September 19th, 2008
12:18 PM GMT
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LONDON, England – If I had a pound for every time that someone has asked me to explain what "short selling" is over the past 24 hours then I'd be able to help the banks out of their "toxic" debt problem. I wrote at the start of the week when Lehman Brothers collapsed, despite frantic efforts to save it, that I'd never known a weekend like it.

Well, it's now Friday and I can firmly say that I've never known a week like it either.

Who'd have thought that in the space of just a few days we'd see two Wall Street icons effectively disappear; one of the world's biggest insurers being rescued by the US government; plummeting share prices; Britain's biggest lender forced into merging with a smaller rival; central banks riding to the rescue of a paralyzed financial system; a ban on "short selling" in Britain and the U.S.; and American authorities announcing a plan to rid banks of their debt?

I don't know about you, but this white-knuckle, thrill-a-minute week has left me completely exhausted.

But here's the thing.

Thanks to the relief inspired by news of the bailout plan - as I write at lunchtime in London - European share indices have bounced back to more or less where they were first thing on Monday morning.

Imagine this: a city trader has been away on a seven-day desert island vacation, away from phones and news media (unlikely I know – these people are permanently wired in, but bear with me on this.)

They will arrive back this coming Monday to find that colleagues are battle wearied and bruised, that associates have fallen by the wayside and that the financial landscape has completely changed.

But they'd also find that, eerily, share prices are pretty much just where they left them.

Surely they could be forgiven for thinking: "Did I miss something?"

soundoff (43 Responses)
  1. Mark in Dallas

    Where is George Bush in all of this? Do we still have a president?

    September 19, 2008 at 1:00 pm |
  2. tom cassidy-florida

    We have fought wars against socialism, now we are becoming the biggest socialized nation on the planet. We are rewarding failure. Sure the players in the market are happy about another bailout. If I go to Vegas and win I make money, but if I lose they keep my loses, if they give back my losses I'll keep playing and making money because I can't lose. As bad as it would be not to bailout these crooks, aiding them is worse. Take every executive of every failed or failing business and auction off everything they own and leave them penniless. This rewarding of failure is just nuts. Cover their victims not the greedy criminals. Its time for the taxpayer to revolt. LET THEM FAIL, ITS THE WAY THE SYSTEM WORKS.

    September 19, 2008 at 1:00 pm |
  3. S. Sandecki

    This "roller coaster" of a ride this past week has been exhausting. I can't imagine some of these traders lost a few years on their life span due to the stress they probably went through. I'm happy to see things coming back; but, I wonder what will be next? I hardly doubt this is the last "big wave" in the pool and we're going to get another "shock jolt" soon enough. Lets hope it's not on the level of the AiG situation.

    Investment & Finance Forum:

    September 19, 2008 at 2:03 pm |
  4. thanu panyaek

    The new crisis from U.S.make fear for the Retirement. In Thailand our culture we have a lot of money in fixed account.But if we look for the financial planner call " stupid money "

    September 19, 2008 at 2:25 pm |
  5. Annette

    .How can I believe any of the "financial experts" on cnn or any of the televisions shows. For over a year I watched the Saturday morning financial shows and any time that here was talk of a "real estate bubble" everyone played it down. I as a homeowner in the Los Angeles area could see people were buying homes that they could not afford. Now I have to bail out all of the rich people on Wall Street that knew what they were doing. Shame on all of the experts. What ever happen to investigative reporting? Any one can report on the disaster that has occurred the real reporter warns the public of the disaster that is coming

    September 19, 2008 at 2:32 pm |

    if the market goes up them it will go down, however all this market illusion is virtual as that does not meant that there are new jobs that you will get pay a lot more than before and in the end it is just psychological confidence that is being put into the market. ask yourself a question were is all this money coming from? who will pay for it ! not bill gates but Rather the tax payers. an does this change your phone bill or you gas prices. think the economy goes up the petrol goes up. the deficit goes up and china is only waiting to dump all his cash on someone?
    therefore nothing has taking place just illusions of grander and the credit crunch is now a lot worse than a week ago. therefore the middle class is no longer in existence however news and newspapers have sold a lot today. see you on monday

