http://business.timesonline.co.uk/tol/business/markets/artic...
"As nine central banks used currency swaps to oil the wheels of dollar liquidity in the money markets, sterling plunged and was on course for its steepest one-day drop against the dollar for at least a decade and a half."
good! lawmakers on the radio today were saying 90% of their callers were against it. this is a victory for the stingy saver who doesn't obsess over vacation homes and luxury cars. every THING is about to go on sale, and the prudent will have their day.
taxpayers who pay their bills and live wisely don't need credit, they live on cash. these people should not be punished for the greed of everyone else on wall st and main st
Well, in a way, they sort of had it coming with their negative savings rates and all. Personal accountability really does go to die in the States although other countries are approaching our levels. Fat? Liposuction. Ugly? Plastic surgery. Don't want to exercise or eat right? Pills. Poor? Welfare. Don't know what you're doing with massive gobs of money? $700 Billion Bailout!?
There are plenty of people who put 20% down on a fixed rate mortgage, are paying that off perfectly, and the market value of their house is now below what they paid for it. Those people are going to get hammered if they sell the house and owe the bank tens of thousands of dollars. In that situation you just don't sell your house.
But what if you have to sell your house? Medical bills? Job changes? Want to retire?
It's nice that you think you are superior to all this vain people, but this crisis is not about vain people getting fucked. It is about responsible people have their American dream burned to the ground by morons with oversized sub prime mortgages and the banks that lent to them. This goes beyond hurting the people who caused the mess!
Houses are not an investment vehicle. If you buy one, it should be the for the long-term. Otherwise - don't. And I do feel for the minority of people with special circumstances.
I do not think I'm superior; I just try to know what I'm doing before acting.
The people who took out those loans knew what they were getting in to, and if they didn't, they should have. If it sounds too good to be true...
I'm well aware that this affects everyone in some way. We're at a point where fixing liquidity is crucial and something needs to be done, and we need to make sure to profit from any money lent. I really like what Sweden did: http://is.gd/3iO2
I just worry our government is going to react instead of decide.
You keep speaking on the premise that it is contained to sub-prime mortgages. "The people who took out those loans knew what they were getting into"
What about the other 90% of people who live on the same street as the asshole with the sub prime mortgage who are now unable to sell their house if they need to because the sub prime one is at auction for half the price they need to get?
Liquidity isn't going to fix that, we have a problem with too many houses on the market and too few people buying them. If you have enough money you can still get a prime mortgage, people just don't want to buy right now.
Yeah, I bet those 'stingy savers' didn't go to college, and thus accrue the student loans that are practically required to get an education these days.
What about those who are young and hacker-ish that have not had the chance to save (I mean compared to someone that has been working for 20 years)? Times might get a little tough.
To first order, this is great for you. Stocks are going on sale. You want to do your saving immediately after the massive crash, not before.
Of course, that's just the first-order analysis. The second-order problems are potentially, um, annoying: If the economy tanks you might not earn any money to save next year. And your joy at being able to invest in a bear market (because you've got plenty of time to wait for the recovery) might be dampened by the sight of your parents moving in with you to save money because their retirement fund just evaporated. (They don't have time to wait for a recovery.)
I think that the better statement is 'volatility creates opportunities.'
For example, depressed real estate markets can create high demand for rentals. You might be able to make money each month on a mortgaged property (a real novelty in Australia for example). And if rental demand is high, prices will probably eventually recover.
The issue is that a recession by definition means most people are worse off.
You guys are much better off. Those of us with houses and bills are going to hurt. Those of us with stretched lines of credit and a penchant for living above our means are really going to hurt.
Well, let's see how well Canada does if the US economy collapses... :-/ So far the strong loonie has decimated some industry sectors, I'm surprised things aren't worse overall.
Canada is arguably set up for a harder fall. Household balance sheets are even worse there, and the dependence on commodities could prove to be a disaster in a global economic downturn.
Household balance sheets are nowhere near as bad here in Canada as they are in the US. This is common knowledge so please provide some figures if you've got something that suggests otherwise. We also have stronger banks and didn't get nearly the "deals" that American's got for mortgages.
You are correct about our dependence on resources, but the US is only one of several markets we export to. I'm sure China and India won't mind buying our oil and trees.
Again, a citation is required. Canadian economists regularly state that the D/I ratio is much better in Canada than in the US. (Although it is a cause for concern nonetheless)
Also, given the dramatic drop in US housing values and only a leveling off of Canadian prices, I question your second point as well, at least looking forward.
Ok, here's the thing: even if you disagree philosophically with the legislation that they put together, you still would be wise to be very worried about the overall state of the economy due to tight credit. Many businesses (good, solid, profitable businesses that employ hard-working people) fund their operations via credit markets that have seized up. Absent some kind of intervention (and I for one would like to see more ideas on the table), even your ideal "prudent" person will probably suffer.
Just because you've done everything prudently on your own micro scale doesn't mean macro events can't hurt you.
I can't pretend that I understand this whole thing, and am quite suspicious of anyone that says they do, who does not report on it more or less full time and have a good grasp of economics, but... one analogy that's come to mind is a car stopping. In one case, with the brakes, in another, by hitting a rock wall. The end result is still a stopped car, but there are some other differences that might be of interest to the occupants.
In any case, most of the discussion that's worth anything is coming from economists, of which there are a wide variety to read. Most people on sites like this one don't seem to have the expertise to say much that's useful, either for or against (and that includes me, thanks).
