Maybe the bailout is the right thing to do

[editec]

Because banks making shitloads of money are always in financial trouble and in need of a bailout

They took out the money in the form of unbelievably generous compensation packages and left the bad debts behind.

What? You think these peple wouldn't knowing piss away 1.4 TRILLION dollars of somebody elses money if they could get paid 10% of it by doing so?

Think again.

That's scenario the poster child of what tragedy of the commons means, folks.

You think they're building bridges to nowhere for fun?

They're building those things so they can get their share of booty.

You can find examples of this sort of shortsighted goofy corruption in every public budget in every government in America.

 

[KMAN]

Interesting article in the NYTs that explains why the bailout is really needed, and it doesn't have much to do with saving the asses on Wall Street.

If banks don't feel comfortable loaning to each other, no one gets credit, for one. People stop buying things, businesses can't pay their employees.

http://www.nytimes.com/2008/10/02/b...1222956540-2Det0ggd1c6+1EnmvNEvsA&oref=slogin

Do businesses really pay their employees on credit? If so, ouch! I have a small business but there is no way in he!! I would pay on credit... Bad business...

 

[KMAN]

found it.

thought it was worth it's own thread.

http://www.usmessageboard.com/current-events/59894-republican-representatives-voted-against-bailout-out-of-spite.html#post816224

Not too mention 99% of the people they represnt are against it... but I'm sure that had nothing to do with it.

 

[manifold]

Not too mention 99% of the people they represnt are against it... but I'm sure that had nothing to do with it.

Already covered. If that's the reason, then they lied. Pick your partisan poison.

 

[Ravi]

Do businesses really pay their employees on credit? If so, ouch! I have a small business but there is no way in he!! I would pay on credit... Bad business...

Sometimes. If you are waiting for checks to come in for jobs you can't expect your employees to keep working for you if you don't pay them on a regular basis.

 

[manifold]

Should the government intervene to stabilize the financial markets and bring sanity to the escalating mortgage-induced turmoil? Absolutely.

The reason is straightforward: The financial rot is spreading to infect otherwise healthy firms, which poses a risk to people far and wide who bear no culpability for what's going on. The purpose of government is act on behalf of citizens in ways that make us better off. Stopping a financial meltdown is perfectly consistent with that mission.

Is this a "bailout" for homeowners, banks, and firms who did stupid things? Maybe. I suspect that the Treasury plan might leave some of them better off than if we do nothing. But we shouldn't let our eagerness to punish the wrongdoers blind us to the benefits of stopping their idiocy from making us all worse off.

The Fire Next Time

Here's the best analogy I can offer. Suppose a guy down the street has been smoking in bed for the last 20 years. That's a stupid, irresponsible thing to do, and lots of people have told him so.

He just happens to live next to another idiot who stores containers of gasoline in his garage. He, too, ought to be fully aware that this is a foolish thing to do.

Predictably enough, the guy smoking in bed starts a fire that explodes in force when it hits the gasoline-filled garage next door. Now there's a hell of a blaze going on. If these two guys lived alone in a remote area of rural Montana, we wouldn't have much to discuss. But they don't. Instead, the fire is spreading down their residential suburban street, burning houses where nobody smokes in bed or keeps gasoline in the garage.

Damage Control

That's about where we are right now with the financial crisis. The question isn't whether we should rush to save the morons responsible and put ourselves at risk in the process. We shouldn't. The question is whether we should intervene to save the rest of the neighborhood. We should.

The fire department may end up helping our smoker and gas-can man just because it's an unavoidable part of fighting the larger fire. That's unfortunate, but it's not a good reason to call off the fire department. I don't get enough utility out of standing amid the smoldering ruins of their houses to justify the risk that the same thing may happen to my house a few hours later.

If you want to fine these guys, or put them in jail, or take away what's left of their property -- fine. That seems perfectly appropriate. But just make sure you take care of the fire first, because that's what's dangerous here.