    September 19, 2008 at 2:52 pm |
  7. J from DC

    McCain has nothing on the Economy. We already know that Palin has nothing to offer. We watched that sad ABC and even sadder Fox interview this week.
    Obama made a real quality pick, when he selected Biden and everyone has forgotten that. Biden may not have gotten a lot of primary votes, but Palin didn’t ever run. She knew she wasn’t ready then. Biden may very well be the most qualified of all the candidates.
    The story that is missing in this whole news cycle is: Why Biden makes McCain so uncomfortable? I am in DC, and I still have not figured it out. I know there is something there, but I can’t put my finger on it. Even still, if you watch McCain closely, the signs are there.

    September 19, 2008 at 2:57 pm |
  8. J from DC

    McCain wants to fire Christopher Cox, the chairman of the Securities and Exchange Committee. However, McCain's economic advisor is Phil Gramm. The man who created policies, which has contributed greatly to this recent Economic Meltdown. Yet, McCain has not even fired him from his own campaign. Unbelievable! Maverick or Mouse.

    September 19, 2008 at 3:11 pm |
  9. Mike

    Yup... we're the only place in the world where we allow companies to privatize profits and socilize their losses. Within 3-4 year I can guarantee we'll be bailing out GM and Chrysler and maybe Ford as well for their horrible mismanagement in theri industries.

    Let these companies fail and offer them up on the auction block. Most have some good assets and some profitable divisions that competitors, who managed theri balance sheet and risks better, will be happy to buy up at $0.10 on the $1.

    September 19, 2008 at 3:20 pm |
  10. P Page

    Bail out the banks! Why? I have one of the stupid seconds on a million dollar property that I can not refi, they will not work with me and now the note is due. I had been told when we purcahsed the loan that this refi would be available but it is the only loan available for me, oh I now don't have the equity.

    Well guess why! they caused the housing market to fail giving these crap loans to people like me I was forced to take. Why? I am a builder and I am sitting on other properties now because of their crooked lending practices that have stopped sales.
    Bail me out! I'll close my business and take a huge buyout package due to me. What crap!!!! CEO's receiving 15 m when they close their doors,
    Does anyone want any property? Ive lost millions and still make my mortgage payment. It's the banks fault not mine, bail me out first, I'll spend the money to restart our community, I don't think wall street or the mortgage lenders will be around anytime soon.

    September 19, 2008 at 3:21 pm |
  11. Scott

    As a physician, if I acted as irresponsibly and with the poor judgment of the goof balls on Wall Street, I would not have a license to practice.
    Some people need to go to jail around this. Also, what about the payoffs to Congress made by Freddie and Fannie that led to them ignoring these problems. That system needs to change and some of them need to go to jail. As a physician, I can't even get a pen from the pharmaceurtical industry anymore due to the appearance of corruption.

    September 19, 2008 at 3:31 pm |
  12. William Fairbank

    The bottom line is who pays for all of this and in what way will they pay? It all looks as if nobody got hurt and nothing really happened but is that true or is it an illusion that we get to find out about in the near future?
    How will all of this affect the US and World economies?
    Would someone please answer this!

    September 19, 2008 at 3:45 pm |
  13. Mike R

    So, "we" are going to spend about $1 Trillion bailing out Wall Street? How about we now commit $1 Trillion bailing out owner-occupied homes in foreclosure and another $1 Trillion bailing out everyone who owes on their credit cards?

    Plus, who is going to pay for this mess? Current taxpayers? Doubt it! No one is willing to raise taxes enough to cover $1 Trillion. Guess I need to let my three daughters know what they really have to look forward to.

    September 19, 2008 at 3:48 pm |
  14. Victor

    I agree with Mike and Scott. Our representatives are too quickly in agreement that the tax payers should pay for private greed. I fear this is the end of our republican form of government. This election will choose whether America's problems will be solved by representative government or a socialist government. And if socialist, God help us all, because tyranny will soon follow.

