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A lot of people have been harping on about what a bad idea it is for the US government to bail-out the likes of Freddie and Fannie, (officially the most ridiculous name for a serious company in the world), AIG (They were Manchester United’s official sponsors, boo-hoo) and Lehman Bros, but what do you guys think?

President Bush gave his scare-mongering address the other day, but do you buy it?

Personally, I’d like to see the greedy bastards in Wall Street lose everything, but as we know, the rich tend to only get richer, whilst those barely living above the poverty line will be the ones who suffer the most.

37 Comments »

  • My response to Paulson’s original three-page proposal was not just “No” but “HELL, no!” There was no oversight, no mechanism for administering the funds according to any reasonable processes, nothing to protect the taxpayer.

    In general, I’m NOT in favor of rescuing failing businesses that were making “profits” based on what amounts to financial fraud. These guys at the top made money no matter how much they screwed up, and they fucked over their customers and their shareholders. Some of them should be in *prison*, not raking in hundreds of millions in fraudulently obtained money.

    But the problem now is that the system has been completely destabilized, and if something isn’t done very quickly, even good businesses will be affected. Lines of credit that many businesses use every day will be tightened or eliminated — with disastrous effects to supply chain, payroll, and other day-to-day operations. If companies can’t buy raw materials and can’t make payroll, we ALL suffer. Stores close, people are laid off, payroll checks bounce, there are massive shortages. Everything gets fucked up.

    I think Congress has to stop the bleeding first, and they have to do it in such a way that there’s maximum oversight and as much protection as possible for the taxpayer. Other things like borrower protections/bailouts and re-implementing the regulatory structure — which people like Phil Gramm and John McCain have systematically dismantled, I might add — will need to wait for another bill.

    It’s all a matter of triage. If a drunk driver has a bad car accident and comes to the ER bleeding from an artery, you’ve got to keep them from hemorrhaging to death first before you talk to them about signing up for Alcoholics Anonymous.

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  • I don’t buy the shrub’s speech, mostly because it came across like his Iraq speech — the threat of our generation, blahblahblah. (I didn’t buy his Iraq speech at the time, either.)

    I understand the larger impact of the failure of these banks and companies on the economy, American and global, but I still have a problem with the bailout. It basically says to Wall Street (and to Main Street home buyers who bought and lived beyond their means) that the government will cure all of the problems wrought by their own greed. That is NOT the role of government, IMO.

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  • I agree with you, jmc. His speech on this was a lot like the one he gave to justify invading Iraq. The Daily Show did a great segment on that the other night.

    I’ve got big problems with the bailout. BIG problems. But I think there will be even worse problems if we don’t do it. We fix the emergency, and THEN send all the addicts to rehab, IMO.

    The whole subprime thing needs to be fully investigated. A few years ago, Countrywide did a last minute switcheroo on us right before closing and put us in a subprime loan, even though we had way more than enough income, FICO score, and employment history for a prime loan. We had been told all through the process that we were getting a regular loan and had no reason to suspect otherwise, but then we found out at closing that they’d changed the deal. And the only reason we found out at all was because the paperwork was different from what we’d seen before and the folder had “Full Spectrum Lending” on it. Countrywide gets more money from subprime loans, and the broker gets a higher commission, too. I will never, EVER do business with those people again.

    I know there are people who foolishly allowed themselves to be talked into buying more house than they could afford. There was a fair amount of fraud, too. But a lot of good, honest people got screwed by unscrupulous lending practices. Congress needs to investigate the hell out of lenders and put a stop to this crap.

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  • FUCK NO!!

    Lynne, in theory I agree w/you but I think the sad thing is NOTHING will ever really be done once the bailout goes through.

    I’m going back to my edits before my head explodes

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  • ONLY IF we also reverse all government banking deregulation bills put into place in the last 18 years by our wonderful politicians. It’s bad enough that these were Republican backed bills but the Dems allowed it to happen.

    Of course now McCain is whispering Medical Deregulation in the ears of his constituents because you know all this banking stuff worked out so well for us.

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  • Ellie
    September 28
    7:41 pm

    HELL NO! While something needs to be done, I don’t believe giving these companies $700 billion is going to fix anything. I’m afraid we’re going to spend all this money, banks will remain insolvent and fail anyway. We’ll just be throwing money at this systemic problem—and the end result will be compounded by the money the government threw at it: huge deficits, weakened dollar, and inflation.