As you can see even those guys are peddling their own ideologies to various degrees, along with everyone else with vested interests - and that's a lot of people, because 700 billion combined with a potential collapse of the economy is pretty high stakes. This doesn't make it easier to understand.
Like I said, to be honest I do not know if it is in any way an accurate analogy, but it seems to capture the sentiment I hear from some economists saying "yeah, giving money to people who screwed up sucks, but the alternative is much worse".
Maybe the banks and whomever else holds mortgages will start to seriously restructure mortgages to generate cashflow from those so far behind and feeling hopeless they have just stopped paying altogether.
I think one of the commonly held misconceptions about this whole 'bailout' thing is that fixing the mortgage market NOW will fix the problem. Fixing the mortgage market in 2006 might have helped, but it also might not have. We'll never know.
While subprime mortgages got this whole ball rolling, the credit crisis extends way beyond that now, and has taken on a life of its own. This bailout plan was to try and fix the credit crunch by restoring confidence in the financial sector, taking toxic assets off their books, and giving them a more stable capital base. The housing crisis is now a separate issue, and if lawmakers want to address it, it should be in a separate bill.
If the housing crisis continues, it hurts a lot of people that made bad borrowing decisions and it hurts a lot of banks that made bad lending decisions, but the turmoil is mostly in the financial/construction/materials sectors. If the credit crunch continues, just about anything could fail unexpectedly, including things as diverse as insurers and big manufacturers, which could leave a lot of people out of work, and turn this from a Wall St crisis into a Main St crisis.
If you mean the credit default swaps, those are worthless pieces of paper peddled by companies that didn't have the means to keep up with those contracts. In other words, they are fraudulent.
There was one hedge fund that setup a company with $4.5 million dollars to be able to cover a possible default of into the billions.
Those contracts are worse then worthless and should be annulled like a marriage to Britney Spears.
"You deposit $100,000 into a CD. The bank creates three loans based on the original $100,000 deposit. Loan /Asset #1 = $90,000 Loan/Asset #2 = $81,000
Loan/Asset #3 = $72,900. The total = $243,900 in assets for the bank. This is $243,900 in new money."... ..."After it pays you 5% interest, the bank has made a tidy profit of $238,900. ($243,900 - $5,000 = $238,900.)"
The crucial link that wasn't mentioned is that when as loan is issued that money is returned to a bank as a deposit (usually). Only then can then re-issue it as a loan.
Pumping in a huge amount of government debt and credit is hitting the accelerator, not hitting the brakes. Cheap credit is the fuel that produced the mess.
I disagree. The bailout gives us more time to find out where the brake pedal is, so that we can press it. We're already speeding towards the wall whether we like it or not.
I think it's more like putting on a gorilla mask and hanging our ass out the passenger window while screaming like tarzan, so we can find the choke cable.
The car analogy is stupid. There is no brake and there is no gas pedal. There is a natural balance between savings, loan interest rates, and consumer demand. What's happening now is that demand and savings rates are trying to return to their natural balancing levels after having been knocked out of whack by fake interest rates. The powers that be don't like that rebalancing, but it will happen one way or the other. Government can only exacerbate the process (and make certain insiders rich at public expense).
The simple fact is that thousands of businesses NEED to go under and lots of people NEED to lose their jobs. Many of the businesses and jobs were created to service demand that doesn't really exist. The demand was an illusion created by fake cheap credit. The faster this process is run through the better the ultimate outcome.
In that case, will you be declaring bankruptcy and putting everyone that much closer to recovery then?
No? Then I don't see how it's seen to be acceptable to demand that action of others. The effects of the crunch will go much further than fat cats on wall street.
You don't seem to understand that this is not a matter of choice. Many, many bankruptcies will be happening one way or the other as the macroeconomic fundamentals of saving and interest rates return to balance. The government is powerless to affect this.
Thousands of nail salons and restaurants were built because cheap credit made them temporarily profitable as future consumption was taken today while debt loads rose. Well, the future arrived. And now consumption must be forgone. The nail salons and restaurants will go bankrupt and the workers will go unemployed. The faster we get it over with the better.
The question becomes: would you rather have $700 billion to ensure unemployed people don't starve? Or would you rather use it to temporarily prop up nominal asset prices owned by rich people?
> In that case, will you be declaring bankruptcy
I have no debt at all, so that's kind of impossible. However, my savings are part of the solution. The problem is we need more savings. The solution to that is dramatically lower consumption, which is what a recession is all about.
My point is that for better or ill, every American is in this together.
The nail salons and restaurants will go bankrupt and the workers will go unemployed. The faster we get it over with the better.
Those nail salons and restaurants are real people with real money. It may in fact be that many of them are destined to fail, and that many of them shouldn't have been in business in the first place, but the people that allowed them to get in over their heads - that would be the collective American republic - have a duty to make sure they fall as gently as possible. By temporarily putting trust back into the credit markets, this bill would have bought the time to explore the options.
To simply pull the rug out from under the little guy is a violation of the contract that the government has with its people.
Absolutely none of that $700 billion will wind up spent a nail salon that is doomed to close, or otherwise enable someone to get a manicure. It will only serve to devalue the dollar and drive up import costs, drive up interest rates (as the credit worthiness of the US is questioned), and feather the nests of certain elites. You seem to favor emotional appeals over a discussion of the macroeconomic reality.
The money would go towards strengthening the distressed loans that everyone is going crazy about. In turn this would (should) hopefully slow the housing crash enough that some real decisions could be made about how to get on with fixing this mess. It's not the end solution, I agree. It is however a better option than smashing headfirst into a recession, possibly even a depression.
