single attorney, but give them two attorneys and the courts will be full.

Leverage Planners have no adversarial culture. Our job is basically analogous to designing financial architecture. Give us a current balance sheet, the thorough interview of the personality it belongs to, and the current and future desired results, and we build the most efficient, safe and elegant path/plan to achieve it.

Cheers,
Dave Donhoff
Leverage Planner

Leveraging is a double-edged sword. It can magnify gains, but it can also magnify losses. Your convoluted response doesn't redefine an age-old concept. You can put lipstick on a pig, but it's still a pig!

Quandary,
What are you missing? Your "definition" was the one-sided view of leverage ONLY increasing profits... mine was the comprehensive inclusion of power and defense.

And stop playing dress-up with your pigs... its a waste of your time and just pisses off the pigs ;~)

Dave
(Lighten up... or are you an aspiring attorney?)

The nation and society of today is so different from the ones founded more than 225 years ago, that comparing them is irrelevant. Back then, the majority of people were generalists, making their living by their hands applied to the land. People survived by relying on themselves. Today, our great nation and society is unbelievably complex. We are specialists, and we have achieved a tremendous standard of living because of our specialization.

While we all might yearn for the simplicity of the days of our nation's founding, the world, our society, and our nation have fundamentally changed and evolved (or devolved, if you would like) from that of which it was so long ago. The rate at which change is occurring is increasing, becoming faster all the time. For better or worse we live in the world of today. We rely on engineers, financial experts, attorneys and scientists to make our collective existences safer, richer, more secure and progressive, while we all measurably contribute to society in our specialty of choice. We have done this because we collectively believe that by doing so, we do a better job of advancing our lives, and the lives of our children and their children. In the future, history will decide if these choices were wise or not.

It wasn't main street or congress that got us into this mess. People in the finance business brought this on us. They are the experts, we have been relying and trusting them for years if not generations. They screwed up. They didn't do it out of hate, they did it out of something even more fundamentally human - greed. They pushed the edge of the envelop too far and the whole thing ripped open and spilled out its contents. These folks are supposed to be the experts, and collectively they let the nation down. Now it's time to pick up the pieces.

This congress and executive should have stepped in long ago to fix the problem when knowledgeable financial experts pointed out the path we were on, but they didn't. Shame on them, and shame on us if we return them to office in November.

The financial experts who led the rest of us down this path of excess and greed must be held accountable.

This April 2008 article explains why we are staring into a black hole.

Here is a link that might be useful: Credit Swap Derivatives

Hi Brewbeer,

It wasn't main street or congress that got us into this mess. People in the finance business brought this on us. They are the experts, we have been relying and trusting them for years if not generations. They screwed up. They didn't do it out of hate, they did it out of something even more fundamentally human - greed. They pushed the edge of the envelop too far and the whole thing ripped open and spilled out its contents. These folks are supposed to be the experts, and collectively they let the nation down. Now it's time to pick up the pieces.

You're missing something critical here; The people in the finance business are naturally constrained by greed and fear, pleasure and pain, just like everyone else. Its a cutthroat business, and nobody can be greedier than the competition's ability to take away that person' slunch, else they will! In other words, competition itself is self-constraining. They can ONLY press the envelope to an unnatural extreme when the normal, natural contraints that would rebuff them were removed out of the way such that the "ceiling" is artificially raised beyond the natural market balances.

You can't lay this at the feet of the financial industry... the industry doesn't have the power to corrupt the natural constraints, to eliminate levels of competition, or to subsidize/lubricate one area of operation or another. ONLY governments have that capability.

NOW the government is trying to support its reason for existance and trying to justify a taxpayer's purchase of $700 Billion of trash that was created to fit the artificially distorted constraints that the government had created in the first place.

NOTICE; Warren Buffet just stepped up with $50B of "smart money" to surgically excise a very significant amount of weakness from the system by supporting Goldman Sachs... and Buffet took a very very dear "pound of flesh" from Goldman in return.

There is plenty more smart money on the sidelines where Buffet's money came from... certainly sufficient enough to stabilize the economic systems without government intevention (or our unborn grandchildrens' involuntary indebtedness) required at all... but the caveat to it stepping up is going to be a certainty that the government WILL NOT further defile the systems with further intervention.

Those truly responsible for the cause will never be held accountable... our electoral systems virtually assure that.

Cheers,
Dave

dave_donhoff: "You can't lay this at the feet of the financial industry... the industry doesn't have the power to corrupt the natural constraints, to eliminate levels of competition, or to subsidize/lubricate one area of operation or another. ONLY governments have that capability."

I disagree. The industry IS the power. This country is ruled by money and the ability to make billions...those who control that ability, control us....AND the gov't.

While Wall St. was indeed enabled and abetted by lack of gov't oversight, regs, etc....they continue to hold the nation hostage by manipulating the market to drop anytime anyone even breathes the word "regulation".

Case in point..the Dow rallied on the news of a bailout; as soon as noise was made about building in restrictions, oversight, etc...the Dow dropped.

