Topic: Why do/did banks need a bailout?

[billybobobrain]

How is it that no one can possibly conceive the possibility of this "Bail out" to be a front for consolidation of wealth!
Who owns the fed? JP Morgan chase Citicorp wells Fargo............... Blah Blah Blah. A why if that's the case did the fed drop their rate and US bank, Wells Fargo, Citi, chase, and the rest of the credit companies raise their interest rates on everyone? Its all a show. 

[BobbyR]

Well put Tower. TT you are correct banking is not the orderly universe Engineering is. They wired across the breakers and the whole thing melted down.

[Tower]

Hahaha the makings of an interesting analogy... let's see...
 - cash is like voltage,
 - which makes The Fed a generator,
 - regulations are like resistors, maybe variable resistors, or perhaps switches
 - customers must therefore be the load (say, light bulbs)
 - reserves and savings located in credit instruments (GICs, bank accounts) are like capacitors with different cascade values,
 - other credit instruments are like batteries, longlasting ones (mortgages) and very short ones (credit cards)
 - insurance is like wire with different gauge
 - investments are like transistors, diodes, triodes etc. depending on how they are designed can either step-up voltage, block flow (return), etc.
 - derivatives are like transformers, puts (step-down), calls (step-up)
Wired all together its the banking system.

So, Bobby, you might be right: They replaced the old resistors with ones that couldn't handle the load, put a few transformers into the circuit that drew off too much current, and the whole thing blew when one of the capacitors stopped working! (sounds like a bad ignition system)

[billybobobrain]

Hahaha the makings of an interesting analogy... let's see...
 - cash is like voltage,
 - which makes The Fed a generator,
 - regulations are like resistors, maybe variable resistors, or perhaps switches
 - customers must therefore be the load (say, light bulbs)
 - reserves and savings located in credit instruments (GICs, bank accounts) are like capacitors with different cascade values,
 - other credit instruments are like batteries, longlasting ones (mortgages) and very short ones (credit cards)
 - insurance is like wire with different gauge
 - investments are like transistors, diodes, triodes etc. depending on how they are designed can either step-up voltage, block flow (return), etc.
 - derivatives are like transformers, puts (step-down), calls (step-up)
Wired all together its the banking system.

So, Bobby, you might be right: They replaced the old resistors with ones that couldn't handle the load, put a few transformers into the circuit that drew off too much current, and the whole thing blew when one of the capacitors stopped working! (sounds like a bad ignition system)

Precisely. Exept the problems are being created by the rider in order to justify to the wife that he needs the new Dyna ignition.
Rider = fed
wife = Us

[edbikerii]

Excellent write-up Tower.  Very educational, and thorough.  My illustration was an attempt to keep things simple, a kind of 100 level course.  I think you've bumped it up to 300 level banking.

I only take issue with your characterization of all derivatives as "scary-ass-risk-bets".   There are a couple VERY dangerous derivatives (like selling naked put options), but there are also many very simple, very useful derivatives, buying simple call options instead of buying the stocks themselves, for example.  Options, used wisely, can actually help you elminate investment risk.  Heck, many derivatives are used to hedge investments such that you minimize the downside risk of owning a stock by also buying a put option that pays out if the stock drops, for example.

[Jerry Rxman Griffin aka MuthaF'er]

TT,

I have "Virtual Memory" of how much "Virtual Money" my 401K once was worth and now I hope it's still worth what I actually put into it. 

[Bob Wessner]

Excellent write-up Tower.  Very educational, and thorough.  My illustration was an attempt to keep things simple, a kind of 100 level course.  I think you've bumped it up to 300 level banking.

I only take issue with your characterization of all derivatives as "scary-ass-risk-bets".   There are a couple VERY dangerous derivatives (like selling naked put options), but there are also many very simple, very useful derivatives, buying simple call options instead of buying the stocks themselves, for example.  Options, used wisely, can actually help you elminate investment risk.  Heck, many derivatives are used to hedge investments such that you minimize the downside risk of owning a stock by also buying a put option that pays out if the stock drops, for example.

Personally, I would like to see all naked positions  banned.

[BobbyR]

TT,

I have "Virtual Memory" of how much "Virtual Money" my 401K once was worth and now I hope it's still worth what I actually put into it. 

Jerry, that is the problem a lot of people face. If what you were holding went down 20% and it is solid stuff you have to hold and ride it out. If we moved everything into something really safe but with low yield, we cannot buy back into what we had when things turn around. We would be selling low and buying high.
If we are now down 20% and we hold, we still have to gain back the 20% before we see any growth. In short, if this takes 3 years to get back where we were, we wasted all that time.
This is not too bad f you are in your 20s, but when you get into your 50's you don't have as much time to recover. I was planning to semi retire in two years, that may not happen now.   

[Bob Wessner]

Bobby, if you're only down 20%, you have done pretty well in the current climate. 

[BobbyR]

Bobby, if you're only down 20%, you have done pretty well in the current climate. 

It may be more like 25% which hurts. I took on a kid as my FA a few years ago. I am like an honorary uncle to him. You and I are about the same age. He moved most of my 401K into more conservative bond funds a year ago. They went down a bit, most of the loss was in Stock Funds. We left a bit in the market, and that has been the bulk of the paper loss. I truly wanted to retire when I turned 60 and go part time somewhere. That may have to wait. We shall see Bob. I have no idea how or when this crap will shake out.

[edbikerii]

Ha!  You guys think the market has been bad to you?  I got divorced about 19 months ago.

Stock market can't do #$%* to me.