700 billion bailout fails

[dantama]

I don't have enough knowledge in economics to know what is best. But I didn't like the idea of tax payers bailing out poor business decisions.

I'm hoping some of you who know more about such things will do some explaining.

[mrfuni]

Hey Dan...

It was doomed before the vote.

Lawmakers were caught in the middle. On one side were the dire predictions from Bush, his economic team, and their own party leaders of an all-out financial meltdown if they failed to approve the rescue. On the other side: a flood of protest calls and e-mails from voters threatening to punish them at the ballot box.

So as all stinking politicians do, they were more concerned about their cushy jobs and fat pensions and put their self interest before the country.

And don't get me started on the politics of this mess. I think you know where I stand.... ;)

[formikec]

It ain't over yet. They'll pass some sort of handout. That's all our elected representatives know how to do, both parties, tax and spend, or spend and then tax, hand out free money to everyone except the middle class.

[blowndodge]

I'mba disbapinted. that was one of the options right??

[dantama]

Originally Posted by Blowndodge "Darksider"

I'mba disbapinted. that was one of the options right??

Yup, tried to hurry and do a poll before leaving for the evening. No time to spell check :)

[rksaw]

Hopefully this comes back with a couple conditions:

1) NO PORK! This went from something like 30 pages to over 100 pages overnight. This became a "Hey! What can I get my paws on!" legislation.

2) Strong regulation. I hate bigger government, but I what I hate even more is bigger government with a blank check. Also, CEO of failing companies should go down with the ship, not be given a beautiful yacht for driving into an iceberg...maybe give them stock in lieu of cash so that if the company fails, they fail.

3) When the government makes money on this (because they will, that's why they want in on this), regulate the amount of money they can have. Make it a percentage of the Gross Domestic Product, and the lower the number the better.

I'm sure there are lots of smarter guys than I here, so maybe someone can set me straight.
Rich

[rksaw]

I think that I might even change #2 that Failing CEOs shouldn't get paid at all!!!

[gnomad]

I don't claim to be an Economist myself, but I would think that if the taxpayers can buy these bad mortgages and hopefully make money on them when they sell later. My thinking is why not let these companies fail, someone else that actually has money will by them up then. The way our government works they would likely buy them up and then turn around and sell them for less and we would end up losing money. After all WaMu failed and was bought by JP Morgan, Wachovia was bought by Citi Group. Most of the most troubled assets are being protected by FDIC. The CEO of CitiGroup said " the acquisition offers a rare combination of potentially high returns and low risk. So can it really be all bad for the companies and executives that caused these failures to fall on their faces?

[glwilson]

Originally Posted by gnomad

I don't claim to be an Economist myself, but I would think that if the taxpayers can buy these bad mortgages and hopefully make money on them when they sell later. My thinking is why not let these companies fail, someone else that actually has money will by them up then. The way our government works they would likely buy them up and then turn around and sell them for less and we would end up losing money. After all WaMu failed and was bought by JP Morgan, Wachovia was bought by Citi Group. Most of the most troubled assets are being protected by FDIC. The CEO of CitiGroup said " the acquisition offers a rare combination of potentially high returns and low risk. So can it really be all bad for the companies and executives that caused these failures to fall on their faces?

gnomad; actually it would be bad -- real bad. Nearly every person in the U.S. would potentially suffer serious consequences themselves or know someone that will if this situation were to be left to the processes of free-enterprise -- which is why capital-markets are asking for assitance.

Historically high unemplyment would surely be the most noticeable and immediate result of a failure in the financial system in the U.S.

I don't know where you work; but I would put odds on the fact that your employer (or you if self-employed) is concerned about their line-of-credit at this very moment... the line-of-credit they need to function as a business. That credit is disappearing; and in some cases for some businesses already no longer available.

The estimated home real estate debt problem is in the neighborhood of over 4-trillion dollars -- whereby $1.4 trillion has been identified as being in the most immediate risk.

$700 billion will not likely cover the problem. The bail-out (TARP -- troubled assets relief program) figure of $700 billion was almost pulled-out of the air by the Treasury and was designed as nothing more than a start to help "stop-gate" the problem by providing a "jump-start" to the liquidity needed in the financial system -- the very liquidity that "lenders" need to lend money to businesses -- which employ people. Without liquidity and credit -- commerce will not exist.

It was then hoped that capital markets could then "work their way though" the reamining troubled assets. This is something that no one knows will work; or that it wouldn't work -- but without a doubt -- something had to be tried.