It will devalue the dollar, that much is true. Interest rates are fubared either way. Feathering the nest of elites was a major concern, but with proper oversight injected into a succeeding bill, this will be mitigated.
You seem to favor emotional appeals over a discussion of the macroeconomic reality.
And you seem to favour the "let the fuckers burn" attitude that is so similar to that which created this mess: greed and an unfounded confidence in the self.
too bad the compromise bailout didn't have proper oversight either. Instead of making all transactions publicly available, it would still be a gov secret. The only difference is that it expands it from one person to two committees
Not really - it's just hand waving. I want clear, cogent argumentation with pertinent facts, and refutations of other points of view, not silly imagery (he does better elsewhere). Like I said, I don't know if my car example is very good or not, but calling it "stupid" and going off on a rant is not the sort of commentary I'm after, which is, again, why I doubt I'll find much of value regarding the issue on this site - people here are hackers, not economists.
Agree on all points, just that image was so inane and off the wall that it gave me a belly laugh after a tough day of coding. That was about the only thing I got out of the whole thread; for reasons you outlined this discussion conveyed zero bits of information to me as well. I expected the usual ideology and armchair analysis, and got it, along with an unexpected laugh.
This is precisely the sort of "I know exactly what's going on" comment that I'm suspicious of. Perhaps you do, but I am in a "don't trust anyone" sort of mood, I suppose.
If feelings of mistrust are your guide then it should be obvious that the bailout is an evil racket. Cui bono?
Outstanding consumer and business debt is something like $40 trillion. Way more than $700 billion of it is at risk. The bailout bill is so small relative to the real credit markets that it can ONLY possibly be a political act for certain well connected individuals. It cannot drive the macroeconomic conditions related to the whole credit market.
Sounds like conspiracy theory territory to me, but maybe I'm misconstruing what you're saying. On the surface, your argument regarding 700 billion vs 40 trillion sounds plausible, but then again, it doesn't seem to be convincing guys like Larry Summers, Mark Thoma, or The Economist ( http://www.economist.com/world/unitedstates/displayStory.cfm... ), and I don't think they're all in on the plot, yet are pretty smart.
On the other hand, if things don't go to hell without the bailout, it will show that Paulson et al. were indeed quite wrong.
There is a simple, good test for smartness in the current climate: Who identified and coherently described the housing bubble in 2005 or before? I think everyone on your list fails the test.
> The technology bubble in the late 1990s at least left behind a modern capital stock, which continues to yield productivity gains; a property boom, in contrast, does nothing to boost long-term growth. Instead, it diverts resources away from more productive sectors and by fuelling consumer spending it exacerbates America's economic imbalances. Eventually, there will be a price to pay.
Also, I'm not sure that predictions of problems equate to knowing what to do to best wind down the current mess. You're right (elsewhere) that some things need to go under. However, I think the point of the 'bailout proponents' is that more will go under than otherwise needs be without it.
Of course I guess we'll really never know for certain in any case, as it's impossible to know what would have happened otherwise. We could have no bailout and massive failures just as we could have a bailout and still have massive failures. Or no massive failures in either case.
> I think the point of the 'bailout proponents' is that more will go under than otherwise needs be without it.
I've seen this movie before. If bailouts and stimulus packages worked Japan would have been the economic star of the 1990s and the Depression would have ended before FDR ran for the nomination.
Japan didn't do "bailouts", from what I've read. More along the lines of simply never facing up to the bad debts and letting some things fail. That certainly has to be part of it, and has been so far.
Raines may be in a dream business, but the net result of Fannie Mae’s actions in the credit markets is a nightmare of resource misallocation and massive systemic risk.
Buffett bought callable preferred stock and warrants.
Differences: preferred stock only pays a dividend when Goldman makes a profit. In a bankruptcy, preferred is ahead of common, but behind creditors. At any time, Goldman can pay Buffett a 10% premium to the issue price, and get the preferred back. If Buffett exercises his warrants, he will still own the preferred.
I remember reading: "A lack of capital kills you slowly, a lack of liquidity kills you like a slug to the head" - I think the credit crunch is more of the latter (or people claim it is). Who knows...
Part of freedom is being free to fail. Most of the people I have observed fighting this thing are doing so with eyes wide open, knowing full well the economic consequences of defeating it.
The bailout isn't to help taxpayers get credit. It's to help businesses get credit so the prudent will still have jobs in a month. Everything may go on sale, but you can't go on a shopping spree when you're unemployed.
The vast majority of the bailout criticisms I've heard are woefully uninformed.
You can't wave a magic wand and create real reserves to lend. Real credit comes from reserves of savings. This is about stopping a deleveraging process in the financial markets, not about ensuring the flow of credit to businesses. That's just the propaganda.
Credit demand is collapsing as an economic bubble bursts and this is DRIVING the deleveraging. Not the other way around. If the economy were truly starved for credit you'd see 8% rates on CDs as banks scramble to raise reserves to lend out.
"Credit demand is collapsing as an economic bubble bursts and this is DRIVING the deleveraging."
You're going to have to explain that more. How does lower credit demand force deleveraging? I was under the impression that the deleveraging is being caused my huge losses on heavily levered investments.
"If the economy were truly starved for credit you'd see 8% rates on CDs as banks scramble to raise reserves to lend out."
The markets for debt have just taken a huge beating. I'm guessing the banks aren't meeting the demand for credit because it has just become more difficult to sell debt. If they are having issues with the loans they've already made, it's easy to see why they aren't rushing to issue more.