    Not to be a pessimist, but if the banks are going to go belly up anyway,we shouldn’t give them all this taxpayer money. I’m worried If we try and throw money at what was inevitable (at least to some extent, i.e. the market falling, not the entire mortgage mess given the greed and deception that occurred) we’ll just be staving off the inevitable for some period of time, and making the ultimate fall that much worse. (An aside–I find it interesting that many of the people calling for the bailout which consists of the government buying failing assets scream “socialized medicine” whenever anyone talks about universal health insurance).

    Also want to agree with JMC. The crisis was coming for months if not years, and Bush did little. Now he suddenly goes on TV saying “panic” and “crisis” and “depression.” If we must act fast, why wasn’t something in the pipeline months ago. Acting too fast without reflection on the potential consequences of that action is at least in part what got us into the mess in Iraq. It frightens me that the Bush administration appears to want to repeat this mistake.

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  • I think having the government buy the troubled loans while gaining stakes in the companies and preventing golden parachutes is a step in the right direction. If I’m reading correctly, that’s what the current proposal is. The original one, no. That was a box of blank checks with not even a bank statement for three months — a recipe for HUGE abuse. People were right to raise holy hell about that.

    I have already heard reports of small-to-medium-sized businesses having their credit lines reduced or cut off in the last couple of weeks, and these are just average businesses, not anybody who had dealings with Wall Street or who did anything irresponsible. Without lines of credit, businesses have to dip heavily into cash reserves, and if everybody else in the chain is also having the same problems, receivables won’t be paid as quickly, which means those cash reserves won’t bounce back soon enough to keep the businesses afloat.

    I agree that this crisis has been coming for years. We’ve had plenty of warning. Warren Buffett has been yelling about it for a while.

    It would certainly be fascinating to see just what happens if no bailout occurs. As a writer, I play around with scenarios like that all the time. But if I don’t like the outcome on paper, I can just wad it up and start over with a new story. Nobody gets hurt. Not so with the real world.

    I can’t believe that I’ve come around to very, very reluctantly supporting this bailout in the last week. But doing nothing strikes me as even worse.

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  • I’m opposed to the number they pulled out of their ass. I saw something about a proposal where the first bailout amount would be $250B/350B (I can’t remember which right now) to stop the bleeding, with an option for more after approval. That seems to make more sense to me.

    I agree they also need to add oversight, to frame the bailout as a loan (that has to be paid back) or that the govt (and taxpayers) have equity within the companies. For crap’s sake, if they’re just going to toss money out there without oversight or demand of repayment, then why not just bailout the consumers by paying off their loans/over-extended credit? The banks still get their cash.

    (Okay, I know it doesn’t exactly work that way — but still. The idea of shoving cash at the big dudes so they don’t collapse, when the problem is still there for the little dudes and their loans are still out there needing to be paid, just makes my head explode.)

    I can’t believe that I’ve come around to very, very reluctantly supporting this bailout in the last week. But doing nothing strikes me as even worse.

    Yeah, me too.

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  • shirley
    September 28
    8:45 pm

    I’m with Amie. And for all the reasons everyone else has said. Personally, this crash is going to happen. And the bailout is a stopgap measure. As to all the chatter of pulling back credit lines and the like, I’ve done some research, that is already happening and it will continue to happen regardless of the bailout. A couple of big reasons for it: a) in our free market, consumer-based, economy consumers are cutting back. Way back. If people don’t buy, there isn’t much money coming in, smaller profit to reinvest, etc b) with the cost of food and utility (gas, electric, fuel oil) going up, up, up you are going to see folks that might not even have been in on the whole subprime fiasco defaulting on their mortgages and/or continuing to spend less and less on ‘extras’.

    Moreover, this bailout isn’t going to stop the near freeze on employees wages. It isn’t going to stop companies from shipping out jobs overseas. It isn’t going to stop those with money and power from continuing to rape the American people for every dime they can steal. It isn’t going to stop the crazy profits for big oil, big business, big pharma. All it will do is stop 95% of the American public from getting a loan, running a small business, or buying anything extravagant.