    September 19, 2008 at 4:14 pm |
  15. Chris

    These investment bankers have been happily rolling out tons of money in bonuses to their lofts and pads in the Hamptons over the last wo decades. Nobody is going to ask them to give back their margin on the reckless deals that are now exloding into the taxpayers' face. They will definitely have the last laugh.

    September 19, 2008 at 4:39 pm |
  16. Lorenzo

    How the US are going to manage its enormous debt now? By borrowing more? With a worthless dollar? Good luck guys!

    September 19, 2008 at 5:00 pm |
  17. Heidi

    Thankfully, I don't have a mortgage or anything that I am trying to refinance but I am still trying to grasp this so-called American dream that seems so readily available to anyone who isn't a naturally born citizen. This latest bail-out does not help me at all. Gas prices are INSANE, groceries are getting higher every day and now, since the banks are all on edge about lending any money, any chance I had of getting a used-car loan (to get better gas mileage) on blemished credit is beyond the moon at this time. So, like you, I am stuck. I can't thank Pres. Bush enough for sitting idly by while the gas prices continue to rise, therefore cutting into Americans' cash and our ability to buy – anything! For acting like this information happened overnight. (Really? Isn't CNN available at the White House?) For making sure those effected by Hurrican Ike have relief, even those in Ohio who have been without power since Sunday! Thank you Pres Bush for rewarding people who make more money in a year than they will know what to do with for the next 10+ years. Until then, I will dream of driving a fuel-efficient car, one day being able to own/afford a house and going out to buy groceries and goods to suit my fancy. Yes, until then, a naturally-born American Citizen, will sit and dream of what could have been.

    September 19, 2008 at 5:12 pm |
  18. claude Heater, San Francisco

    If Henry Paulson is the fox from the hen house of the securities industry and listens to Bush and Rove, how do we know that this isn't another Republican ploy to buy time until the election and let the public think that the 'toxic' waste is being handled when it isn't handled any more than the 'toxic' waste from our Atomic Reactors that no one wants dumped in their backyard. Paulson knows that what these institutions have done slicing up this 'toxic waste' and selling it with AAA ratings (by more foxes in the hen house) is just too complicated to figure out before November 4th! The Republicans believe the 'end justifies the means' and the market must look good the first weeks of November!

    September 19, 2008 at 5:17 pm |
  19. jf

    well, the american stocks aren't too bad off either. seems to me that, well, maybe the fundamentals of the american economy are just a tad stronger than obama thinks they are. yeah, we've got problems, and we've had problems before too, but we've always fixed them and come out stronger. seems pretty sound to me. i for one don't believe that the sky is falling.

    September 19, 2008 at 5:38 pm |
  20. Fedor

    It seems that problems occuring in economy are much deeper than we see in the "real estate bubble" blow. Perhaps economy of debts cannot work longer. Just a little touch to the system of morgage loans influencing world economy now. We all are in the circle of dollar turnover which is not covered by anything but faith. System of getting goods and fuel for green paper shits and promise of military forces support starts to collapse. Anyway it will recover much faster than we can foresee and will continue consuming world's treasures. Obviously we all are intersted in this scenario.

    September 19, 2008 at 7:53 pm |
  21. bc from nyc

    To J from DC: you're on to something. Keep us posted.

    September 19, 2008 at 8:01 pm |
  22. Roger Beckett

    So much for the Conservative mantra about a "free market" being the most cost-effective for the rest of us,

    September 19, 2008 at 8:04 pm |
  23. Penny Centanni

    What is wrong with our goverment? Why is it always the little people that always gets penalized with more taxes? The rich and powerful always come out smelling like a rose. They should be held responsible for what they have created. "Not us the peons". We should not fix their mistakes. The President and the republicans need to be stoped. It's time to get a demacrate in there. Someone who can stand up and really hear us and our cries for help and then do something about it for us. Bush and his oil buddies started things going down hill. It all stems from greed. It's time for America to wake up before it's to late.