I can't prove that the economy is starved for credit, but it's clearly the conventional wisdom. If you're going to call that propaganda, you need to prove that the conventional wisdom is wrong.
> I can't prove that the economy is starved for credit
You can get a loan at very reasonable rates right now if you meet the criteria. That's just a fact, and I'm not in a mood to give you documenting links. Outstanding credit continues to grow at only a slightly lower rate than before. There is not a credit shortage. There is a shortage of viable uses for credit. There is huge overcapacity in retail, housing, etc. People who can't reasonably be expected to pay back loans can't get them right now. Which is basically a good thing. Businesses can't get loans to expand because nobody in their right mind thinks many kinds of business SHOULD be expanding.
The macro-economic conditions are driving the markets, not the other way around. The financial firms are suffering because the REAL economy ran out of greater fools and hit its maximum tolerable debt load. The real economy is not shuddering because the masters in Wall Street can't grease the wheels; it's the other way around.
Hm... That's a possibility. Lower housing values led to decreased home equity, which led to decreased consumer spending, which led to lowered expectations for businesses, which led to fewer loans being made. If this is true, the bailout won't work and we'll head into a recession, possibly a severe one.
However, I wouldn't say that's why the financial firms are suffering. They're suffering because they all made the same bad investments.
Anyway, I doubt that the situation is as simple as what I've laid out here. I don't trust my previous justification for the bailout, but even the economists who opposed it said we still need to do something (http://faculty.chicagogsb.edu/john.cochrane/research/Papers/...).
> You can get a loan at very reasonable rates right now if you meet the criteria.
This is a good point, and one I've read elsewhere. However, I've also read this, which seems to add some nuance, if not quite contradict the above quote:
"The interbank-funds market has seized up and even the most creditworthy corporate and financial firms are paying punitive rates."
It's possible those firms aren't really creditworthy, but giving the 'newspaper' the benefit of the doubt, this would make the situation a bit more complex than you paint it.
Not if he has his savings in stocks. In fact, if he followed the conventional wisdom and put (100 - age) percent of his assets in stocks, a 40 y.o. stingy saver just lost 5% of his savings today alone. Which is almost certainly more than his share of the $700 billion.
Tax rates are negative, zero, or nominal for most people. There are perhaps 100 million people who pay a substantial amount of income taxes in the US (I am fudging around various numbers to make the math easier, here; see http://www.taxfoundation.org/research/show/1410.html for information on how many people simply don't pay taxes). So that's an average of $7000 per serious taxpayer. $7000 is 5% of $140,000. Do you think a typical 40 year-old taxpayer has a $140,000 equity portfolio?
Not exactly true, there are plenty in good financial standing who had prime mortgages on their single residence, a place they have owned for 10+ years, that because of the depreciation in the market can now no longer sell their home without owing a huge amount to the bank for the difference. That means you can't sell your home if you have to, what if your job tells you that you have to move? What if you have to sell your house to use the cash for medical bills?
There are a lot of people really hurting from this, just because we're a bunch of hackers living in apartments saying HAHA now I can buy a house! Doesn't mean that families who made previously responsible decisions are not getting really hammered. To say "GOOD!" to this is incredibly callous and most likely a sign of great ignorance to what is really going on.
Unless you live in an unbelievably depressed area like downtown Detroit (and maybe not even then), home prices in America are substantially higher than they were 10 years ago. So anyone who has had a fixed rate mortgage for 10+ years (unless they've been treating their house as an ATM) is looking at a profit if they sell their house.
In fact, according to the Case-Shiller index, homeowners in the 20 largest metro areas of the U.S. have seen their homes increase in value by over 60% between January 2000 and June 2008. Of course, this is down from 106% as of the summer of 2006. Falling house prices have definitely put a large number of homeowners underwater, but these people either bought in the past few years or took out one or more HELOCs (home equity line of credit).
Ha! One of the reasons I stick to buying low cost index funds is because I know what those terms mean and have realized finance is mostly a fools game. Especially hedge funds.
I agree with the "index fund" approach. Too many people get caught up playing the market or paying out the butt to some "financial advisor" who doesn't have much more of a clue where the economy is going than your Average Joe.
Just stick it in an index fund and let compound interest be your friend.
Stocks are only down ~6%. The Dow is regularly going up and down hundreds of points at a time these days, -571 points is not really that big of a deal.
Plus, what would you expect to happen? Investors were counting on about $1 Trillon of free money from the government, and then the government pulled it back at the last minute. In a few days there will be news of a new deal and the DJIA will be up 500 points again. And, if the House of Representatives keeps doing its job, then the DJIA will fall 500 points again when the next "no" vote comes.
Well, I wouldn't equate a single day's loss to mean much. The DOW is going to get lower and lower, even if it has a few blips here and there.
The key is this: The DOW dropped 500 points because nothing happened. Theoretically, the markets are in the exact same position they were in Friday, yet they fell.
Once more Wachovias start pilling up, that's when you'll see the slide begin.
"To amend the Internal Revenue Code of 1986 to provide earnings assistance and tax relief to members of the uniformed services, volunteer firefighters, and Peace Corps volunteers, and for other purposes"
I think the real reason it failed is that they didn't title it "Flags for Orphans and other stuff".
To amend the Internal Revenue Code of 1986 to provide earnings assistance and tax relief to software developers, information architects and dolphin trainers
People assume that 1.2 trillion was lost(stock market). However that money still exists, just the ownership has changed. Today was probably the largest transfer of wealth ever.
