Financial bailout .

[Eiseman]

I found something that pertains to the point I was trying to make.

http://www.cnn.com/2008/POLITICS/09/29/miron.bailout/index.html?iref=mpstoryview

This bailout plan is essentially "enabling" the banks to take much greater risks than they normally would, on the premise that the government will pull them out if they go under. Apparently the banks were told long ago that the government would protect their assets, and with that knowledge they started their sub-prime mortgage orgyfest without a care in the world. "We'll make tons of money, and if it all backfires, Uncle Sam will save us! Tra la la la!"

 

[werepossum]

Last paragraph - throw away the Bush plan entirely, then take the House Republicans' basic plan, add in the controls the Democrats added in their plan, and ban and/or criminalize the practices that got us in this mess.

So make making stupid decision illegal? Won't that put almost every average American into our already overcrowded jail? How would your do it? Moderate every single transaction? Put a dollar amount and hope there's no inflation or deflation ever? I know many not-so-rich families have been hitting the old tax put in to make sure rich people are paying taxes. A percent value and hope deals are always as good/bad as they are now? Wasn't that part of the bailout plan anyway, making the banks be smarter?

I don't want to criminalize making stupid decisions, just fraudulently claiming they were good decisions until your bonus kicks in. More simply, attempting to borrow $100,000 to buy a house worth $50,000 when you can only afford to repay a $40,000 loan should not be a crime, it should only be a waste of time. On the other hand, a lender using an in-house appraiser to appraise the $50,000 house as worth $100,000, then making a $125,000 variable rate loan which starts at a payment the borrower can afford but which next year will increase to a payment he can't possibly afford, all the time knowing that you (the lender) will have sold that loan to Fannie Mae, leaving the tax payers to pay for the defaulted loan - that should definitely be illegal on every level.

And buying a bunch of packages of those loans, claiming your company has increased in net worth, collecting millions in stock options and bonuses, then admitting the company actually lost money while keeping your bonuses, that should be felonious.

 

[Imitation Saccharin]

This bailout plan is essentially "enabling" the banks to take much greater risks than they normally would

http://en.wikipedia.org/wiki/Bank_run

Again, no expert, could be thinking wrong, but this is if I remember, what bank liquidity is for.

We extend credit to our customers, and in turn, our suppliers extend credit to us. There is a very Zen balance to this process, in that we never purchase more in credit than we have assets to pay for

http://en.wikipedia.org/wiki/Fractional-reserve_banking

I think this is the reason laise-faire economic policy is IMHO anyway, a bad idea in this instance.

 

[werepossum]

I don't pretend to be an economics major, but wouldn't one of the better options to help the economy be to incentivise larger companies to set up shop in the U.S. by repealing Monopoly laws while still allowing the government to step in on any business of unreasonable pricing?

Monopolies are bad, unless they're controlled by benevolent leaders who have everyone else's best interest at heart. Government control in industry is one of the things that the U.S. is against, which is why there aren't nationalized companies, and why electricity was de-regulated and caused Enron stuff.

That was an appeal to tradition, an arguing tactic on par with an ad hominem attack. The US economy is fucked, and its not likely to get any better without some help. At this point, incentivising about a hundred or so multi-billion dollar companies (instead of 10,000 failing ones) might actively create enough jobs to help keep the economy going. The way I see it, the companies will be garunteed total US control (and with it world Pop culture control) which would be far too tempting an offer. So they become American companies, and start giving jobs to American workers.

This would also bring about the death of Pepsi, which I for one think can't come soon enough.

Now tell me why that wouldn't work.

You're missing a couple of things. First, Fannie Mae and Freddie Mac are already GSE (Government Sponsored Entities), not only regulated by Congress like any lender but also specifically primarily driven by HUD policies rather than the profit motive. Thus Fannie Mae and Freddie Mac ARE what you'd get in a government-controlled monopoly. For what you'd get in a pure monopoly situation, look at Cuba, North Korea, the Soviet Union, Communist China before its embrace of capitalism. When government takes over a business, that business will be run according to political motives, not profit motive. Thus the business doesn't have to be profitable, just politically correct. In fact, profitability may well be diametrically opposed to politically concerns. Again, look at Fannie Mae and Freddie Mac. Profitability dictates that a mortgage company buy secure mortgages where the borrower has a secure and stable income, the house is worth significantly more than the mortgage so that if the borrower defaults the lender can easily and quickly sell the house for the outstanding loan amount, and the house is in an area where other people will want to buy it if the borrower defaults. Political concerns dictate that lenders make risky loans to help people who could not on their own afford to buy a house, whether because of bad credit, unstable income stream, etc. In the case of Fannie Mae and Freddie Mac, political concerns caused them to go on a buying spree of junk mortgages; they had to do this to meet HUD requirements. (They did NOT have to lie about earnings and valuation; that they did to enrich themselves.)