    FWIW, I don’t live on credit. I don’t even have a credit card, by choice. My house has been paid off for years. And there are a lot of Americans like me who haven’t been living beyond our means and are seriously pissed off that now we’re supposed to bail out the fat cats on Wall Street. Let them go broke, the lousy swine. As to the people dealing with the mortgage problems, not all of them got into this mess with the intention of ripping someone off. And, if you look at what the bailout consists of now, it doesn’t really look as if too many of them are going to get much help. In short, this bailout is going to bail out the sickeningly rich who facilitated it, and not the average working man impacted by it, who is just trying to get through day to day, week to week.

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  • katieM
    September 28
    8:57 pm

    No. Absolutely not. That being said, something must be done and bailing out the companies seems like the only option right now. Things are being thrust at us too fast to see the situation clearly.

    I believe that if the companies are bailed out, then the boards of directors of those companies need to be in federal prison, and not those prisons for white collar crime. They need to be in jail with the hard core felons. The boards and their immediate families should be stripped of all assets, as well. Then, those assets should be sold to offset some of the debt those companies have incurred at taxpayer expense.

    I’m a teacher and I can’t afford to buy a house at subprime or prime rates. I have to pay off my student loans all by myself. The government isn’t giving me a handout, either. I had to work my way through college and maintain a better than decent gpa so that I could qualify for grants and loans. I doubt Congress knows how angry the American public is right now. They are too busy “solving” the problem.

    And then, to make matters worse, foreclosed homes are up for sale and its being touted all over the radio and television. “Low, low rates! There’s a house out there for you! Homes that have been foreclosed and repossessed by banks (now the government) are for sale for pennies on the dollar!” People’s hopes and dreams have been reduced to pennies on the dollar while the heads of the banks and businesses wipe their hands of the messes and go home to their luxurious lives.

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  • I agree, KatieM, that the perpetrators of fraud need to be sent to jail and their assets confiscated. That’s going to take a while, but it needs to be done, not only to recover those ill-gotten gains but also to send a message that this vampirism won’t be tolerated.

    I guess I’m not seeing this proposal — in its CURRENT form, that is — as a bailout of the rich. I think there will be a small amount of that, but mostly, I think it’s to keep credit flowing to small-to-medium-sized businesses so they can keep employing workers. There was a profound seize-up in the credit markets a little over a week ago, and that was what precipitated this total freak-a-thon. That’s when people knew we weren’t in Kansas anymore.

    I have a lot of confidence in Warren Buffett’s financial savvy and his personal ethics. If even HE is saying these sour loans need to be bought up in order to avoid a meltdown, I have to give that some weight.

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  • Moreover, this bailout isn’t going to stop the near freeze on employees wages. It isn’t going to stop companies from shipping out jobs overseas. It isn’t going to stop those with money and power from continuing to rape the American people for every dime they can steal

    THIS! I work for a major American bank and guess what they are already doing folks. Yeah, to India we go! The banking industry has raped America due to deregulation and it is already planning the move out with those wonderful tax breaks we are still giving them. They are probably demanding more as we speak.

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  • you are going to see folks that might not even have been in on the whole subprime fiasco defaulting on their mortgages

    Shirley …Alisa Valdez Rodriguez just blogged about this on her myspace blog. She’s selling her house in Scottsdale (which is now worth no where near what she financed it for about a year ago) at a 50k LOSS just to get out from under it. She was ready to default when she got an offer.
    There’s more to it and she’s pretty eloquent so if you have a myspace acct, you might look it up.

    And then…I got this via Twitter this last week…last year the big five paid themselves 39 BILLION in bonuses. *steam from ears* This is what REALLY makes me angry, and what makes me say NO we shouldn’t bail them out! Let ’em suffer in their mess just like the average person has to when their world goes belly up.

    Meljean in an ideal world, the government WOULD give the consumers the money and let us get out of debt–a trickle up effect if you will *Sigh*

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  • shirley
    September 28
    10:00 pm

    THIS! I work for a major American bank and guess what they are already doing folks. Yeah, to India we go! The banking industry has raped America due to deregulation and it is already planning the move out with those wonderful tax breaks we are still giving them. They are probably demanding more as we speak.