It was mentioned that taxpayers would profit from this. That is highly debatable. Certainly it is debatable on the basis that the demographics of the U.S. suggest there will be a "glut" of homes available for sale for every buyer available to buy a home within the next 10-years. This demographic curve that starts in about 10-years escalates for the next 10 after that. From an economic analysis standpoint -- the housing market would not be an area recommended for future growth opportunity; but rather of future contraction thus limiting the potential for profits from home values -- which then would leave only the ability to profit from the interest earned on the bailout money provided and potential taxation from those financial companies utilizing the program. My observations do not lend a high potential that the taxpayer will benefit much if any.

There is plenty of blame to go around for this; so I would ask that before anyone throws out blame that they do more research into the facts. Despite what you have been hearing, not one person; group of people; business; legislation, or government body is alone in the blame. Each were a "part" of the overall blame and have dirt under their fingernails. This problem was the result of many, many different economic and legislative actions that occurred over nearly 30-years+

If you study plane accidents you will find that most plane accidents are the result of a series of smaller mistakes that accumulate to the disaster. I would suggest the facts indicate a very similar situation occurred to cause this problem in this manner.

Credit card and commercial real estate development debt are the next two shoes to drop in this economic calamity.

We will go into a "consumer recession" by 2009 whereby many Americans simply will not have discretionary money to spend on the "extras" in life let alone make any major purchases.

Business profits will be reduced due to this; with some business closing their doors. Jobs will be lost. This along with limited discretionary income will cause the economy to stumble and contract further.

So, if you have cash; hang on to it. If you have debt -- get out of as much of it as possible. If you are thinking of adding more debt -- don't. If you can save more money -- do so.

Being directly involved in economics in my profession, I could go on for some time on the depth of the issues that face the U.S. presently and over the next 20-years; but will not say much more than I just have -- but know that I haven't even touched the surface with my comments above. So please; don't pass this off as something simple; or as a "wall-street" problem -- it is America's problem and there is more to come for the long-term.

Next week's discussion will be about global economic decoupling; and emerging market's long-term economic effect on the developed world's economies. Seating will be limited.

I say let the chips lay where they fall. I don't care if we go into a massive recession. I'm mormon, I have stockpiles of food and ammo. Governments will fall and anarchies will rise brothers and sisters!

[naugaman]

Is anyone old enough to remember the farm bailout? The dairy bailout?

gl, I hope you are wrong.That's a pretty dire forecast. I'm not an economist, don't know much about the nuts and bolts of it all.But it seems to me that the one common denominator here is greed. Whether it be the CEOs of the financial institutions, real estate agents/brokers, or the people that were just trying to keep up with the Jones's, there is plenty of blame to go around. Now, people will need to pull together and make some hard deciscions.
I feel fortunate, most recessions have gone unnoticed by me. I have always had a low standard of living. This one though could be tougher to weather. Starting tomorrow, well actually today, I am going to start cutting back on spending. Hopefully, when the smoke clears and the dust settles, I will still have a 401K, or at the very worst a 200.5k.
Again gl, I hope you are wrong, but what you say makes good sense.

[rksaw]

Meanstreak,
I'm with you...I hope that he's wrong, but I'll plan, like Wolf, if he's right.
Rich

[glwilson]

I hope I am wrong also.

There are a few "things" that could occur to soften this outlook; however; several issues of the problem are not going away. A consumer recession or nearly so will happen given the credit problem. Recessions are not necessarily as bad as many think; but are certainly not "enjoyable". There will be collateral damage to some. A "depression" is what we want to avoid if at all possible.

Wolfman; there are many "papers" written on what you were suggesting with regard to whether we are getting closer to anarchy in the U.S. or not. There are a lot of angry people in America at this moment -- me included.

[dantama]

Just something I read today

The objection to the plan seemed to divide into three parts. The first was a moral argument that taxpayer money should not be used to bail out Wall Street. The second was political, in that the plan made the secretary of the Treasury enormously powerful in allocating funds, and that given the administration’s lame duck status, there were no real checks on his action. The final argument was that there were cheaper and more effective methods that hadn’t been used, with everyone opting for the most expansive and dramatic solution, and that there was no certainty that this plan would work anyway. There was a fourth, unstated reason: Sentiment against bailing out Wall Street was high, and all Congress was up for re-election in a month. They did not want to be blamed for the bailout at home.