$700 Billion - To Bail or Not to Bail...That is the question

[U2Fan101]

$700 billion.

That is how much the government would have to pay to bail out these large, international companies.

If the government does not bail out these companies, then our economy is in serious critical condition - and internationally is in danger of collapsing. And being that we are currently in a recession, by not bailing out the companies, it could just be the door that would lead us straight into another depression.

If the government does bail out the companies, then the argument becomes where does the money come from. Do taxes get raised, meaning, we the people have to bail the mis-managed companies?

I think there are two alternate solutions, which hopefully that are what the Senators are meeting to discuss. They've made the decision, I would think, that they have to bail out these companies. As I said, if they don't, internationally we would be facing a serious economic crisis, and it could in fact potentially lead us right into a depression.

Let's pretend for a moment that they haven't decided yet whether to bail out the companies. So they debate and debate for days on end and finally vote. And Senate decides, no, we will let the companies suffer. They made the mistake, they will suffer, and unfortunately, the internationally economy will collapse, which in turn would send us right into a depression. Sounds bad doesn't it? But maybe not. With how bad our economy is right now, maybe a depression is the real cure we need. This country is hurting, that in order for the economy to get good again we need to reboot and restart to get on the right track. In one word: Depression. That is one option.

Another option is that congress has decided to bail out the companies. Now comes the decision where to raise this $700 billion. One option is the American people. Well, I for one am not going to bail out some multi-million dollar company that made bad financial decisions. It's not our problem, and it shouldn't be our problem. So where to get this money? My idea is that the government would lend the money to the companies, and the companies would then have to pay the government back with interest. That interest would go to help pay some of our, potentially, 11 point something trillion dollar debt. The government would also put in a stipulation that, since we're bailing you out, owners and VIP's in your companies cannot get raises, bonuses, or anything else of that nature. And when they retire, they don't get million dollar payouts and paychecks for the rest of their lives. They instead get a normal retirement and pension plan just like every other American in this country.

Two different approaches to this $700 billion bail out. I'm not sure which I personally like better. But they both sound good to me.

Which would you prefer?

 

[anitram]

Well if you read the proposal it's pretty clear where the money is coming from.

Long term, from the taxpayers.

Short term, the basics are that the Feds are going to make payments to the companies, which will then use that money to pay off their debtors, who will then use that money to buy treasuries which the Feds will then use to pay off the loan. In theory. So you're not really "coming up" with money so much as moving money 'round in the short term.

 

[U2Fan101]

That sounds like the same thing as having multiple credit cards. You max out all but one, then use that to transfer the balance of one card. And use that to transfer etc etc.

Or am I not seeing it right?

 

[anitram]

Paul Krugman put it best when he said it is like paying off your house with an IOU from your neighbour.

What we are talking about here is imaginary money.

 

[U2Fan101]

Well that's ridiculous. I don't like their decision on how to solve this. I think in the long run it will just cause more economic problems.

 

[anitram]

Well that's ridiculous. I don't like their decision on how to solve this. I think in the long run it will just cause more economic problems.

And McCain insists that this must be solved tomorrow.

Because heaven forbid that people sit down and think about this a little more carefully before running head first into another disaster (see: Iraq).

 

[ntalwar]

My idea is that the government would lend the money to the companies, and the companies would then have to pay the government back with interest. That interest would go to help pay some of our, potentially, 11 point something trillion dollar debt.

You realize they are already doing this, right? In addition, hundreds of billions of the Federal Reserve's assets has been lent out to the banks, for which they are using toxic assets as collateral.

 

[anitram]

You realize they are already doing this, right? In addition, hundreds of billions of the Federal Reserve's assets has been lent out to the banks, for which they are using toxic assets as collateral.

Yeah the same toxic paper that they can't get rid of in the first place.

 

[U2Fan101]

You realize they are already doing this, right? In addition, hundreds of billions of the Federal Reserve's assets has been lent out to the banks, for which they are using toxic assets as collateral.

No, I didn't know this. And what do mean by toxic assets?

 

[Vincent Vega]

Worthless credits.

 

[U2Fan101]

Worthless credits.

Toxic assets is worthless credits? Like what anitram was saying earlier about how the bill to pay off this 700 billion would be handled?