    Absolutely. And that really points to the biggest reason why I’m one hundred percent NO on bailout. It isn’t going to ‘fix’ anything. If the American people continue to make less, but have to pay more for BASIC goods and services, this economy – as we know it – will fail, fail, FAIL and then no amount of government bailout will change anything. In fact, if anything, IMO, it will only make matters worse. If no one’s buying, then no one is selling, then no jobs, then no money. In the end, it’ll be 95% of America on the dole and five percent making money in other countries, where they moved their business and investments to so they wouldn’t go broke when America collapsed.

    No thank you. I’m not voting for a future like that for my children and grand children. I may die before it comes to fruition, and I’m sure there are a lot of folks who think I’m trying to fear monger or be morbidly pessimistic. I promise you, I’m neither. I’m simply long-lived enough to see that history repeats itself and generally, with each new pass, things are markedly worse in the aftermath.

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  • katieM
    September 28
    10:33 pm

    I was having trouble with my cable and I called the help line. I spoke to someone whose accent was so thick that I couldn’t understand him. I complained, hung up and called again with the same results. Why are help desk jobs sent to India or China? Because its cheaper? If all the jobs are gone then who’s going to pay the bills? That sort of nonsense will lead to defaulted loans and the eventual collapse of the American market thus necessitating a multi-trillion dollar bailout…..

    I bet Buffet feels like a big Cassandra.

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  • shirley
    September 28
    11:00 pm

    Alisa Valdez Rodriguez just blogged about this on her myspace blog. She’s selling her house in Scottsdale (which is now worth no where near what she financed it for about a year ago) at a 50k LOSS just to get out from under it. She was ready to default when she got an offer.
    There’s more to it and she’s pretty eloquent so if you have a myspace acct, you might look it up.

    After much searching, I did find her blog. And I applaud her. I’ve owned my home for years, as I said, but in the last decade I’ve seen it go up in value – based on the taxes I pay, LOL- more than (brace yourselves) two hundred thousand dollars. Four years ago I did some work on the house, the home which I shared with my husband – and now share occasionally with my beloved friend- as a result I had it’s value reassessed. It was bought for sixty thousand dollars a very long time ago. Recently, I changed up insurance and had to it reassessed yet again. Nearly all that 200K in upswing is gone. It’s now valued at about 100K to 120K. Obviously, the valuation doesn’t really impact me, but I think what if I’d sold a few years back like my son said I should have? What about the poor family that would have bought the house from me? They be 80 to 100K in negative equity right now. Unbelievable.

    That’s what I was saying, it isn’t just the people who took out 120% mortgages who are defaulting. Hell, they probably defaulted a year ago or more. It’s people who bought a home in a crazy investment baker inflamed market that are getting screwed. And it’s average people who are getting screwed, every single time they fill up or go to the market. Christ, here’s something to share. I live in a small town. I went to the supermarket yesterday. I bought two loaves of bread, a gallon of 2% milk, a package of shredded cheese, two packages of hot dogs, ten yogurt cups (.44 ea), two bags of potato chips, three cans of chili (one for a buck), some packaged drink mixes that were a quarter a piece(6), two containers of lemonade (a buck a piece). I spent forty six dollars on less than twenty items. Now, if I’d been buying for a week, instead of a weekend, and had added butter, sugar, meat, pasta, etc to the list the bill would have been more like my last week’s bill. For me, because my friend buys her own groceries for her own home(we share meals jointly and usually plan them out), that would mean nearly a hundred and fifty dollars spent for a weeks food at the grocery. Considering even last year I was spending less than a hundred for the same items, I’d say if things keep up like this, it’s going to be catastrophic on a massive level.

    Hmm, and to tell you how bad it might just be, this financial crisis, you should take a peek at this article. It quotes the Army Times and says that an active duty battalion is being called back from the war in Iraq to help with possible ‘civil unrest’ here in the US.

    Scary, scary stuff.

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  • Emmy
    September 29
    12:34 am

    I think that if I’d gone batshit crazy and bought houses and cars I couldn’t afford and then went broke, the bank would come take everything from me and I’d have to go bankrupt. Why, then, when the banks bought bad loans they couldn’t afford to cover, would they get bailed out? I can’t call Congress when I overextend myself and ask to be bailed out of my stupidity. Companies who got greedy and made shady deals and gave multimillion dollar severance packages to CEO’s who ran them into the ground should not get taxpayer money to keep going. Let good old capitalism settle this.