Exit Strategies

To be honest, I don't know the exact details of how this Wall Street "fire" ought to be fought. I suspect it should involve two simultaneous strategies:

1. A government fund to buy distressed derivatives, which would inject capital into the system and provide some mechanism for pricing these opaque securities. The first step toward recovery is making the securities liquid again, meaning that they can be bought and sold at a predictable price, even if it's a low price.

2. A government fund to buy mortgages in foreclosure, or at risk of foreclosure, from lenders at a discounted price. So if I've got a $200,000 mortgage and I can't make the payments anymore, the government would buy it from my lender for something like $180,000. The lender still gets a haircut, but probably ends up better off than taking on the administrative expense of foreclosure and then having to sell the house in a dismal market.

The government would then restructure my loan with terms that I could afford, such as stretching the payments over 40 years instead of 30, or perhaps even lowering the value of the outstanding loan.

As a homeowner, I, too, should have to pay a price for borrowing more than I could afford. The government should be entitled to any profits on the eventual sale of my home up to the amount of whatever break they've given me. So if the Treasury knocks my mortgage down from $200,000 to $160,000, and I'm eventually able to sell the house for a profit, I should send a check to Uncle Sam at closing for $40,000 -- plus interest.

That's the essence of a sensible plan: Restore stability to the housing market at realistic prices; and inject liquidity into Wall Street, again at realistic prices. Just to stop the fire from spreading.


Read the rest here:

http://finance.yahoo.com/expert/article/economist/111589

 

[Ravi]

I liked his last paragraph, I was thinking about that movie the other day.

The best economic lesson right now -- or at least the most accessible one -- comes from Jimmy Steward in "It's a Wonderful Life." He knew a bank run when he saw it and was willing to put his own capital at risk to stop it. The U.S. government ought to do the same. It will make us all better off in the long run.

I keep going back and forth, but it pretty much looks like it's going to happen and even my own personal economic guru is good with it.

 

[jusstyjonesy]

I think something needs to be done, and those supporting this bailout most likely have pure motives, but I think I stand against it. We've had a long history of bailouts and we don't really know if they are the best choice, and a lot of research suggests that the New Deal prolonged the Great Depression. We have a long history of moral hazards a good quote from an article I read:

Are we not just setting ourselves up for another bail out. It will be awhile, the horror of this will instill caution to the market for at least two decades, but meanwhile another lesson will be instilled: the government will bail out a troubled market.

This only exacerbates the problem that got us here. Everyone knew Fannie and Freddie would be bailed out and they were right. So they could keep insuring crap and everyone would buy it.

 

[sealybobo]

I think something needs to be done, and those supporting this bailout most likely have pure motives, but I think I stand against it. We've had a long history of bailouts and we don't really know if they are the best choice, and a lot of research suggests that the New Deal prolonged the Great Depression. We have a long history of moral hazards a good quote from an article I read:



This only exacerbates the problem that got us here. Everyone knew Fannie and Freddie would be bailed out and they were right. So they could keep insuring crap and everyone would buy it.

Don't call it a bailout or make it a bailout. The Government can purchase those banks and own them. Then regulate them and fix the economy and then sell them back to the capitalists once the repairs have been made and the laws are set so this can't happen again.

And curbing CEO pay is a bitch, but Corporations can't tell us they can't afford to pay American wages and at the same time pay CEO's $20 million for a month of work. And for FAILURE!

 

[eots]

[

QUOTE=sealybobo;816827]Don't call it a bailout or make it a bailout. The Government can purchase those banks and own them. Then regulate them and fix the economy and then sell them back to the capitalists once the repairs have been made and the laws are set so this can't happen again

.


the government doesn't own them... we ...]do and they will be paying for this bail out ..oh excuse me purchased by printing money out of thin air and devaluing your investments and savings even further ...then you hope the same capitalist that created the problem are now going to fix them and purchase them back once the repairs have been made..and we will all live happily ever after....WRONG..get ready for your food rations and gas rations...they are just trying to quill the masses... get them used to it slowly..get some troops back from Iraq to control the riots.....

 

[Chris]

I was against the bill before I was for it.

