Economics is not the solution to the problem. The value of your house is not the only protection you are getting from the plan. I already provided other examples as to what is at stake here and what is being saved in a few posts in this thread so Im not going to be bothered to say it again. How are you going to prevent people from panicking if their savings aren't worth jack ***** and they begin running to the banks to pull out their money because they don't feel that it's safe there anymore? Credit may not have dried up yet for those who have excellent credit, but credit is getting tighter by the day. It's not moving in the other direction. The system will fail if there is a lack of liquidity in the market. I'm sorry but your "invisible hand" theory will not work in this situation.
Oh God no. Another horrible part of this bailout is that it's going to continue to prop up bubble pricing. If your house is overvalued, it should lose value for the health of the country as a whole. Maybe some less wealthy people who have saved will be able to afford housing whenever this credit crisis is over with. Refer to my alternate bailout suggestions thread. We can do this without touching a single bad loan. It'll cost less and distort the market much less. And I'll give the first few unemployed bankers who make it down to Texas a job. It won't pay as much, but it pays enough to support a family, and we'll even buy the handtools for them. I desperately need laborers, and they'll get the satisfaction of knowing that they are contributing to real economic growth through increasing the country's productivity, instead of just making sure that their people get their share of the pie.
RHAD, I think someone summed it up nicely - just b/c its necessary doesn't mean you shouldn't be mad as hell at this. Wall Street deserves its share of the blame and realistically, their business models are finished - they made all this money b/c they were able to borrow at ridiculous levels against a small base in assets. Now all those lenders are eating it too and those types of leverage will not appear again in our lifetimes. Purchasing 700B in loans is in no way going to bring back the rich days of Wall Street and all those guys will never see the bonuses they did in the past. Why? Because now they are going to have to operate like commercial banks and won't be anywhere near as profitable as they were in the past - again b/c they'll never be able to get the leverage they had in the past. Think of it as when you file for bankruptcy...your debts go away, but you are screwed for a long time. Their business model is going to go back to what it was like in the 80's and early 90's - as advisers that earn fees (a la lawyers, doctors, etc)...instead of guys taking stakes in leveraged investments. Somewhere between 80 - 90% of people are against this (surprisingly this board is around 60% against). Most feel this doesn't affect them. If this was limited to simply your retirement or pension account dropping in value, there would be no need for a bail out - we didn't do it when tech stocks dropped this decade. The problem with this situation is that if the current run on banks, lack of interbank lending, lack of faith in other institutions continues, all lending will come to a grinding halt. When you put your $ in a bank, it lends that $ out to someone. Say its a good loan and they receive regular payments and its well secured. Except now you go to the bank and say, I want my money b/c I have no faith in the banking system. That bank can't come up with your $ b/c its lent (all banks keep some reserve - but not enough to protect against a run). Normally, they could also just get $ from another bank - but in a panic scenario, no one lends to anyone. Its doomsday not because only people can't get loans to expand. Its also doomsday because people can't refinance existing debt when it comes due. Most of the commercial real estate developed or financed is actually financed on a 5 or 10 year loan. That doesn't mean its paid off in 5 or 10 years (think of it as your house mortgage which is a 30 yr mortgage payoff schedule, except at year 5, you have to get a new loan or pay it off). Well someone builds an apartment complex that is running full and doing well...except they hit that 5 year mark and now they can't get a loan to payoff the old one. If its a great asset, they can probably get a loan, but the terms will be so much worse - ie, they have to put more $ out of pocket b/c the new lender won't gives as much as the old loan. What happens? Foreclosure. Or the property owner sees this and basically just refuses any more investment and hordes cash to payoff debt. This doesn't even touch the personal borrowing that would become non-existent. Not everyone should own a house. But that doesn't mean you should have to put 50% down to get into one either. Plus because no one can get capital to expand or even maintain current operations, you are likely to see really high unemployment. The reason you can't wait is because you're going to turn that cold into pneumonia. They did wait. They kept trying to take smaller steps (open borrowing window....We'll back Fannie/Freddie....then they take over Fannie/Freddie). If you let all these banks go under, how will new banks get started? Where will that capital come from? Plus there is a huge cost to closing all these banks, going through a severe recession/depression, and then coming bank and then trying to start anew. We got out of this last time because of a world war that created so much demand (and required so much borrowing by the govt). Let's spare ourselves that much pain and accept we all are going to have to bite the bullet on this one. There is panic out there...when people are losing $ in even a money market, its a very scary situation. People aren't just crying wolf - they're willing to buy short term treasuries that earn nothing.