    I’m torn over this. I don’t think people who bought big ass houses they couldn’t afford should be bailed out either. Nobody gets rewarded for trying to live ghetto fabulous. Take a little personal responsibility here. No, the mortgages shouldn’t have been sold, but the people trying to get them shouldn’t have tried either. There is no divine right of owning a house. What happened to waiting until you can actually afford one to buy one? Why didn’t anyone stop to think about what the heck they were going to do if someone gets sick or laid off? People are living paycheck to paycheck with NO cushion, so things turn to shit immediately if they don’t get even one paycheck. Buying a house you can barely afford now is asinine and irresponsible, never mind when the ARM readjusts or there’s no paycheck for a month. No bailout for you either.

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  • By some coincidence, I read your feed just after I read this article: Why governments bail out banks. I’m no economist, but it’s interesting and, you know, in plain English.

    The trouble is that ensuring the stability of the system risks creating the problem of “moral hazard” – the belief that the government will always rescue them if they get into trouble may encourage banks to take undue risks in their pursuit of profit.

    But governments believe this is the lesser evil relative to the havoc a collapse in the banking system would wreak. Even so, they seek to minimise the moral hazard problem, first by their close “prudential supervision” of the banks and, second, by punishing the errant bank’s management and shareholders.

    That’s the point to be clear on: it’s the people to whom the bank owes money who get bailed out (especially the small ones). The government rescuers go out of their way to ensure that all the top executives are sacked and the bank’s shareholders do their dough.

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  • Angie
    September 29
    2:26 am

    Like many, I’m so torn on this issue. I understand why some kind of bailout is necessary, but $700 billion? I’m calling bullshit on that figure, since that was clearly pulled out of thin air. Also, I wonder how much of a paycut these CEO’s are getting? Anyone? Yeah, that’s what I thought.

    If a bailout has to happen, I’d rather the government give every American the cash (how much is $700 billion divide by the number of adult Americans?) to be used only for paying off debts. Most likely a bad idea for several reasons that I don’t know enough about economics to understand, but it really pisses me off that people who bitch and moan about welfare for the poor don’t seem to bat an eyelash over welfare for rich executives.

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  • Given billions of dollars in bonuses, etc. banks have given to their executives, I’d say no to the bailout.

    I suppose all those executives can disgorge their ill-gotten bonuses to pay for their own bailout.

    American government shouldn’t advocate Reverse Robin Hood.

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  • Given billions of dollars in bonuses, etc. banks have given to their executives, I’d say no to the bailout.

    I thought part of the deal involves capping executive remuneration?

    And there are a lot of Americans like me who haven’t been living beyond our means and are seriously pissed off that now we’re supposed to bail out the fat cats on Wall Street. Let them go broke, the lousy swine.

    The problem is that I seriously doubt the fat cats are going broke over this. It’s usually your average person who’s screwed over.

    Also, Karen, my understanding is that Lehman Brothers filed for bankruptcy and parts are being acquired by Barclays. No bailout for them.

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  • It just feels so much like throwing good money after bad. It rankles the hell out of me that Congress didn’t consider any of the cheaper, more efficient plans being tossed around by economists and such this past week. I really believe changing the mark-to-market accounting rules in Sarbanes-Oxley law would have thawed the market freeze. I also supported the idea of taking all those bad loans and converting them to FHA loans. Most estimates I read for implementing these two changes ran in the 40-50 billion dollar range. Yeah. That’s what? Like 5% of the original price tag?

    But, oh no. We have to push through this bullshit bailout. If it fails, god help us. Really. And why isn’t anyone talking about what flooding the economy with 700 billions of new dollars is going to do to the already craptastic value of our dollar? Am I the only one who thinks that people and companies who spend like there’s no tomorrow aren’t going to learn from this? I also like how Congress didn’t do crap to help regular citizens, but–ZOMG–the second the people in their circles, those making six or seven figures or more at Goldman Sachs, Merill Lynch, and Bear Stearns had problems… Hurry! We have to bail them out! Gah!