Second, Congress and HUD both have supervisory control over Fannie Mae and Freddie Mac; Congress and the SEC both have supervisory control over Lehman Brothers and Merrill Lynch. Neither Congress, nor HUD, nor the SEC foresaw these problems or did anything to prevent them until the crashing point. What makes you think these entities would do better with even bigger companies?

Third, the reason given for why Congress HAS to bail out Fannie Mae and Freddie Mac is because they are too big to be allowed to fail, else the damage to the economy will be too severe. Accordingly these companies should be split up, not increased in size.

 

[Madman_Andre]

777 points in a single day.

I sense a Coup de etat...

 

[werepossum]

Whose talking about government owned companies? I'm talking about private companies who are regulated slightly in fair pricing (to a general degree, as in not charging $200 for a game)

These companies already are regulated, slightly or heavily depending on your point of view. Again, monopolies are inherently inefficient because they have no competition. Without competition, all business decisions are equally valid.

 

[SenseOfTumour]

I'm coming from a Brit perspective, but all day on TV it seems to be ads going 'Hey , do you need money? Call us now, and we'll send you anything between 10-50 thousand pounds! Yes, you could have it in your account tomorrow, holidays, cars, whatever you want, call us for money, take it , take it, you know you want it'

then in tiny letters and superfast speak 'this is a loan, we don't care if you have the money to repay it, and will do all we can to destroy your life the moment we find out you can't. Note if you're already a bad debt we'll be charging you triple, knowing you know nothing about economics, and you're just thinking free money.

I know, stupid people shouldn't be given loans, but at the same time the banks and loan companies shouldn't be able to make ads that seemingly say 'call us for free money and buy shiny things, don't worry about repayments, we'll work it out later, just call us now and get free money!'

I'm speaking as a stupid person who learned, the hard way. Its a LOT harder to repay money then it is to borrow it, and they do all they can to make it harder to repay, in the hope you'll take longer and add more interest and charges.

The way I see it, almost all of financial work is gambling for people in suits. IF I went down to the racetrack and put all my money on 'three legged joe' to win, I don't feel I have the right to demand my money back because I made a bad investment. At the same time, it should be the guys at the top taking the hit, not the bottom rung employees and the people losing homes because they got bad advice.

The CEOs with $100 million in the bank, should be handing over $99 million to pay for the mistakes they caused, $1 million is quite enough for anyone. I know we oughta strip em bare and kick em into a dumpster, but I'm being nice. It sickens me how many people's lives would be saved from being wrecked with the profits of one of these top rung guys.

I know I'm speaking like a 15 year old with his understanding of economics, but I've been there, and I guess its hard to speak objectively.

 

[werepossum]

America needs to hit rock bottom before we will vote for a liberal, in the 1930s and now.
With half of the people losing their homes, they will surely vote for the socialist regime,
and there will be a revolution such as the overthrow of the tzars in Russia.

Yeah, and then we too can experience the wealth experienced by the Soviet Union, pre-capitalist China, Cuba, North Korea, Cambodia...

Oh, wait - I forgot it's going to be different this time.

The percentage of home mortgages in delinquency today is 2.33%.
http://www.cbsnews.com/stories/2006/10/26/business/realestate/main2126262.shtml?source=RSS&attr=_2126262

Who'd have thought "half of the people" would be living in 2.33% of the homes? Oh, wait - about a quarter of all homes are paid off, no mortgage! That means "half of the people" would be living in less than 2% of the homes! Damn those rich people - do they really need so many houses?

For those who aren't sheep with brains riddled by drugs and/or syphilis, please keep in mind that this is a housing and financial crisis - it ain't freakin' Armageddon.

Khell, I really don't see any difference between Douglas' Social Credit and Marx's model of communism. It's still the government deciding what you can buy, how much you should have to buy it with, and how much it should cost whilst insisting that the people are in control. Just another search for the famed triple-breasted woman in my view.

 

[werepossum]

I'm coming from a Brit perspective, but all day on TV it seems to be ads going 'Hey , do you need money? Call us now, and we'll send you anything between 10-50 thousand pounds! Yes, you could have it in your account tomorrow, holidays, cars, whatever you want, call us for money, take it , take it, you know you want it'

then in tiny letters and superfast speak 'this is a loan, we don't care if you have the money to repay it, and will do all we can to destroy your life the moment we find out you can't. Note if you're already a bad debt we'll be charging you triple, knowing you know nothing about economics, and you're just thinking free money.