 

[sue4u2]

I don't think it's the loan or bail out, if you will that bothers most people - that are paying attention, as long as they pull out the part of it that states:

by the Secretary pursuant to the authority of this Act are
non-reviewable and committed to agency discretion, and may not be
reviewed by any court of law or any administrative agency.

Dirty Secret Of The Bailout: Thirty-Two Words That None Dare Utter

I don't want this monster going through without the proper oversight and bipartisan review going along with it.
No more blank checks for this administration or Wall Street. They can't handle their money as it is, and I can't afford to bail out ANYONE, thank you very much.

 

[U2isthebest]

And McCain insists that this must be solved tomorrow.

Because heaven forbid that people sit down and think about this a little more carefully before running head first into another disaster (see: Iraq).

I agree. It's plain irresponsible. Cowboy Maverick McCain is attempting to be the economic white knight thinking he's going to fool people into thinking he's putting "country first". But if this plan fails in six months , which it easily could, and thousands more Americans have lost their homes as more banking and insurance institutions collapse, his Pollyanna optimism is going to look pretty foolish. This is ludicrous. For the past 8 years, we've had a president in the White House who makes uninformed decisions based on ideology and partisan loyalty, a president not interested in taking a nuanced view of the complexity of the issues, a president who doesn't have the desire to sit down and calmly make rational decisions based on what's best for the common good. We've all seen where that's gotten us. We're in the worst economic crisis since the Depression, we're in a war without end that was began on misinformation and zero foresight, and nearly every other issue the Bush administration has attempted to work on has failed miserably. Yet, we could easily vote to go back for more under McCain? When it comes to our government, the American people are masochists.

 

[anitram]

Toxic paper is bad assets that can't be disposed of because there is no market for them.

 

[ntalwar]

No, I didn't know this. And what do mean by toxic assets?

Collateralized debt obligation - Wikipedia, the free encyclopedia

 

[U2isthebest]

I don't think it's the loan or bail out, if you will that bothers most people - that are paying attention, as long as they pull out the part of it that states:


Dirty Secret Of The Bailout: Thirty-Two Words That None Dare Utter

I don't want this monster going through without the proper oversight and bipartisan review going along with it.
No more blank checks for this administration or Wall Street. They can't handle their money as it is, and I can't afford to bail out ANYONE, thank you very much.

Exactly. This is exactly what happened before the Iraq invasion. Congress and the American people were not given access or the ability to review the intelligence much of which contradicted the Bush administrations public claims. We all know how that turned out. The brazen corruption of these people is unbelievable.

 

[Lila64]

I don't think it's the loan or bail out, if you will that bothers most people - that are paying attention, as long as they pull out the part of it that states:


Dirty Secret Of The Bailout: Thirty-Two Words That None Dare Utter

I don't want this monster going through without the proper oversight and bipartisan review going along with it.
No more blank checks for this administration or Wall Street. They can't handle their money as it is, and I can't afford to bail out ANYONE, thank you very much.

 

[sue4u2]

I watched Bush just a few minutes ago trying to scare the hell out of the masses to pass this immediately. I read earlier that Dick Cheney and Henry Paulsen went into a closed door meeting with leading Republicans to squelch the rhetoric coming from some Republicans about their dislike of this plan.
According to the report, Dick and Henry came out much worse off than they though they would. In other words, they tried to bully Republican leaders into going along with this, as is, and they wouldn't. My own Senator, Rep. Richard Shelby is completely against this and has gone on TV saying so. He has an actual plan for the oversight of the monies, as well as a great deal of other people.
That gives me hope, that if this bail out must be done, the tax payers won't be footing the entire bill.
Bush & Dick need to stop trying to bully and scare people.
Just work this out, dammit

 

[KhanadaRhodes]

i never post in fym anymore but i'm giving it a shot

this whole thing angers me so much. i guess it's because i personally know someone who bought a house that's too big and too expensive for them (i'm not judging, my friend has told me they HAVE to have two roommates for them to pay their mortgage. when they don't, they can't afford anything) thanks to the housing bubble. maybe it's because i'm not sure if i'd ever want to own a house, but i just am so stunned how many people bought a huge house hoping they could refinance later, or didn't bother seeing their adjustable rate mortgage would go up in a few years to something they couldn't afford.