Please spare me. The reason why we didn't bail out tech companies is because tech executives don't control the Treasury or the Fed.
I'm sorry, but I just don't believe that withholding this bailout would have had the drastic, deadly repercussions that all those pro-bailout Feds have insisted. Feel free to tell me I'm clueless, but I've read everything available, all the information available (of which, curiously, there isn't enough to fill all the gaps) - and nothing I've read has given me any indication that all the financial problems caused by these giant corporations will have a strong impact on my own life. No one has spelled out, other than vague warnings and doom-laden prophecy, precisely how most Americans would be affected if we simply let these finance-capitalist behemoths go extinct. My own observations, and the fact that there are so many unexplained gaps in the reasoning, suggest to me that a crime, a real bonafide white-collar grand theft, is happening here. If I'm wrong, and I might be (again - there's just not enough information available to us on this) - I'm not alone. A lot of people ... A lot... are pissed about this and view it for what it is - we, the average taxpayers, are paying to keep the wealthy in their positions after they've made off with a great deal of cash and left a huge number of mistakes. So, even if I am wrong, perception is the greater part of reality - and the repercussions from this will not only be financial - there will be social and cultural repercussions as well. People are talking, and they're thinking...
Double-post, but I have a question: Those of you who believe this bailout is necessary and that the situation is as dire as the prophets proclaim - why do you believe that? What sources of information are you using to come to this conclusion (not simply being combative - I'd like to see those sources myself, if they exist and they're unbiased)? Also: are you personally involved in the markets most affected by these bailouts?
Don't know if anyone here knows much about currency exchange, how far do people think the U.S dollar will sink due to this bailout? It made quite a recovery before this mess, my savings is half in U.S dollars (I should have sold the first day I heard about this, but I was too busy at work), question to you investment guru's is should I sell now? and which currency should be a safe bet? I'm thinking Cn $ is the way to go....
I have a background in finance and business. I also have experience in the finance world as well as a lot of experience with investing in the stock market. I'm not relying on any source but my brain. With my education and experience, I have a fair understanding of how the financial markets and system work. Simply put, it is necessary because we need liquidity in a credit strained market. Banks are not lending to each other, and the credit crisis is growing day by day. If banks are not able to lend to each other (which is essential in order for them to work), then banks will fail. Slowly but surely they will all go under. I think you can figure out the consequences of that. All of these financial institutions are highly leveraged and they are wanting to reduce their leverage. Someone has to buy these mortgage assets from these companies. But since credit is drying up, and considering the dollar amount of the mortgages that are out there, private individuals and companies can't be effective in purchasing those assets. The government however has access to cash and an infinite time line to invest. What markets are you talking about being personally involved in? The stock market? Yes, I am. A lot of Americans are. Do you have a 401k or an IRA? How about a 529 for your kids education? They will be hit hard if we do not go through with this plan. Last week we had money market funds that broke the buck... in other words, your savings invested in a money market which is considered to be safe was giving out negative returns on the investment. They couldn't even break even at a dollar. This is only the beginning and we need to act quick to prevent further damage that will be very difficult to reverse.
Except the Canadian economy is so heavily dependent on exports to the US... I'd actually think about the Australian dollar though foreign currencies are not really my area of expertise.......
CNBC says the banks are asking the bailout to be raised to $1.2 trillion. http://www.cnbc.com/id/26885559
I've got a background in Finance and spent a couple of years in the industry...and then left to start a commercial real estate development firm....I guess you could say I'm involved in these markets indirectly since my real estate is in Texas and all does well but I do rely on borrowings (mix of local banks that have had no sub-prime on their books to some that are taking losses) I think a lot of my concern comes from having seen how much companies rely on credit to operate. Its in every business model, whether its leases for new airplanes to opening the restaurant next door to putting more equipment out on the farm. Not every company can be like Microsoft or Google type service based business. I don't know what source you would consider unbiased since this is somewhat of a technical discussion and most articles are mixed with a lot of rhetoric. I'll keep looking because I agree its hard to find a level headed take on it. For me, I've seen lenders to start walking away from loan commitments they have already made, money markets "Breaking the buck" and ridiculously low treasury yields (and increasing borrowing costs) that convince me we are at a pretty scary point.