I know, stupid people shouldn't be given loans, but at the same time the banks and loan companies shouldn't be able to make ads that seemingly say 'call us for free money and buy shiny things, don't worry about repayments, we'll work it out later, just call us now and get free money!'

I'm speaking as a stupid person who learned, the hard way. Its a LOT harder to repay money then it is to borrow it, and they do all they can to make it harder to repay, in the hope you'll take longer and add more interest and charges.

The way I see it, almost all of financial work is gambling for people in suits. IF I went down to the racetrack and put all my money on 'three legged joe' to win, I don't feel I have the right to demand my money back because I made a bad investment. At the same time, it should be the guys at the top taking the hit, not the bottom rung employees and the people losing homes because they got bad advice.

The CEOs with $100 million in the bank, should be handing over $99 million to pay for the mistakes they caused, $1 million is quite enough for anyone. I know we oughta strip em bare and kick em into a dumpster, but I'm being nice. It sickens me how many people's lives would be saved from being wrecked with the profits of one of these top rung guys.

I know I'm speaking like a 15 year old with his understanding of economics, but I've been there, and I guess its hard to speak objectively.

First, congratulations on learning basic economics, so many people never learn that. Having learned how not to screw up your life, your horizons are limited only by the obliviots you'll have to support.

Second, you hit the nail on the head, but it's actually even worse than that. Say you're fifteen and you get a mall kiosk job selling sunglasses for $10 a pair. Business is slow because there's an economic downturn. But then you find a bum - sorry, urban outdoorsman - who orders 1,000,000 pairs of sunglasses for $25 a pair! You immediately hand over all the sunglasses you have, 1,000 pairs, and order another 999,000 based on his promise to pay you $25,000,000. Since you have made the company $25,000,000, it's only fair you pay yourself a $5,000,000 bonus.

Then you discover to your chagrin that the urban outdoorsman only agreed to pay you $25,000,000 because he wanted a pair of sunglasses and no one would give him a pair on credit, so he played on your greed. Now you not only have no way to pay for the 999,000 pairs you ordered, but the 1,000 pairs you had are gone. You track him down and get them back, but now they are all scraped and scuffed and covered with bum-stank. You'll be lucky to get $5 each, especially considering that there's another 999,000 to move. So you scream that the government should take money from other people and give it to your company to make you whole. After all, you buy coffee and a Danish every morning, lunch every noon - the whole mall economy is dependent on you! And if the government insists, you'll grudgingly give back $250,000 of your $5,000,000 bonus whilst screaming that you are being scape-goated.

Bankers that use unscrupulous claims or bait-and-switch tactics, CEOs and CFOs that intentionally mis-state earnings and net worth for their own benefit - these people should be prosecuted as any other embezzlers.

 

[Imitation Saccharin]

After all, you buy coffee and a Danish every morning, lunch every noon - the whole mall economy is dependent on you!

I don't think it is appropriate to compare a bank to a consumer as the later is significantly lower in number then the former.

 

[Imitation Saccharin]

I'm mildly frightened right now, actually.

 

[BallPtPenTheif]

The loans themselves are not what this bail out is about though. Right now we have a credit freeze the banks simply won't lend to each other any more because they are afraid. They have peices of paper which are all together worthless. Simply giving wads of cash to each and every person will not solve this problem.

That's not true. They have only frozen crazy unrealistic loans that led to this mess. Anybody with real collateral and a reasonable downpayment can get a loan.

The bailout will not loosen the credit market since banks will now intentionally tank themselves and burnout just to be elligible for the bail out money and to get paid. The same reasoning that is proposing the bail out is what caused the problem in the first place. All of america, from spendthrift soccer moms to Wallmart have been extending their credit lines far past what they could afford... we've hit the wall and no amount of federal money is going to save everybodies ass. If anything it will just make it worse.

 

[BallPtPenTheif]

What drives me crazy is that all of this started due to Fannie May and Freddy Mac... both Government sponsored agencies designed to give home loans to people that didn't qualify for them. Because they were government sponsored, the heads of those firms took part in dangeruous business practices knowing full well that the government would cover their debts.

This goes all the way back to the Clinton administration and Greenspan.

 

[BallPtPenTheif]

Instead of giving 800 BILLION dollars to companies that give away money to people who obviously can't pay it back, they can just give every American over 18 150 THOUSAND dollars. That's right. I did the math and every legal American above the age of 18 could get a shiny check for 150 THOUSAND DOLLARS. How could this help the economy?

um... yeah...