In my opinion this is a good thing. You can't have unchecked growth forever. You need to have a downturn to jolt consumer confidence and investor confidence.
So when my portfolio dropped today, who exactly got that money? I didn't sell any stocks, mind you. I just had X dollars worth of stock this morning, and now I have < X.
You buy a car for $20,000. A year later, the Bluebook tells you it's worth $10,000. Who got the $10,000 that you've "lost"?
When your portfolio "dropped" today you didn't gain or lose anything. You still own the same tiny fraction of some company. All that happened is that some guy sold his tiny fraction to some other guy for less than you paid.
Please consider the context of the comment I was replying to. In your example, who "gets" the 10K I lose? No one. A car changing in value is not wealth transfer. A stock going down in value is not wealth transfer.
At least, that's how I understand it. I was curious if the original commenter meant something different.
Not of all the value lost is depreciation. A lot of the value is determined by the market. For example, Hondas and Toyotas have better resale than a Ford. The principle is still the same thing basically.
A car is depreciated on the books per standard rules and traditions, generally around 5 years.
Computers are depreciated around 3 years.
The above is true only if a purchase is "capitalized" and classified as an asset. This "depreciation" allows you to deduct a loss per that 3 or 5 years on your taxes, or incrementally decrease your assets on your balance sheet.
If it is not capitalized and classified as an asset, it is an expense. An expense is noted on the income statement and the entire cost is accounted for in that quarter.
I think we're really talking about two different things. You're talking about depreciation as it applies for tax purposes. I'm talking about what's the actual price of a used car. Depreciation tries to make a baseline guess at what rate the value of car will fall, but does not set the actual price of the car in the market.
you're right, we are talking about 2 things, and your approach is more accurate - however. most entities will value an asset based off of a formula, not market price.
wealth can be destroyed when entities default - just as you hint.
wealth could have been transferred today if people were allowed to short securities, but what actually happened to many was the realization of losses on the books of the finance industry - at least those who bought for the short term.
but you also have wealth being transferred to those who have been holding stock for several years (long term) and watched them wildly appreciate over the past 5 years, and started selling in the past 2 weeks when they realized the bubble has burst.
the point is that there is quite a bit ($1.2 trillion) less wealth in the world today than there was yesterday. There are a lot of clueless folks who think when 1.2 tril is lost, someone else made 1.2 tril. It's possible a few people made money today, but the losses greatly outweighed any gains (short-selling, puts, etc).
A quote from Wall Street is perfect here.
"It's not a question of enough, pal. It's a Zero Sum game - somebody wins, somebody loses. Money itself isn't lost or made, it's simply transferred - from one perception to another. Like magic."
Bleh accidentally upvoted you instead of downvoted, but this is blatantly false. If money were a zero sum game, then how do we have growth and inflation? The money supply grows, ideally at the same pace the economy grows. Businesses create wealth, and as transactions that transfer wealth grow in number, we need more money to facilitate those transfers of wealth.
The money itself is only as good as the wealth it can purchase, and as that wealth steadily grows, we need more money to carry out the transactions. So it is by no means a zero sum game.
yup my bad, I forgot to mention it was a movie but i still believe it is a one-sum game, where one person or a company has made more money than they had before, from this bubble.
Each day, only a small part of a company's stock change hands. However, the price of all stocks change, based on that valuation. That is what happened, a lot of stock was valuated as less then it was before (which means that paper money just disappeared).
It's a common but bad comparison, a country is not a company the political actors act not as leaders in the sense of a company. It's a constant process to find common ground between elected representives. If you are looking at political processes don't think about decisions and clear statements think about a permanent negotiation to somehow muddle through. It's basically a very good system to get something done without giving anybody too much power. The alternative is Stalin.
The only options are a system with where minor laws are passed dishonestly or Stalin.
a country is not a company
OK. But I was not taking the analogy very far. I'm saying that if bills are passed by tacking on little unrelated clauses that benefit the particular interests of certain politicians while flying under the radar in order to bypass democracy, you lose some respect & trust in an institution. It also makes me leery of anyone that thrives in the environment.
These institutions are decision making bodies making decision on behalf of others.
BTW - Apparently (see the comment on substitute bill), this is just a technical trick to bypass paperwork & speed this along.
This is a Substitute Bill. All of the language of the uniformed services, volunteer firefighters etc was replaced completely with the economic bailout language. It's done commonly in the house to expedite legislation because they still have to follow complex rules of parliamentary procedure.
So an administration that no one trusts can't pass a bill that would enact the largest transfer of wealth in history - from American people - to reckless financial institutions that don't even trust themselves? Astounding!
That pretty much sums up my view point. I really don't understand much of what is going on (who really does honestly?), but I certainly know I can't trust anyone involved in this clusterfuck.
What's really interesting about this is (IMO) is that the Republicans are the ones largely responsible for the failure. The president's own party is revolting against him.
It's a factually true statement, folks. Check the vote counts, and you'll see that it went down along party lines, with Republicans in the majority of the 'no' votes. In fact, over 67% of House Republicans voted against the bill.
The White House lobbied heavily for the measure, and the Republicans in the House shot it down. That's interesting.
Perhaps they were gambling that enough dems would vote for it (because of the scare tactics of reading out the dows stock starting to crash right before the vote) so that it would pass, and later when the bailout became the political failure it was destined to become they could point to dems as responsible. American voters have a very short memory, and few check facts. I'm sure that the fact that this is so closely connected to Bush could be forgotten with an excellent mudslinging campaign. Then the Repubs would be able to take seats in the next congressional round of elections.