    It just annoys the hell out of me that we can’t find the money to provide every American citizen a chance at decent health care or a college degree but we can suddenly come up with 700 billion bucks to bailout banks. Aarrgh!

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  • If not providing the bail out will lead directly to good people losing their jobs because the domino effect kills a bunch of unrelated companies, I would hesitate to condemn it.

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  • Emily,

    What if it is not about “good people” but bad companies worked in by “good people”?

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  • shirley
    September 29
    3:46 am

    The problem is that I seriously doubt the fat cats are going broke over this. It’s usually your average person who’s screwed over.

    Exactly. That’s why I said we should let them go broke. They should be the ones paying for their screw up, not average people. And about the gov’t saving banks, this bail out will go directly to the people who made the mess because they are the ones who own the debt the banks have to pay back.

    I thought part of the deal involves capping executive remuneration?

    To be clear, I read the PDF of the bill. According to it, the companies who opt in to the bailout won’t be able to ‘write off’ executive salaries in excess of a half a million dollars.

    What? Excuse me? Is it better than multi-million salaries/severance packages? Okay, maybe. But these people who created the situation are still going to be able to walk away with whatever they’ve been paid to date, plus a half million dollars? Yeah, that’s really sticking it to them where it hurts. Right.

    And yeah, if the gov’t sent the people this 700 billion dollars as a ‘economic stimulus’, I bet like hell that would help a lot more than bailing out a bank. After all, there are only a couple hundred million people TOTAL in the US. A couple billion dollars in the average American’s(assuming it only went to adults) pocket might change the whole world. Sure, sure, with inflation it wouldn’t go as far, but gee, unless the dollar hit the crapper, it’d probably go far enough to pay off all the bad debt and then some. But that’s a pipe dream, LOL.

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  • shirley
    September 29
    3:49 am

    If not providing the bail out will lead directly to good people losing their jobs because the domino effect kills a bunch of unrelated companies, I would hesitate to condemn it.

    Thing is, this bailout isn’t going to stop that from happening. It isn’t going to somehow stimulate the economy and turn the last few weeks chaos of market into some kind of historical footnote about a rough patch. People are cutting back spending, across the board. Our economy is, by conservative estimates, sixty percent consumer based. If no one is buying, then those companies, and others still, are going to close doors and a lot more people are going to find themselves out of work, out of home, out of food before it gets better.

    The bailout may only stem the crash. And then, I doubt for long.

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  • What? Excuse me? Is it better than multi-million salaries/severance packages? Okay, maybe. But these people who created the situation are still going to be able to walk away with whatever they’ve been paid to date, plus a half million dollars? Yeah, that’s really sticking it to them where it hurts. Right.

    With or without the bailout, wouldn’t they have kept whatever they’ve been paid to date anyway?

    OK, I haven’t read the entire bill (no time!) but here’s a rundown of the key details, and it’s saying that there will be no golden parachutes for execs. Small comfort, I know. It’ll be interesting to see if this crisis is enough to stem executive pay. Personally, I reckon executive pay should be tied (among other things) to the average employee salary. Which is to say, the boss doesn’t get a pay rise unless everyone else is getting one, too.

    From what I gather, $700b is a cap. Also, it gives the government equity in those banks, which, theoretically, should provide profit to taxpayers when the economy recovers. The bigger issue for me would be how the entire thing will be administered so as not to squander the bailout funding.

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  • Thing is, this bailout isn’t going to stop that from happening. It isn’t going to somehow stimulate the economy and turn the last few weeks chaos of market into some kind of historical footnote about a rough patch. People are cutting back spending, across the board. Our economy is, by conservative estimates, sixty percent consumer based. If no one is buying, then those companies, and others still, are going to close doors and a lot more people are going to find themselves out of work, out of home, out of food before it gets better.

    The bailout may only stem the crash. And then, I doubt for long.

    Yes. This. Exactly. DH and I are incredibly careful with our money. Apart from my student loans and our 30 year fixed mortgage, we have no debt. Even with a large portion of our take-home pay available for spending, we just don’t anymore. Besides fertility treatments and a few appliance upgrades, we’re not planning on buying zip, nada, zilch the rest of the year.