Message? Bail us out, but don't even THINK about trying to prevent us from doing this again as soon as we mange to cook up our next ponzi scheme.

The entire finance system has been purposely and systematically engineered to operate covertly and in such a convoluted and often incomprehensible manner, with Gov't enabling and abetting the system...that most of the dirty deeds that generate millions or billions never come to light...or if so, it's too late..such as now.

The bottom line is that "Wall St." has lost its credibility as the "experts" who are those best suited to choose their own SOP's. While I am hardly a fan of government regulation...I can't really see any other way to at least try to prevent them from screwing with everyone again at some point in the not too distant future....and most important, to instill some basic level of confidence in the system.

Gov't regulates just about EVERY other profession much more stringently than this one...the SEC is pretty much a jokeÂand look what has happened. In addition, in respect to finance, the whole system is currently set up to foster and HUGELY reward fraud, deception and abuse...allowing penalty free activity that if you or I did the same, we would be charged with a crime.

Case in point...CEO OÂNeal, formerly of Merrill Lynch, who presided over the company while all of these shenanigans were going on. He is either a moron ÂÂor a thief.

Either wayÂhe ran off with millionsÂ....so far scott free...leaving us ALL holding the bagÂ.and he was THE key player in the ultimate demise of Merrill.

I don't profess to know how to do it...but the double standard MUST stop.

People and entities who know that they have little or no accountability should hardly be trusted with the finances that are the keystone to a healthy economy.

Either that...or just give everyone a free pass on fraud and call it a day.

Here is an interesting Op/Ed piece that is IMO, entirely on point:

*******************************************************
Commentary: Blame boards of directors for financial mess
Story Highlights
Nell Minow: Wall Street directors ultimately to blame for financial crisis

Boards approved huge pay unrelated to long-term performance, she says

Executives reaped enormous sums while shareholders suffered, Minow says

Minow: Shareholders should be allowed to vote on pay packages

By Nell Minow
Special to CNN


Editor's Note: Nell Minow is editor and chair of The Corporate Library, an independent research company specializing in corporate governance. Minow was named one of the 20 most influential people in corporate governance by Directorship magazine in 2007 and "the queen of good corporate governance" by BusinessWeek Online in 2003. She has written more than 200 articles and co-written three books. Since 1995, Minow has also written "Movie Mom," an online parents' guide to "media, culture and values."

Nell Minow says it's great when executives make a lot of money but only if they really earn it.

As big Wall Street firms topple like dominoes, there is plenty of blame to go around.

Failure this broad and deep takes a village, and regulators, lawyers, compensation consultants, auditors, executives, shareholders, and the press all played a part. But the people who are most responsible for the massive meltdowns of these institutions are the boards of directors.

Their sole responsibility is to act as fiduciaries for the shareholders in managing risk. They not only failed to perform this task but indeed, in their approval of outrageous pay plans with perverse incentives, they all but guaranteed the current disaster.

I am a capitalist. I love it when executives earn boatloads of money. But it infuriates me when they get it without earning it.

If the executives' compensation is tied to the volume of business rather than the quality of business, we should expect dealmakers to be more attentive to the number of transactions than the value they create. This is the basis for much of the sub-prime mess, whose collateral damage is taking down the biggest firms on Wall Street.

At Merrill Lynch, former CEO Stanley O'Neal received total compensation of more than $91 million for 2006, according to The Corporate Library's calculations. He was given that package based on performance numbers that came out before nearly $23 billion in write-downs by the company.

O'Neal received more than $160 million in stock and retirement benefits while shareholders lost more than 41 percent of their investment value over the year. Three executives brought in to Merrill less than a year ago will share a $200 million payment as they turn over the company to Bank of America in a last-minute deal to help it survive.

American International Group (AIG) replaced CEO Martin Sullivan after the company posted losses for two consecutive quarters totaling $13 billion. Sullivan's contract entitled him to about $68 million. His replacement, a board member who served as CEO for three months before the company was taken over by the government, will get as much as $7 million.

The boards of directors approved pay that was completely disconnected to performance. This, after all, is the world of the ultimate oxymoron: the "guaranteed bonus." So we should not be surprised that executives took the money and ran.

Fewer than 13 percent of public companies have claw-back policies requiring executives to return bonuses based on inflated numbers. All of the incentives are for them to inflate the numbers, take the money, and run.

And that is why companies whose names used to be synonymous with stability and trustworthiness will live on through history and business school case studies as discredited, greedy and corrupt.

The people who insisted that government regulation interfered with the perfect efficiency of the markets are now getting bailed out by taxpayers with some walloping welfare checks.

I just hope that this time the government does a better job of protecting itself than it did with its bail-out of Chrysler almost 30 years ago and this time insists on a piece of the upside rather than a fixed repayment. If the government is going to run a business, it has to act like a business and make sure its interests are aligned with the executives.

Despite the post-Enron adoption of the most extensive protections since the New Deal, a survey released this week by Kroll and the Economist Intelligence Unit found that corporate fraud rose 22 percent since last year.