The day you get that check, let me know how much a can of soda will cost.

 

[sneakypenguin]

What drives me crazy is that all of this started due to Fannie May and Freddy Mac... both Government sponsored agencies designed to give home loans to people that didn't qualify for them. Because they were government sponsored, the heads of those firms took part in dangerous business practices knowing full well that the government would cover their debts.

This goes all the way back to the Clinton administration and Greenspan.

Amen to that, we are in this trouble because the government decided everyone deserved to own a house, and promoted this lending to people who can no longer afford their payment.
Side note Obamas adviser is Jim Johnson former head of fannie mae and manageing director Lehman brothers(the bank that went under)
also Franklin Raines was CEO of Fannie Mae 1999 to 2004. Mr. Raines also is currently Barack Obama's economic advisor and has not yet been forced to resign. He is accused by The Office of Federal Housing Enterprise Oversight (OFHEO), the regulating body of Fannie Mae, of abetting widespread accounting errors, which included the shifting of losses so senior executives, such as himself, could earn large bonuses. Raines was sued for wrongdoing but was able to settle. An editorial in The Wall Street Journal called it a "paltry settlement" which allowed Raines and the other two executives to "keep the bulk of their riches." In 2003 alone, Raines's compensation was over $20 million.

I suppose the view of greedy republicans that many hold also applies to the "champion of the common man" democrat party
BTW -- In 2005 JOHN McCAIN proposed a bill to regulate Freddie Mac and Fannie Mae because of the financial dangers they presented to the American public. Guess who blocked that bill! The Dems

 

[Imitation Saccharin]

I suppose the view of greedy republicans that many hold also applies to the "champion of the common man" democrat party

It almost always does. The US system is bipartisan in its corruption.

 

[Slycne]

...

That's not true. They have only frozen crazy unrealistic loans that led to this mess. Anybody with real collateral and a reasonable downpayment can get a loan.

The bailout will not loosen the credit market since banks will now intentionally tank themselves and burnout just to be elligible for the bail out money and to get paid. The same reasoning that is proposing the bail out is what caused the problem in the first place. All of america, from spendthrift soccer moms to Wallmart have been extending their credit lines far past what they could afford... we've hit the wall and no amount of federal money is going to save everybodies ass. If anything it will just make it worse.

Thanks, I was only reiterating what I had heard from a number of sources. I am still leaning towards taking the economic hit and letting these fail.

 

[BallPtPenTheif]

Thanks, I was only reiterating what I had heard from a number of sources. I am still leaning towards taking the economic hit and letting these fail.

Yeah, i thought they were frozen too but I opened shop today and credit cards still work. Addittionally, a friend of mine is looking at home loans and game is still on for him.

Keep in mind, if these institutions fail they will claim bankruptcy. And bankrupt businesses don't just vanish, they are bought out buy bigger businesses who keep the functional assets (in this case, bank accounts). The only people who suffer in a bankruptcy are shareholders and the corporate financial officers (which is what should happen).

As for the frozen credit... if all credit were to magically cease it's only a brief matter of time until anybody or anything with enough financial liquidity picks up the opportunity to loan money.

People lend money to make money and if a profitable endeavor needs money, that's a financial opportunity that's not going to be left to the wayside.

 

[AntiAntagonist]

Instead of giving 800 BILLION dollars to companies that give away money to people who obviously can't pay it back, they can just give every American over 18 150 THOUSAND dollars. That's right. I did the math and every legal American above the age of 18 could get a shiny check for 150 THOUSAND DOLLARS. How could this help the economy?
-Pay off your mortgage (solves the problem right there by giving money to the banks that need it)
-Buy a new car.
-Buy your way thru the rest of college or your kid's college.
-Pay off your student loans.
-Pay off all your taxes and bills you couldn't pay before.
-Anything else you could want to do.

I agree that they should reject bailing them out. They would never do this for the little guy and therefore shouldn't do it for the big companies that don't realize that "C-Dog" and Mr. Hobo can't pay back a 15 thousand dollar loan. It's their fault.

Ummmm that's the Birk Plan.

The plan was written with some first-person thrown in, so I can understand if you forgot to cite that plan. However I'd recommend the citation since it isn't your plan.

 

[BallPtPenTheif]

I suppose the view of greedy republicans that many hold also applies to the "champion of the common man" democrat party

Unfortunately, the real greed is every single person and company that took out a loan or line of credit that they couldn't realistically afford to pay. And now these people want the government to fly in and save their unrealistic quality of life.