    And it’s not just us. Everyone I know is pulling way back on the discretionary spending, if not cutting it out all together. It does make me worry about employees of small businesses and restaurants and such…

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  • I really believe changing the mark-to-market accounting rules in Sarbanes-Oxley law would have thawed the market freeze.

    The current write-offs, etc. have nothing to do with the mark-to-market rule. The rule went into effect to stop Enron #2 from happening. Since subprime mortgages that are the foundation for many of these assets are going bad, it doesn’t matter how you fudge your numbers. When you have no money coming in, the fancy financial instruments you hold are worthless.

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  • shirley
    September 29
    6:36 am

    OK, I haven’t read the entire bill (no time!) but here’s a rundown of the key details, and it’s saying that there will be no golden parachutes for execs.

    That’s not quite true. If these executives have ‘golden parachutes’ in their current contracts, they get to keep them. And most, if not all of them, do. Plus, their salary is the only thing mentioned that the company can write off no more than 500K(this is the amendment that is supposed to stop the execs that made the mess from making off with tons of cash). In honesty, these men will also be compensated through things like stock options and the like, which are not covered by the bill in any way, so no oversight there either.

    Personally, I reckon executive pay should be tied (among other things) to the average employee salary. Which is to say, the boss doesn’t get a pay rise unless everyone else is getting one, too.

    Amen! Absolutely! Hell yes!

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  • The current write-offs, etc. have nothing to do with the mark-to-market rule. The rule went into effect to stop Enron #2 from happening. Since subprime mortgages that are the foundation for many of these assets are going bad, it doesn’t matter how you fudge your numbers. When you have no money coming in, the fancy financial instruments you hold are worthless.

    But they do. Take Merill Lynch for example. They had, what, 30 billion or so tied up in subprime mortgages? Just because they could only unload those mortgages for twenty cents or so on the dollar doesn’t mean all those houses tied to those mortgages depreciated in value by, what, eighty percent. Sure, a few in the Rust Belt, California, or other tight markets may have depreciated by a good chunk, but eighty percent? No way.

    By allowing banks to skirt Sarbanes-Oxley for six or twelve months on subprime mortgages, they can hold onto what are now considered worthless assets until the market bumps back up and they can unload them. Converting these loans to FHA would have made the loans marketable. Investors will buy loans that are guaranteed by the government. This might have cleared up a good bit of the problem.

    And, yes, I agree that without money coming in all of this is useless. My point, though, was that it would have been worth a try. If it had relieved some of the pressure, even just a small amount, it would have been loads cheaper for taxpayers. Now, however, we own (or will soon) those crap assets–and there’s still no market for unloading them.

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  • The reason why they decreased so much in value is that they priced the assets incorrectly in the first place by underestimating risks associated with subprime mortgages. It’s not just the housing price falling that’s affecting the value of the subprime mortgages. It’s also the probability of the people paying the money back plus the interest.

    With fixed income securities such as RMBS, etc. the rule of thumb is that the higher the risk, higher the yield, bigger the discount.

    So if you have fixed income securities with underestimated risk, the coupon rate is too low compared to the market rate, so they must be sold below par. Also fixed income securities aren’t like stocks. Nobody holds onto them for a long time hoping that the price goes up because the type of investors they attract is different.

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  • Anon76
    September 29
    2:51 pm

    Has anyone else noticed that the glut of commercials for “creative” mortgages has slowed to a trickle, if not altogether?

    I mean, used to be, you couldn’t watch the TV for even a short length of time without being bombarded by the ads of these sub-prime lenders. Now that’s all dried up, even the ads for “reverse mortgages” for seniors.

    And, yes, I call them “creative” mortgages. That was the term used when I worked in banking eons ago. Special loans written with the knowledge that a traditional mortgage (or most other types of loans, for that matter) wouldn’t work for the borrower. How sad that it has escalated to this level.

    As for the bailout? I don’t understand all the ins and outs of it, but I’m wondering how long the trickle down will take to reach the average American? I mean, how does this help a family facing foreclosure right at this moment? It seems to me that if they are not in default on the loan, then the bank isn’t being injured. The funds are shifting back and forth as they should, and loans could still be issued to businesses to keep them running. So what real good does it do to help the lender and not the lendee? And helping the lendee means freeing up income they could use to purchase other commodities, hence helping the bussinesses who may then need smaller short term loans to meet their needs.