Uh, we started this administration with a Budget surplus, and now we are more in debt than ever. How exactly is that fiscally conservative? Not saying democrats are, but if that statment it ever was true, is definitely myth now.
There was no budget surplus when the current administration started. It only looked like a surplus if you ignored many of the real financial obligations.
What's astounding is that 205 of our very fine elected representatives thought it was a great idea. I think I need to dig up that list and send 20 bucks to each of their opponents in the upcoming election.
The bill is duplicitous from the get go. It's entitled "To amend the Internal Revenue Code of 1986 to provide earnings assistance and tax relief to members of the uniformed services, volunteer firefighters, and Peace Corps volunteers, and for other purposes"! If that kind of doublespeak don't get yer hackles up, I can't imagine what would.
Some honest discussion, some real consequences for the people that caused this meltdown (and it was caused, it was not an accident), and some oversight in how a bailout proceeds. Perhaps we, as the folks footing the bill, would also like to know what the total is actually going to be before agreeing to it. My understanding of the bill (admittedly weak) is that it is a blank check for Paulson to distribute amongst his friends in the finance industry, with no oversight and no transparency about how it's going to be used.
The fact that a bailout is being presented as "OMG! We have to do this now, imagine the consequences if we don't!" it has a strikingly similar ring to the "We have to invade Iraq now!" pose of a few years ago. I don't trust salesguys that insist I need to buy now, and I really don't trust politicians when they use the same tactic, especially when they're arguments are based on lies and misdirection.
Yes, something must be done. Accountability would be a great start. Bringing some trust back into our finance industry would be a good way forward. A bailout? I dunno. Maybe there are other ways forward that directly help the people hurt rather than the millionaires and billionaires that caused it.
I don't understand. Surely if all the banks failed that would be a great opportunity for people to start new banks with extra incentive to prove their honesty and trustworthiness, for instance.
It can't be the case that banks will collapse and everyone goes "Oh shit money is now worthless, I'm shutting down my business, firing everyone and going to find a soup kitchen".
Good question. And one I think ought to be asked. It's a standard tactic of both sides to frame a debate such that any result is one they'd be happy with. This appears to be a classic case of that. Both sides want a bailout, and so they've framed the debate as "What kind of bailout do we want?" rather than "Do we need a bailout, or can this problem be solved in other ways?"
Interestingly, a huge percentage of Americans (even a few who understand what's going on) don't want a bailout, at all.
At the core of my problem is the Hacker News philosophy that a spirited go-getter can create value for people out of nothing.
Yet the oft mentioned depression of the early 1900s showed people queueing for handout foods.
Farmers would still work because people still need to eat. People would still trade with farmers because they need to eat and farmers need work doing. People would trade with builders and mechanics and plumbers and cooks and delivery people and oil companies because they want things that those people have, and in exchange they have skills that other people want. This is business, this is life, has been for hundreds of years.
So how can that also coexist with unemployed people relying on handouts? What went missing to turn the ongoing network of trades into a fallen pile of cards?
Why are some economies sparkling and growing and others filled with peasants eeking a miserable existance?
Is credit somehow the missing link I'm not getting? If so, why doesn't printing more money fix Zimbabwe? If it's not credit, what else can vanish? America isn't suddenly out of education, is it? Is it trust?
Is there really any kind of meaningful answer to this that doesn't involve pointing at the whole world and saying "that, that's it. Everything that is, that's the answer"?
If so, why doesn't printing more money fix Zimbabwe?
Zimbabwe has deep problems unrelated to money supply. If you build a successful business in Zimbabwe Mugabe's thugs will kill you and steal it (or allow you to escape the country with the clothes on your back, if you're lucky). In a culture where everyone has to either be a part of the gang that runs the place, or pay for the privilege of mere existence, business cannot grow. The incentives are simply wrong for business to exist. There is no incentive to work hard, build something new, take risks on new ideas, or provide a service (to anyone other than the thugs in charge). If you had no hope of becoming successful would you start a new business? Would you bother working every day to maintain an existing one? Everyone who has the capacity to build products, grow food, and provide knowledge services, has either fled the country or been killed or imprisoned by the government. Of course the economy of Zimbabwe is a shithole.
So, I don't have any answers to any of your other question. I'm by no means an expert on the subject. But the causes of the economic failure of Zimbabwe seems pretty obvious to me. And, the more the US looked like Zimbabwe, politically speaking, the more our economy would look like the economy of Zimbabwe. Luckily, we have a long way to fall to be in quite the same kind of mess as Zimbabwe. But, I do think a bailout without serious oversight and some accountability for the people that caused the problem, would be a big step in the wrong direction.
I'm not necessarily representing my view. But a view:
Economics is far from a fundamental science. Very far. It is really more of a description of what happens via all sorts of analogies that usually hold true & help to explain the things that we see happening. Some parts of economics are stronger then others because they are based on manipulating tautologies of various sorts. But others are really more along the lines of: 'If we put a dog here, the sheep will go there'.
As with most non fundamental sciences, economics can break down in extreme circumstances. Neuton's Mechanics is not as fundamental as relativity. It breaks down in extreme cases. That only seems strange because physics is very fundamental. But with Zoology, Sociaology, Phsychology or other "downstream" sciences, this is expected. No one's surprised when techniques break down during psychoanalysis of a woman raised by wolves.