thanks to the bubble being burst, there are huge homes that are available for rent in this city because no one can sell their house. we could afford (and want to) move to a bigger house but can't because we couldn't sell this one unless we lost our shirts.

i don't think this is a good fix at all, to just hand over the money. i know something has to be done, but i just think it's such a knee-jerk reaction, and i don't appreciate mccain pressuring everyone to make a decision omgrightnowcomeondosomething. suspending his campaign to work on this? wtf. maybe i'm incredibly naive and not knowing about the economy, but i don't think we'll have some huge collapse if we just wait even a week for this to be discussed. and like sue said, bush isn't helping by scaring people. isn't that going to make it worse? i couldn't even watch the whole thing, i was so disgusted.

 

[sue4u2]

maybe i'm incredibly naive and not knowing about the economy, but i don't think we'll have some huge collapse if we just wait even a week for this to be discussed.

I know, I had a strange sense of deja vu.
I'm a bit naive about the economics of all of this it too, but what I do know - for all intents and purposes it has already crashed.
Another week or so to be sure we aren't screwed even more and to make sure it's done right, it's what has to be done.
Even at that, It's not even guaranteed to fix the problem.
I'm not a conspiracy theorist type of person, but I almost feel like this is a financial overthrow of the US government. Or this administration is trying to bilk us out of everything it can before it leave office. Even at the expense of it's own party totally loosing face.

 

[U2isthebest]

Anyone want to give me a quick run-down of what our "fearless leader" said in his terror-inducing, shitfest tonight? I'm at the point where I can no longer listen to him speak for more than 30 seconds.

 

[sue4u2]

Anyone want to give me a quick run-down of what our "fearless leader" said in his terror-inducing, shitfest tonight? I'm at the point where I can no longer listen to him speak for more than 30 seconds.

He's just caused a panic of the already panicked.
Let me put it this way.. If I had any money in the bank, I'd be at the ATM pulling it out. Unless you pass this proposal without any strings.
You won't be able to get a loan, send your kids to college, your bank will fail and small businesses will not be able to get help to succeed. Jobs will be lost and it will be a long and painful recession.
You know everything that basically been going on all along with the exception of the priviledged few.

 

[anitram]

I'm going to implore everybody to read this piece by Paul Krugman. He's brilliant but beyond that he's written a piece that I think is understandable and accessible to people who don't really get what's going on.

So let’s try to think this through for ourselves. I have a four-step view of the financial crisis:

1. The bursting of the housing bubble has led to a surge in defaults and foreclosures, which in turn has led to a plunge in the prices of mortgage-backed securities — assets whose value ultimately comes from mortgage payments.

2. These financial losses have left many financial institutions with too little capital — too few assets compared with their debt. This problem is especially severe because everyone took on so much debt during the bubble years.

3. Because financial institutions have too little capital relative to their debt, they haven’t been able or willing to provide the credit the economy needs.

4. Financial institutions have been trying to pay down their debt by selling assets, including those mortgage-backed securities, but this drives asset prices down and makes their financial position even worse. This vicious circle is what some call the “paradox of deleveraging.”

The Paulson plan calls for the federal government to buy up $700 billion worth of troubled assets, mainly mortgage-backed securities. How does this resolve the crisis?

Well, it might — might — break the vicious circle of deleveraging, step 4 in my capsule description. Even that isn’t clear: the prices of many assets, not just those the Treasury proposes to buy, are under pressure. And even if the vicious circle is limited, the financial system will still be crippled by inadequate capital.

Or rather, it will be crippled by inadequate capital unless the federal government hugely overpays for the assets it buys, giving financial firms — and their stockholders and executives — a giant windfall at taxpayer expense. Did I mention that I’m not happy with this plan?

The logic of the crisis seems to call for an intervention, not at step 4, but at step 2: the financial system needs more capital. And if the government is going to provide capital to financial firms, it should get what people who provide capital are entitled to — a share in ownership, so that all the gains if the rescue plan works don’t go to the people who made the mess in the first place.

That’s what happened in the savings and loan crisis: the feds took over ownership of the bad banks, not just their bad assets. It’s also what happened with Fannie and Freddie. (And by the way, that rescue has done what it was supposed to. Mortgage interest rates have come down sharply since the federal takeover.)