    Sigh. Would it were that it was all that simple, but I know it’s not. Again, I’m not real savvy on this type of stuff.

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  • It’s highly likely we’re in for a rough bunch of years, no matter who wins the upcoming presidential election. Kind of sad that the results of the Shrub’s suckiness is going to taint the next administration, even if they do a great job. Hey, it’s always possible the next administration could do a great job, don’t laugh!

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  • I agree, Jody. I think the next few weeks are going to give us all a preview of just how freaky things may get. The interbank credit seize-ups are scary. I can’t believe more people haven’t caught on to what this means. It’s not just about being unable to get a mortgage or a car loan. If businesses’ lines of credit are cut back or cut OFF, a lot of people who thought they had secure jobs are going to find out otherwise. It makes me absolutely sick to my stomach to think about it.

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  • Miki
    September 30
    3:35 am

    But these people who created the situation are still going to be able to walk away with whatever they’ve been paid to date, plus a half million dollars? Yeah, that’s really sticking it to them where it hurts. Right.

    I think it’s obscene how much CEOs make, but…

    …seems to me, part of the problem is that there’s no accountability to the owners of the banks, the shareholders.

    Shareholders benefited for years with stock splits and dividends, but when the going gets tough, all they have to do is call a broker and say “sell” (and hope they did it before they lose too much on the stock price).

    And if people think there are problems with subprime loans, just wait a few years. There are hundreds of thousands of prime mortgages out there that are paying only the interest due for the first 7 or 10 years of the loan. Those started being popular maybe 5 years ago. So when all those lovely prime mortgagors start realizing that the house payment that included principal which they couldn’t afford when it was a 30-year-loan is significantly less that what has in effect become a new 20-year-loan with principal due.

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  • First, I’m against a bailout because it solves only one problem: panic run on institutions.

    This is a crisis in the making since 1973, when we (and much of the world) went off the gold standard. Look at it this way:

    Once upon a time, bankers would take gold from customers and in exchange, give them pieces of paper in order to make trading easier (carrying bars of gold being inconvenient). The customer could then do his trading with other people, who accepted these pieces of paper based on the value on them because they knew it was backed by real gold, which was kept at this bank.

    As time went, more and more people started to trade with these papers; they liked the convenience. After a while, just the knowledge that the gold was in the bank was enough and many people didn’t go to the banker to get the gold.

    The banker woke up one day and realized that he had all this gold sitting in his bank that no one bothered to claim. So he decided that he could print more papers, based on this gold, to LOAN to people now. Simply put, they made money off this gold that belonged to other people. They did that for many years, printing more paper, making more money.

    BUT THE AMOUNT OF GOLD REMAINED BASICALLY THE SAME. Meanwhile, the value went down because there was so much paper out there now.

    So. What did they do? Some Big Man decided that we would go off the gold standard and just let the money stand on their own.

    The thing is, there is really NO MONEY in the bank, just printed pieces of paper saying this paper is worth XXX amount of money (much like what’s in the Social Security vault right now, but that’s a different post, eh). If you go to the bank right now and ask for $30,000 cash, you will wipe them out. They have very little cash. It’s all just electronic numbers/tallies.

    So, imagine a panic among those who have taken to having faith in those “papers” for so long, running to the bank to get back their gold and finding that there isn’t enough gold to cover the papers. Let’s say it happens to every big bank you can think of (the most recent one being WaMu). They don’t have the cash; they close. Government has to do something to stop the panic. So, they promise to BAIL OUT the banks so the customers get the assurance that yes, there will be money in their banks, so they won’t line up in front of the banks any more.

    What does this mean? It means the Federal Reserve will just print more money, based on the SAME AMOUNT of gold still in their care. That devalues the dollar even more, but it will take the scare off many people. But yes, it also means you can expect to buy less with your dollar.

    The thing is, this model has been followed by the worldwide bankers, and so the world itself is facing a similar crisis. Hence, the meeting of the big banks of the world a month ago to create a stimulus package for the world economy. Um yeah, that also means magically printing money from nowhere.

    THE END

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