Psychology is explained by Biology, explained by chemistry, explained by physics. And each of those words is just really a number of links in this chain in themselves.
Economics is two or three links up that chain. So here's how we go back to the topic:
If a supermarket chain that supplied 85% of food in a region goes out of business, leaving it empty of competitors, what happens? The rules still apply. Consumers seek alternative. Small shops, mail order shopping, markets become very lucrative. Consumers spend more on food or get 'less' for a period. Eventually, a new equilibrium is found.
But what happens if the equivalent food producers go out of business? Wheat doesn't get sown. Coke doesn't get bottled. Sure it's a great opportunity for boutique vegie growers. But the same rules no longer apply. 20% of the food supply means there isn't enough for everyone to eat right. Maybe people sell off Apartments to buy houses with backyards (to grow food). Maybe they take time off work to plant. Maybe things are too volatile for boutique farmers to get investment to grow.
I'm not saying this is a close analogy. I'm certainly not saying the 'bailout' should've happened. If I were American, I'd be as suspicious as SwellJoe of a bill that's called "tax breaks for Peace Corps & stuff" which gives unreal sums to big companies while the salesman-like proponents chants 'This is too complicated for you to understand', 'You need to decide now' & 'Apocalypse is coming so pick mine.' But I am saying that relying on high level economic principles here is not like relying on gravity. Not at all. At best it's like relying on wolves attacking a calf over a bull. It makes sense. It usually happens. But who know what happens to traumatised wolves from a a circus during a thunderstorm.
There is no good alternative. The bail out is a band aid. It will keep markets and consumers "happy" and blinded for a short period of time. If that bill passed you would have saw the stock market go up today. Thus restoring temporary faith in the market and economic system. Then we will have to fix the underlying problem or you will see it fall right back to where it was and keep falling.
I'm not in favor of footing the bill for mistakes these financial institutions made. But if we don't help them out it will continue to trickle and things will get worse. But we may help them out and things may get worse anyways. We are in some big trouble and its not even close to over.
Here's a letter that I sent my congressman. I'm interested to hear opinions on my ideas for a bailout alternative:
I was greatly disappointed to see your vote of "Aye" for the bill entitled "To amend the Internal Revenue Code of 1986 to provide earnings assistance and tax relief to members of the uniformed services, volunteer firefighters, and Peace Corps volunteers, and for other purposes". The bill, of course, includes the provision for the "bailout" of the financial sector.
My first problem lies in the title of the bill. As a friend of mine said, "If that kind of doublespeak don't get yer hackles up, I can't imagine what would." Have you read George Orwell's 1984, sir? I would not like to imply that we are in such a situation, but to allow a bill to pass which is so clearly titled in an obfuscating way is a mistake, one that is insulting to the American people.
My second problem lies in the bailout itself. Instead of punishing those companies that mismanaged their finances, we are instead calling for the entire country to pay for their mistakes. A massive tide of bankruptcies would have 3 major effects:
1. People employed by such companies would lose their jobs. These people are largely white-collar workers who should have some savings put away and should be able to find another job without much trouble. Surely it is better for these individuals to be out of work than for the entire country to be handed a debt that was created by the private sector.
2. It will be harder to get low-rate credit. In a nation that is addicted to such credit, I consider this to be a good thing in general, as it will encourage saving (or filing bankruptcy and starting over without a penchant for overspending). This still poses a minor problem, which I will address below.
3. Some people will lose their retirement investments. This, of course, is a bad thing.
Based on points (2) and (3), I think that $700B+ would be better allocated to:
1. Subsidize home mortgage interest rates and/or offer tax credits for people in low tax brackets. This will allow lower- and middle-class individuals to still be able to purchase homes and spaces for small businesses in spite of the inevitable credit crunch.
2. Create a program for individuals meeting certain criteria (age, total assets) that uses government funds to restore some of their lost investments. This will bring some relief to those who depended on the ill-run companies for their retirement.
I believe that my ideas are better than a bailout because instead of punishing the entire country for the mistakes of a few, it offers relief to the uninvolved parties who will be hit the hardest, while allowing those responsible for this mess to receive the brunt of the punishment.
If, instead, the government proceeds with the bailout, the government is subsidizing the risk of high-risk business practices, which causes companies to take irrational risks and unfairly rake in short-term profits, profits which are later paid for by tax payers who bail the company out when it inevitably goes under.
I plead with you to consider the fair course of action in this case, the one which does not punish everyone for the mismanagement of a few. And if the bailout package is allowed to go through, at least ensure that the bill is correctly titled.
If those financial institutions fail, they will have to be nationalized. Taxpayers will lose far more than $700 billion. The only way your characterization of the bailout as a net transfer of wealth is tenable is if you're against government intervention in financial crises altogether, which is silly. Unless you also think fractional reserve banking should be illegal, which is also silly.
Why is it silly to make conjouring money out of nowhere illegal?
If there is only $100 in the world, and a bank gives it to you and you pay it back with interest, where does the interest come from?
If there's $100 in the world, and a bank "gives $100" to 10 people, who all have to pay back $100 + interest, where does that come from?
You have to borrow it from another bank. Total money in the world increases, the economy grows, but it's a con, a mirage, a convenient consensual fiction. A system based on eternal growth, which relies on pushing around ever increasing debt for its very existence, where repaying the total debt would require giving the banks back all the money they ever loaned plus all the stuff in the world to the value of the conjured extra. How is this not silly?
"If there's $100 in the world, and a bank "gives $100" to 10 people, who all have to pay back $100 + interest, where does that come from?"