    September 19, 2008 at 8:11 pm |
  24. Thomas Anderson

    I just finished law school where I learned with interest how directors and executives of public companies will be fined, disqualified, barred and jailed if they infringe some financial legislation. It's true that what you learn in school and what you use in practice are two different things: in real life a Director gets a golden hello on joinining and a golden parachute when his hair-brained, dim-witted ideas fail causing untold hardship for millions. I am yet to be inducted into the legal profession but I am already a cynical of our comical laws. I say fine them, make them bankrupt and jail them.

    September 19, 2008 at 8:30 pm |
  25. Bill in Illinois

    I am outraged that my tax dollars are being used to bail out the greedy and self centered cretens who either wanted a larger home or material possession that they knew up front they could not afford and the bankers and loan sharks who fronted them a loan knowing full well it would never get paid. And not to mention the rich corporate heads and managers who are now slinking to some offshore haven while we in this country start to pay through increased taxes, loss of jobs and higher costs of living.

    This is not a bail out, this is jumping from the frying pan into the fire.

    The worst is yet to come.

    September 19, 2008 at 8:47 pm |
  26. Julia

    These wall street "icons" are failing because of their own stupidity and gambling. Why the hell aren't their executives returning their sweet bonuses and compensation packages? Why do we taxes payers have to fix their mess. They created this mess they should be the once to pay up first to fix it. If not, let them all fail. The market is its own best police and fix.

    September 19, 2008 at 8:59 pm |
  27. josh

    The American Economy is in trouble. Why are we bailing out the big companies when there is an easier and better solution? Give the money to the people. People that make less than 50,000 a year get IDK 25-50 thousand a piece to pay off debt and ultimately this money will end up back at the banks and will boost the economy. The people pay the taxes they should get something out of it.

    September 19, 2008 at 9:45 pm |
  28. Kevin O'Brien

    I would hope that sooner or later SOMEONE would begin to look at the mess that our economy is in from a differing perspective.
    We in industry have seen this for years, yet due to the political - that goes on in corporate America, it is hard to fathom that many of the "Leaders" in Industry and our financial markets today, are coming out of the fiasco that we are learning the MBA system is.
    Many of these "Leaders" are not "Leaders", they are quasy politicians that can not make a decision, or will not make a decision. When this happens, bad things happen.
    I believe this is a major underlying factor in this economy and with our companies today.

    If you want to focus in on why we move jobs overseas, give me a shout.

    September 19, 2008 at 10:05 pm |
  29. Cedric

    I have the best solution for our economic crisis here in the U.S., wanna here it? Legalize Marijuana!! Seriously. Just try it and see how fast this country will Rebound from this crisis.....

    September 19, 2008 at 11:41 pm |
  30. Liam Firth

    Instead of giving the money directly to the investment banks, give the money to the consumer to pay-off their mortgages. That will remove the "toxicity" from the mortgage pack securities and allow the investment banks to almost break even on their investment. Using this method allows the consumer to keep their homes and bails out the investment banks.

    The way they are doing it now only stabilizes the investment banks and leaves the consumer on skid row.

    September 20, 2008 at 12:33 am |
  31. Trev G

    Correct me if I'm wrong, but is the U.S. economy not based on the ideas of a free market economy? Private enterprises compete against each other and companies that are not competive eventually fail. In countries that don't believe in a totally free market economy, where their governments subsidize a company's product, the U.S. has imposed trade tariffs on them, because the government claims they have an unfair advantage. I think the U.S. government has screwed itself in any future WTO case.

    Secondly, why are taxpayer dollars being used to bail out corporations that posted BILLIONS of dollars in profits, year after year, and year after year, paid little to no tax to the government? Are any of the CEO's of these corporations being fired? Or are the CEO's of Freddie Mac, Fannie Mae, AIG, etc still going to receive their million dollar bonuses? In a word, this is ludicrous. Even socialist nations like Canada would never spend tax payer dollars in such a reckless fashion... why because the average person does not benefit from this. This bail out is not going to help people afford university, or health care. Another question, all the people that are going to have their mortgage foreclosed this month, are the banks now going to forgive them since they themselves have been given a clean slate by the government? I doubt it. So they'll be on the street just the same.