But Mr. Paulson insists that he wants a “clean” plan. “Clean,” in this context, means a taxpayer-financed bailout with no strings attached — no quid pro quo on the part of those being bailed out. Why is that a good thing? Add to this the fact that Mr. Paulson is also demanding dictatorial authority, plus immunity from review “by any court of law or any administrative agency,” and this adds up to an unacceptable proposal.

I’m aware that Congress is under enormous pressure to agree to the Paulson plan in the next few days, with at most a few modifications that make it slightly less bad. Basically, after having spent a year and a half telling everyone that things were under control, the Bush administration says that the sky is falling, and that to save the world we have to do exactly what it says now now now.

But I’d urge Congress to pause for a minute, take a deep breath, and try to seriously rework the structure of the plan, making it a plan that addresses the real problem. Don’t let yourself be railroaded — if this plan goes through in anything like its current form, we’ll all be very sorry in the not-too-distant future.

This bears repeating:

after having spent a year and a half telling everyone that things were under control, the Bush administration says that the sky is falling, and that to save the world we have to do exactly what it says now now now.

And in case you don't get it:

after having spent a year and a half telling everyone that things were under control, the Bush administration says that the sky is falling, and that to save the world we have to do exactly what it says now now now.

 

[INDY500]

When it comes to televised presidential addresses meant to calm an anxious populace... Bush is no Franklin Roosevelt.

 

[maycocksean]

When it comes to televised presidential addresses meant to calm an anxious populace... Bush is no Franklin Roosevelt.

Hey, now as my man Biden says, Roosevelt got on the TV back in 1929 and let everyone know everything was going to be all right...

 

[corianderstem]

I think this truly deserves the smiley:

Bad News For The Bailout - Forbes.com

In fact, some of the most basic details, including the $700 billion figure Treasury would use to buy up bad debt, are fuzzy.

"It's not based on any particular data point," a Treasury spokeswoman told Forbes.com Tuesday. "We just wanted to choose a really large number."

Yes, um ...... that is indeed a very large number. We'd prefer one that's not pulled out of your collective asses.

 

[Vincent Vega]

I think this truly deserves the smiley:

Bad News For The Bailout - Forbes.com

In fact, some of the most basic details, including the $700 billion figure Treasury would use to buy up bad debt, are fuzzy.

"It's not based on any particular data point," a Treasury spokeswoman told Forbes.com Tuesday. "We just wanted to choose a really large number."

Yes, um ...... that is indeed a very large number. We'd prefer one that's not pulled out of your collective asses.

Well, the thing is: They don't know which number is the correct one. And it's even impossible to tell which range really is the correct one.

 

[sue4u2]

Well, the thing is: They don't know which number is the correct one. And it's even impossible to tell which range really is the correct one.

Which begs the question, are they, just like cori said "pulling it out of their collective asses."
Come on, what kind of decision it that? maybe the "decider" Bush thinks like this, but not the people.
This is one of the reason's it's not a done deal, like this administration thought it would be.

 

[Sue DeNym]

I don't think it's the loan or bail out, if you will that bothers most people - that are paying attention, as long as they pull out the part of it that states:

Dirty Secret Of The Bailout: Thirty-Two Words That None Dare Utter

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

WHAAAATTT?!

In short, the so-called "mother of all bailouts," which will transfer $700 billion taxpayer dollars to purchase the distressed assets of several failed financial institutions, will be conducted in a manner unchallengeable by courts and ungovernable by the People's duly sworn representatives. All decision-making power will be consolidated into the Executive Branch - who, we remind you, will have the incentive to act upon this privilege as quickly as possible, before they leave office.

No ing way! The whole system of checks and balances was put into place so that one government branch doesn't have supreme power over anything, to prevent just that type of corruption!

 

[sue4u2]

WHAAAATTT?!

No ing way! The whole system of checks and balances was put into place so that one government branch doesn't have supreme power over anything, to prevent just that type of corruption!

Yeah, but the current administration has systematically eroded these checks and balance's over the course of time, to bring us to this.

They really thought they would have the supreme power by today.
So far it hasn't worked. But they are coming really close.
Tomorrow is another day.