The economist I saw on Rachel Maddow's show convinced me it was the better of bad options. Apparently there are technical reasons for it. Seeing Mitch McConnell and Chris Dodd on the same side was pretty impressive as well. And Warren Buffett said it was the right thing to do, and he is an honest man.

 

[Ravi]

mmm...there was a Republican *gasp* congresscritter on npr tonight. His claim was that the bill won't stave off a recession, or even worse, but it will make the difference of being able to go to the bank and withdraw money from your own account.

I give up. There's is no sanity left in the world.

 

[WillowTree]

750 billion dollars. 350 million citizens.. ... ... ... .


sucks dosen't it

 

[WillowTree]

we could all be billionaires and still have money left over.




sucks dosen't it

 

[xsited1]

Maybe the bailout is the right thing to do

And maybe monkeys will fly out of my butt. Look, there they go!

 

[xsited1]

Bailout Raises Libertarians' Market Value

The main source: Can't you guess? Yes: the government. According to the Cato narrative, Fannie Mae and Freddie Mac were big-government creatures to begin with. Then, ill-advised government subsidies and incentives drove the creation of dubious mortgages and the bundling of rotten mortgage-backed securities, whose disintegration allegedly threatens to wreck the economy from Wall Street to Main Street.

"Too much regulation got us where we are," Crane says.

And yet, marring the moment is how few people are getting this message so far.

"The biggest emotion we're feeling right now is frustration that the media narrative is that this is a crisis of the free market, a crisis of capitalism, a crisis of under-regulation," Boaz says. "In fact it's a crisis of subsidization and intervention."

 

[WillowTree]

Bill O'Reilly just told old Barney Frank what a coward he was!

 

[dilloduck]

Bailout Raises Libertarians' Market Value

The main source: Can't you guess? Yes: the government. According to the Cato narrative, Fannie Mae and Freddie Mac were big-government creatures to begin with. Then, ill-advised government subsidies and incentives drove the creation of dubious mortgages and the bundling of rotten mortgage-backed securities, whose disintegration allegedly threatens to wreck the economy from Wall Street to Main Street.

"Too much regulation got us where we are," Crane says.

And yet, marring the moment is how few people are getting this message so far.

"The biggest emotion we're feeling right now is frustration that the media narrative is that this is a crisis of the free market, a crisis of capitalism, a crisis of under-regulation," Boaz says. "In fact it's a crisis of subsidization and intervention."

It's more like a crisis of honesty, brains, and courage. Congress needs to go see the Great Wizard.

 

[gonegolfin]

Interesting article in the NYTs that explains why the bailout is really needed, and it doesn't have much to do with saving the asses on Wall Street.

If banks don't feel comfortable loaning to each other, no one gets credit, for one. People stop buying things, businesses can't pay their employees.

"A run on money funds could force fund managers to shy away from commercial paper, fearing the loans were no longer safe. One reason given by the Reserve Primary Fund for breaking the buck was that it had bought Lehman commercial paper with a face value of $785 million that was now worth little because of its bankruptcy. If money market funds became fearful of buying commercial paper, that would make it far more difficult for companies to raise the cash needed to pay employees, for instance. At that point, it would not just be the credit markets that were frozen, but commerce itself."

The bailout bill does not introduce legislation to address the solvency of the money market funds. The Treasury announced a different measure (via the ESF) to backstop money market funds.

As for the effect on the commercial paper market, I propose that the bailout bill could have a negative unintended consequence on the commercial paper market. See my post here ...

http://www.usmessageboard.com/economy/59957-unintended-consequences-of-the-bailout.html

Brian

 

[hatepolotics]

The interesting thing to me is that the American economy has been artificially propped up by a thing called credit". Why is it so imperative that we have "credit"? So that we can continue to live beyond our means? So that banks and other corporations can continue to post profits to look good on Wall Street when in-fact they are just posting artificial profits based on credit that has been handed out to people that can and will default on their instant loan from the credit card company?

I understand that we need to do something now to stop the bleeding, but nobody has addressed the real issue of why we are in this mess to begin with.