    Basically the U.S. has NATIONALIZED a number of large financial institutions. A small country called CUBA did this some 40 years ago and there has been a blockade ever since. It's time for a change people.

    September 20, 2008 at 2:18 am |
  32. Hugh

    there have been cries and tears since the Bush administration, and looking at MC Cain campaign with all Bush advisers behind him, I doubt what he could offer in this economic turmoil. If Obama did say the fundamentals of our economy are strong, everybody knows that this would have been an end of his campaign but without shame Mc Cain came in to justify himself and this was largely accepted as if there was just a simple declaration. Is it the way he will conduct himself in the White house same as Bush's doing. We are in a capitalism regime, not socialism where a taxpayer money is used to save failed businesses, what a nation where everyone agrees and no one to pull his finger in say enough is enough. Time's come to restore America leadership, the nation is known by its strong economy challenge not a war monger willing to attack Iran, then Syria, all that with a taxpayer money. Mc Cain/Palin, time's come to give up and let's people work to restore what's left before it becomes worse.

    September 20, 2008 at 5:50 am |
  33. Ven

    The friday blood bath is a treat to watch with speculators scrambling to cover their short positions and once again the financial pundits going Ga Ga on the skyrocketting of the index across the board.time being the fund managers nay the jokers who counts their thousand on hourly basis will be busy on their next move to keep the investment flocks together.I for one has decided to quit as the going is tough and life is sliced by half with weeks of pounding .well watch out the fund managers will scratch once again as the end is still elusive.

    September 20, 2008 at 6:48 am |
  34. johnny one dog

    I'd like to know who ultimately is responsible for this train wreck? Is it the mortgage banking industry thats central to it? If so, lets make sure they are shamed into not robbing us again.

    September 20, 2008 at 12:36 pm |
  35. andrew jones

    Everyone says this is a move towards socialism, I say No this is a move towards fascism. The people ate giving thier money to corporations and firms that were grossly incompetent. Let the economy burn, and from its ashes, a better system will arise. Do not rewards these companies for thier criminal incompitence. Lets have impeachment procedings agains any public official who were paying thier violins as the world's financial system burned.

    September 20, 2008 at 1:27 pm |
  36. Max Headroom

    "privatize profits and socialize their losses." Beautiful! That nails it on the head. Great job Mike. Taxpayer supplied targeted bailouts and a clamp down on speculation the stock market might just go down? this is craziness. I don't know how the US government, under amendment 14, can selectively pick and choose who to bailout. Then, I can only imagine the bank and insurance CEO's giddiness knowig the SEC just helped them make their jobs easier.. And for the crown jewel himself asking for $700B of taxpayer dollars to encourage the mortgage insurers to get back to doing what they do best: raking regular Americans over the coals.

    I agree with Dr. Scott but with these terms: if you establish a corporation that provides mortgage insurance and your not 100% capitalized against losses from ALL your holdings, then it's either stiff fines or jail time. If you're an investmen bank leveraged more than 15%...then it's either stiff fines or jail time. I'm sick of the greed and corruption on Wall Street.

    September 20, 2008 at 3:04 pm |
  37. Darwin Gauthier Canada

    As a Canadian entrepreneur I look to our southern neighbor in awe of the successes they can enjoy by force of the sheer numbers they have access to. In business they throw around billions as we throw around millions and a new number is heard more frenquently, a trillion. Thankfully for Canada, larger does not beget smarter. As an example we have one of our largest insurance companies involved in this financial fiasco but it represents only 1% of their 160 billion dollars worth of assets. I would not call their meager involvement an accident but instead a responsible management of risk. The CEO and Executives are no doubt rewarded with healthy incomes and bonuses and so they should be, because they bring value to the company and the shareholders, through smart choices. The CEO's and Executive of the financial institutions and insurance companies in the United States involved in this melt down, have not made smart choices but have nevertheless been rewarded with with large bonuses bases on perceived performance. Canada has one of our countrymen stripped of his many assets and sitting in a U.S. prison, and rightly so, all because of his "performance" that mirrors that of these US executives. Ours is a " Black" mark on Canada but a precedent that our large neighbor to the south should pay heed to.