Thanks for the info, I've done some research on the AUD and I don't have much confidence in it long term. It definitely gained strength consistently in the last 5 years, but it’s fall relative to the USD has been quite significant in the last 6 months, I know it’s been like that against most currencies but especially the AUD....and I don't know too much about Australia's economy to know why....
Borrowing from the government seems considerably different than "selling them our most worthless assets at an idiotic price". Your disdain for those who think different than you is duly noted, but not terribly helpful. I think the mistake here is that you are assuming this is the only way to "save the country". I disagree. You will, of course, counter that such verbage is meaningless without an associated plan. I say such a plan would be more prudent AFTER all the available facts and investigations are available and complete. Moreoever, any plan should include stipulations such that the taxpayers can both not expect this to happen again, and not expect to be paying any more than the bare minimum. No, I'm not. I just don't think faking that everything is hunky-dory by extending a 700 billion dollar line of free credit to a badly disjointed industry from a SEVERLY defecit-ridden treasury is a good thing. Period. I favor long term rationality over short term "fixes" that only exacerbate the long term downward spiral. They should be punished too. But they're really only ancillary. I think SWStig said it best in an earlier thread: "That's like blaming a coke-head for buying coke with the money you lent him."
Thanks for that. Very interesting. Likewise thanks wakkoman, I freely admit I am not an expert by any stretch - but I am principled, if nothing else.
What is going on is that the Republicans want no part of the bill, they are running from it for political reasons, so that if it fails they can point the finger at the Dems. Instead of putting country first, again, they put politics first. DD
Bingo. The House Republicans and McCain have decided to play politics with the biggest financial crisis since the Great Depression. Every single one of them should be thrown out of office. The Dems should have the vote, and everyone who votes no should have ads run against them saying they voted to create a new depression in order to play politics. Complete and total idiots.
Republicans "revolt against President Bush" http://apnews.myway.com/article/20080926/D93ECMJ81.html Frank blames House GOP for breakdown of deal By CHARLES BABINGTON WASHINGTON (AP) - The chairman of the House Financial Services Committee declared Friday that an agreement on legislation to relieve a spreading financial crisis depends on House Republicans "dropping this revolt against President Bush." Rep. Barney Frank said leading Democrats on Capitol Hill were shocked by the level of divisiveness that surfaced at a White House meeting Thursday, not long after key congressional players of both parties declared they'd achieved the broad outlines of an agreement on a bill implementing the administration's proposed $700 billion bailout plan. Frank said he did not think that Democrats were going to see a substantially different proposal from the plan the administration has been trying to sell to lawmakers and which had been the focal point of closed-door talks for days. "It's an ambush plan," he said. Participants in a meeting late Thursday afternoon that Bush had at the White House with congressional leaders and presidential candidates John McCain and Barack Obama said it descended into arguments. "I didn't know I was going to be the referee for an internal GOP ideological civil war," Frank, D-Mass., said on CBS's "The Early Show." Sen. Richard Shelby, an Alabama Republican who appeared on the same show, said many GOP lawmakers dislike the proposal that has been pushed on the administration's behalf principally by Treasury Secretary Henry Paulson. "Basically, I believe the Paulson proposal is badly structured," Shelby said. "It does nothing basically for the stressed mortgage payer. It does a lot for three or four or five banks . ... " The political infighting happened even as Washington Mutual Inc. (WM), one of the country's largest banks, collapsed under the weight of its bad bets on the mortgage market. The Federal Deposit Insurance Corp. seized WaMu on Thursday, and then sold the thrift's banking assets to JPMorgan Chase & Co. (JPM) for $1.9 billion. Even for a party whose president suffers dismal approval ratings, whose legislative wing lost control of Congress and whose presidential nominee trails in the polls, Thursday was a remarkably bad day for Republicans. A White House summit meeting called principally with the purpose to seal the deal that Bush has argued is indispensable to stabilizing frenzied markets and reassuring the nervous American public descended into arguments. The meeting revealed that Bush's proposal had been suddenly sidetracked by fellow Republicans in the House, who refused to embrace a plan that appeared close to acceptance by the Senate and most House Democrats. Paulson begged Democratic participants not to disclose how badly the meeting had gone, dropping to one knee in a teasing way to make his point according to witnesses. And when Paulson hastily tried to revive talks in a nighttime meeting near the Senate chamber, the House's top Republican refused to send a negotiator. "This is the president's own party," Frank said at the time. "I don't think a president has been repudiated so strongly by the congressional wing of his own party in a long time."
