My prediction if a bailout isn't passed is that some more banks will possibly fail.  We will have a lot of consolodation in the market and emerge with a few big banks that are able to weather the storm (the will end up splitting back up into smaller banks, owned by a parent bank, that are more managable).  Congress will enact some more regulations, probably too many this time but eventually a happy medium between under and over regulation will be reached.  The credit market will contract a bit, the average American will have to start taking lessons from their parents and grand parents on how to actually live on a budget and live within their means (like people did after the Great Depression).  The days of living off of credit cards will be gone, at least for a while.  Prices will start to come down a bit as the market actually corrects itself and deflation sets in (assuming the Fed doesn't do anything to F it up).

Then after one to five years everything will naturally reach a plateau and things will stabalize.  Then the market will start it's gradual march upward.  Yes those years will be painful for some, unemployment will rise a bit but as time goes on stability will increase.  The market that rises from the ashes of this crisis will be stronger for it.

Now all of this will never happen because a bailout will happen, obviously more work is needed on the current one but eventually the House and Senate will have enough senators and representatives on board to pass the thing no matter how many people like myself object to it.

It's kinda ironic considering some spent a lot of time claiming the Bush administration never listened to the Majority and yet here we are with not only the Bush Administration but the House and the Senate ignoring the Majority yet again. I say we whther the storm. It may actually not only fix the economy in the long run but may also bring people together by having the need to depend on each other for support and more during the hard years that will follow.

Better to fall, get back up and learn a lesson rather than never hit the floor due to a cushion and get up to expect to be cusioned again next time around.

I agree, we need to just let the market fall.  It's not like it will fall and never get back up again.  Think of it like a kid learning to ride a bike, you have to let go and let the kid fall down a few times and eventually the kid will learn not to fall.  Yes the market is going to hit hard when it falls but it will rise up again and changes in policy will be made both by the industry and congress to prevent this kind of thing from happening again.  Those on wall street can't complain about having too many regulations to the point that the regulations are removed and then when things get bad expect the government to be there to bail them out.  You made your bed now lie in it.

Yes....Just watch the market. The big investors are waiting on the sidelines because they know how much safer their investments will be if this bill goes thru. Once is does you will not only see the financials rise but you will also see the big investors willing to infuse large sums of capital into these institutions in the form of new initial offerings. These are those that don't buy current shares but buy new shares with warrants and options. If it doesnt go through many businesses that use short terms loans to make payrolls or buy the goods that they resell will go down very quickly. Many small businesses that do this have already closed their doors in the last 2 weeks because of this.  It is short term lending credit which is frozen. Once the mbs' are swapped for treasuries it in affect opens the banks/financial institutions/companies books.  They then have treasuries which are easily valued and easily traded so they will be able to not only have the liquidity they need to offer/receive short term loans but also have better transparency so that the big investors will be more willing to infuse new capital into them.

Face the facts...we will be seeing a recession even if this goes through. The next decade is not going to be good, but if this bill doesnt pass(or some version of it) it won't be a soft landing but instead a very hard one.

Take a look. You are seeing big banks fail and also seeing bigger banks that are in trouble absorbing the others with the help of the fed and treasury. CityGroup which just took over Wachovia is in trouble, they had a large amount of writedowns last qtr.  They are consolidating because they expect this deal to go thru. This is much worse than you think. If you go to the FDIC website there is good information about this. In any case a lot of the banks that are in trouble are ones that have high percentages of commercial loans, in particular loans to developers in overbuilt areas.

All the banks fail and America is turned into a dystopian land a la Road Warriors.  After we craft crude armor from football gear at sporting goods stores and stock up on swords, guns and ammunition we will fight each other becoming a savage tribal like society.

~Zoo

At the Thunder Done?

Dome, sorry

Perhaps...but we'll need to build it before the economy collapses.

~Zoo

Seriously, what might happen in the worst case senario is a crude and brutal stop of the lending on the part of the banks, because they don't have the assets anymore to back those lending. Which means investment will stop, since you usually need to borrow money to start a business, buy a car, buy a house. People won't be able to do major purchases, and the economy will slow down to a near-stopping point.

No new business will be created until the banks will allow new lending, but that won't happen anytime soon, since the bankruptcy of banks creates a domino effect since they all have interests in each other. When bank X hits the dirt, all of the assets people put in it are scrap. So if Bank Y put a few million in assets in Bank X, Bank Y might also bankrupt. But then, Bank Z who had put assets in both Bank X and Y, who could have survive with only Bank X's bankruptcy, now is in deep trouble, and will probably die too.