    September 20, 2008 at 5:45 pm |
  38. Osa

    all of this talk about 'socialism' in this country has become hyprocisy: the federal government runs to the rescue to prevent the economy from folding in on itself. that's 'socialism' for those who don't have any clue about what socialsim actually looks like, and how socialism actually functions as a mechanism. and to take this another step further – read the constitution and understand that this country has always been a 'republic' and not a 'democracy'. as Such – a true republic acts to assure that such corrupt business practises 'NEVER' have the chance to create the beast of greed and corruption. this economic trend will continue UNTIL there comes the time when TRUE GOVERNMENT rises to the ocassion and creates a truly effective concept of 'capitalism'...

    September 20, 2008 at 6:09 pm |
  39. Tobias Gunny

    ok we can all agree we havent had a president since bush got into office... anyways, I strongly agree with the earlier comment. Capitalism is supposed to run on the principal of survival of the fittest. If every time a deformed bear cub was born, God came down and protected him from predators, the bear species would have extinct ages ago. These fascists need to be taken off of their green paper thrones...PERIOD!

    September 20, 2008 at 6:28 pm |
  40. John in Nigeria

    The US Govt sat back and watched, even encouraged the banks to loan money fast and loose, i assume to keep the economy humming along [so they can be re-elected] – they HAVE to bail these institutions out partly because the govt is complicit to the crime.
    Where is the money coming from for this bailout? Doesn't the average American taxpayer already owe about $38,000 USD in national debt? Who [in the govt] is willing to tell the truth, even confess to what has happened? Who is only trying to do the best thing for the country? I don't know.

    September 20, 2008 at 7:58 pm |
  41. Lior

    Let them fail!

    These losers mismanage their companies and get bailed out with OUR money? no way!

    If this "rescue plan" is approved, it will mean that the Dems helped to approve it. If that happens, I (and many other unhappy people) will NOT vote for Obama. If he votes for this plan, he is no different then the current administration.

    If Obama is smart, he will vote against the plan. He shouldn't help the Bush administration cover up their own problems.

    September 20, 2008 at 10:04 pm |
  42. Tess C

    The entire financial corporate management and structure are tainted and solely the ones to blame for this shameful scammed speculation. Wall Street in a extent nurtures brilliant yet distorted minds, avid to find “gaps” in regulations to risk their doomed betting practices, by granting them with high recognition and royal pay.

    Here’s something to pinpoint out of greed. Wall Street has always counted on the Government help. In such a highly interconnected financial market any gigantic meltdown of the strongest economy of the globe would cause a catastrophic disaster of world proportions. Wall Street knows that if hell breaks loose the FED has to intervene to “salve the planet” and clean up whatever mess they got into. With this in mind, they kept gambling heavily over toxic debts with the investors monies. As a taxpayer I feel appalled and insulted.

    Now, what?

    - What if this nearly trillion-problem-solve-bailout doesn’t work effectively as expected? Nobody really knows how deep and insolvent this hole is! Despite the technology, every bet in Wall Street is basically an assumption.
    - What if the Government is just opening a dangerous precedent for an endless pattern of wrongdoings?
    - Why the Government did not step in so fiercely to save the housing-mortgage owners?
    - Why the billionaire Wall Street gets the best chunk of federal resources while small businesses and taxpayers count on just little or no financial protection?

    Are the taxpayers to blame? You bet.

    September 21, 2008 at 12:29 am |
  43. Jonas

    Well, when we only let the people who yell with the biggest voices rule our society, this is what we get. The smart pretty boys on wall street as well as other places on this earth have cheated the mind of the rational thinking man. Just becuase your name has an MBA behind it, it does not mean that one will understand everything about economics. So know the east is becoming more rich and we in the west will have to think about how to pay our huge debt back. What a bad situation to be in. The lesson here is that the free market can not and will never be the solution each time. This also goes for the invisible hand, which all the economists like to talk about. The free market always needs to be regulated in order to protect our societies. Remember this when you vote ;o)

    September 21, 2008 at 2:53 am |

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