The option back-dating and sub-prime messes show that even the post-Enron Sarbanes-Oxley reform law and expanded enforcement and oversight cannot eliminate the severest threats to our markets and our economy.

This proves that there are limits to structural solutions. Ultimately, markets are smarter and more efficient than regulation. What the government needs to do now is insist on removing obstacles to the efficient operation of market oversight.

Shareholders must be able to replace directors who make bad decisions and they should have a non-binding "say on pay" vote on executive compensation as they do in the UK and several other countries.

Our current system of executive compensation does not tie pay to performance, it does not provide an effective incentive to create long-term shareholder value, and it does not meet any possible market test.

Executive compensation must be looked at as any other asset allocation. The return on investment for the expenditures on CEO pay is by any measure inadequate.

Some have argued that the amounts at issue are so small in proportion to the assets being managed that they do not have any material impact. On the contrary, the CEO compensation in America's public companies is a leading indicator of serious problems -- and one reason my firm has consistently given most financial services companies "high-risk" ratings.

And it is more than a symptom of the pervasive problem that is toppling our most respected financial services companies. It is a perversion of the market that imposes enormous and growing costs on America's working families -- as shareholders, customers, employees, and members of the community.

These outrageous pay packages juxtaposed with losses in share value and jobs diminishes our credibility and increases our cost of capital. In today's global economy this is an expense we clearly can no longer afford.

But as Buffett himself clearly states, he would NOT have done a thing if he didn't believe that the bailout would indeed be passed.

The rich are different than you and me, as F. Scott Fitzgerald once remarked. For one thing, they can wait a lot longer in a game of financial chicken. Nomura and/or Barclays could easily have stepped in to save Lehman, but why bother? Allowing Lehman to go bankrupt meant they could pick up US assets for a song without incurring Level 3 liabilities that are - you guessed it - adversely affecting US businesses and individuals right now. So now several thousand Lehman employees will be classified as redundant and become unemployed.

Both Goodyear (who had to go get a short-term loan because they have money frozen in a Lehman money market acct) and Caterpillar have had trouble raising money in the last month because short-term markets have frozen. This is a troubling indication of what will follow if something is not done. The markets are not liquid, and steps to improve the free market liquidity have not worked. When the free market no longer works, then government does become the lender of last resort.

Doing nothing, as happened in 1929 in the US and 1989 in Japan, actually worsens the situation. Once people start being ruled by fear, it takes a large intervention to stop the herd mentality.

The cost to Main Street in the Dow decline, the collapse of Lehman and AIG (116,000 employees, BTW), is already in over $1 Trillion. How many people are afraid to look at the balances in their 401/403 plans this month?

The US is still pre-eminent in global markets, but the combined wealth outside the US now overshadows our domestic assets. Arguing whether this is good or bad is irrelevant, it is what it is, and simply the way history plays out.

If you want to let the free global market price US assets at zero, then scoop them up because there are fewer and fewer domestic players to compete with, and have more money go offshore than even outsourcing has done, then indeed, don't support the bailout plan.

The bailout plan will be flawed because Congress is busy tinkering with it, milking it for all the political grandstanding they can manage (the global temperature must have increased several degrees from all the hot air coming out of Wash DC these past few days, LOL). But if the markets will not accept a floor price for CDO and CLO assets, then the government must do it to start liquidity moving again.

As I have mentioned before, the taxpayers made money on the Chrysler bailout and made money on the Resolution Trust Corp. We will most probably make money on the AIG loan. When Caterpillar is shocked that they had to pay 350 basis points for short-term liquidity, how do you think AIG feels that they have to pay the government 850 basis points for the loan no foreign national was willing to give them?

Right now the market is frozen because people are afraid the assets are worth zero. That is a ridiculous assumption and yes, the government could temporarily change regulations to establish a floor price for these assets, allow recapitalization to build up over a 5-7 yr period, and change some accounting rules - combined these could **possibly** solve the problem without taxpayer intervention. As chisue has mentioned, the governments of Sweden and Norway managed an almost identical problem without need for a bailout. Whether you could get such rule changes passed through Congress without altering them unrecognizably, however, is a large unknown. One only has to look at the US Tax Code to know that when Congress is allowed leisure time to "fix" problems, they invariably trip up everyone.

Emergencies like this are what the Treasure and Fed are for. It is their mandate for existing. We are fortunate that we at least have qualified people in those positions at this time. Paulson did not want this job and is more a free-market capitalist than probably anyone on these boards. As the AIG loan proved, he is a top-notch negotiator for the government, and if allowed, can help set up terms and conditions favorable to the taxpayer far better than anyone in Congress has ever proven to do.

OT: I want to beg the favor of everyone's insights for a personal question. Please see my post on "Household Finances" forum, titled 'Seek Wisdom of Crowds...' and give me your two cents worth. I'm feeling frozen up, sitting on a matured CD and some MM funds, watching my nest egg shrink to below the cost of eggs in the supermarket!