People won't trust the banking system anymore, and will try to take all their saving into hard cash. But that will create a strong inflation movement, as liquid cash will be over-present in the market. We are looking - in the worst case - in a new major depression. People who loose their jobs know they won't be able to have a new one anytime soon, since no new business will be created. It's a big vicious cycle that might take 10 years to get out of.

the "Majority" isn't right in that case. Even if people don't want to save the banks and the financial system, they just don't understand what not saving them will do to their economy. Populists are using words to scare the majority and anger them into not saving the financial sector, and worst of all, we are in the middle of a major election!! So you see people on both sides either trying to win political points or trying to save their political asses, and that might cost America a lot. I said America? I meant the world.

I heard that same thing after Black Monday in 1987. Sure there will be pain, longer for some, shorter for others. The US GNP is currently $14,408 Billion (upated today). $700 Billion is a big chunk, sure, but it only hurts if the economy stays flat or shrinks over the next few years, which should occur if president Obama puts his campaign promises to work for his friends the American people.

But what you aren't seeing is that this entire problem has a relatively simple solution that doesn't involve a big government bailout (and notice I said relatively simple not just simple).  The banks that made the bad sub-prime loans need to sit down with the people either in foreclosure or close to it and restructure the loans.  They need to make these loans easier for people to pay, make them affordable even if it means extending the term of the loan 80-100 years.  If they do that then the banks will once again have money coming in that they can count on and use to make other loans.  Yes the payments won't be as high as they had originally anticipated but having a little money coming in is better than none at all and/or a house that you can't sell.

This should have been done a year ago but the banks were too stubborn or unwilling to deal with the complexity of restructuring the loans.  I'm not saying that it'll be easy but it would solve the problem with as little pain as possible and no burden on the tax payer for a bailout.

Don't think so. It was a very different situation back then. Not to mention that this is something that has been tossed around well before the current credit crunch situation surfaced. And not from the political rhetoric but more from economists and the investment community. Never mind a 700 bill bailout....thats small potatoes compared to the fact that the boomers start to reach retirement age in 2 years and the % gdp we spend on medical care continues to grow.

That is totally seperate from the bailout issue. The problem is that these mbs's are sliced and diced pieces of revenue streams from various mortgages so they are seperate from the mortgages themselves. So even if you fix peoples mortgages you still have a bunch of banks and companies that are sitting on illiquid mbs's.

Theres many different problems going on......Many of the foreclosures were situations where people simply walked away. Some of the mortages have very high early payment penaltys, etc. But as I said above the credit crunch is due to the mbs's which cannot be solved by renegotiating mortgages.

You.... don't seem to understand the problem.

It's not the mortgage themselves that launched the nuke on the markets, it's the commercial papers. It's a derivative products based on the different mortgage. For example, if I wanted to invest (me, a small peticular) into people's debt, I might have bought commercial papers from Bank Y. Bank Y that way load off the debt people contracted to it by selling it to somebody else. In theory, that was fine (and a darned good idea, since it allows Bank Y to allow more credit, but let's come back later).

The problem is, people who bought those derivative on debt expected some good return on their investment. When the house bubble popped, many people couldn't repay their mortgage. It's not Bank Y who suffered the brunt of the popping, but the people like me who invested in those commercial paper. I effectively accepted to bear the risk of the mortgage default. (I agree with many people that the financial sector has been reckless with those financial products. I'll explain it at the end of my post). So, even if Bank Y re-negociate the mortgage with their failling customers, the people who invested in derivative debt are still screwed hard, since what they bought just lost a lot of value (a LOT).

It gets worse. A derivative on debt was effectively considered debt for asset allocation on many investment firm/bank, so they used a lot of those assets to cover their own lending. Why? because debt is supposed to be "safe", specially when you invest in AAA-grade debt. But now, many people lost a lot of money and companies are having the domino effect I am showing up-there.

The worst action Wall Street took was to rate the quality of derivative product based on the bank that emmited them, and not the base-mortgage. If Bank Y (with a perfect rating of AAA) accepted to mortgage to someone who just got out of jailed, have a lot of financial problem, etc.. etc... because the interest rates were awesomely low (thank you, Fed 2002), then the derivative products on that mortgage would have been rated... AAA. And not as a "junk debt" as it should have been. There have been some SERIOUS wrong-doing in that peticular case, and I seriously hope we do something about those rating firm in the future.