That's not how fractional reserve banking works. Banks don't lend more than they have in their vaults, they just have less in their vaults than the sum of their depositors' accounts.
That's tangential to your main point, which seems to be an objection to a perpetually increasing amount of money that only exists as numbers in a computer backed by nothing. That only becomes a problem in a severe recession, where the rate of wealth creation slows so much that loans can't be paid back. The system breaks, and governments have to intervene to fix it. This isn't done by just giving banks money, as you suggest. The government typically takes over the banks. The proposed bailout involves buying assets, but it's still not giving banks money.
That is only a problem if you think we'd be better off with the slower economic growth that would result from banning fractional reserve banking. We're not. A system that breaks on a regular basis sounds like a bad idea, but you still have to compare it with the alternative before you condemn it.
If there's only one bank in the world, how can it have less in its vault than the sum of the depositor's accounts, if it isn't lending the difference out of nothing? Have people been depositing forged cheques?
Because currency is only a quanta for trade and it's physical manifestation doesn't need to exist in equal amount to all assets and obligations.
As for fractional reserve banking (the regulated version, anyway...), the bank needs only to hold enough capital to write down expected losses on loans. Much of this mess has been caused by the banks voluntarily levering out of this safety margin.
Sure, but it would be different from the one we have now. Things might be moving slower, but crashes should be less frequent.
The main difference is that that system isn't built on the assumption that the economy will always expand, which the current system is. I'll leave it to someone who actually knows something about the pros and cons of each to tell you if that's good or bad.. But basic reasoning tells me that it's not likely that something that takes place in a fixed environment (Earth) can expand for ever.
LOL money is not "special". It's just a commodity, a universal unit of exchange to facilitate trade because bartering is inefficient. There is, in any economy, over the long term a 1:1 mapping between "money" and "wealth" (the latter being goods and services). If more wealth is created (by physical and/or intellectual work being done) then two things happen. First, money becomes worth more (e.g. how many MIPS per dollar). And the money supply is increased so that some things always cost more-or-less the same (e.g. Big Macs). If you have more money than wealth, the value of each unit of money goes down (inflation). That's why you can't print banknotes to get out of a sticky situation.
You could skip money and use seashells or chickens or whatever you wanted, the mechanism would still work.
Seize a bank when it's in trouble, "fix" it, and sell it in a public offering. If the income from the sale nets more than the government spend to fix it, that profit is distributed to the original shareholders.
This happened i Sweden in the early 90's. Some banks were in trouble, and the government said that they'd help them, but by nationalization. One of the major banks were then suddently conveniently able to get some capital, and survived on it's own.
I can't believe everyone is taking this comment seriously. I happen to also think that a collapse will cost the U.S. far more than $700 billion, but they try to imply this bailout is the only way to prevent that collapse. Also: "The only way your characterization of the bailout as a net transfer of wealth is tenable is if you're against government intervention in financial crises altogether..." The only way you can think this is if you think that, providing me with a straw man to rail against! And of course the argument against the straw man is essentially worthless name calling in and of it's self, "...which is silly." Ah, a quality, well reasoned argument there! Then pretty much lather, rinse, repeat for the next sentence... maybe he's just a troll? I guess I rose to the bait, but I'm shocked such a comment is taken at face value by everyone else.... Looks like two DH0s, a couple of straw man attempts, and although I don't know enough to say much about the first sentence, it does seem like a claim made with out any proof\reasoning.
And never mind the fact that even if you support a bailout this one was setup with language to specifically prevent oversight of any kind and would hence almost certainly be extremely corrupt, which rather does characterize that bailout as an attempted net transfer of wealth to me.
"I can't believe everyone is taking this comment seriously."
They didn't. My comment wasn't an argument, it just stated my position. Someone else replied with a different position, and I explained further. In an ideal world, I would've fully explained my position in the first place, but it wasn't worth the time if no one disagreed.
Well, terribly sorry if I called it wrong. In any case I think it came out a bit meaner than I had intended. I dunno...it can be tricky deciding what's safe to assume and what has to be fully worded and explained out....
I'm surprised by the vote tallies. Democrats voted 140 yes and 95 no, while Republicans voted 65 yes and 133 no.
So, either Republicans (in the House) have more integrity than I'd given them credit for lately (and more than Democrats, on the whole), or I have less understanding of the bill than I thought I did.
Also, the Washington Post is either a little bit batshit crazy, or they have a strange sense of humor: You can sort the results by astrological sign. If you really wanted to have one more sorting type...the length of time in office would be more interesting to me (and not indicative of being ready for a quiet retirement with fewer disturbances in life).
I think a simpler line of reasoning is that the Democrats have a bit more control over the bill, and have been able to get in terms that Democrats favor more than the Republicans have been able to.
The Democrats have the majority in both houses and could pass the bill without the Republicans if they wanted. They don't do that because they want consensus, especially so close to the election.
The issue is that from my understanding, it's a really bad bill. I think it shows a striking lack of character to vote for a bad bill because it happens to contain some earmarks or other terms you (and your biggest contributors) happen to like.
The older I get, the more I realize that character in politicians is far more important than ideology. Decent people can disagree on the right way to solve the problems our nation faces, including this (very large) one...but lining the pockets of supporters at the expense of everyone else in the nation, particularly those least able to protect their assets, strikes me as a despicable and crassly self-serving act. The only way to a solution that most everybody can agree on is to honestly discuss the issues.
With a bill named "To amend the Internal Revenue Code of 1986 to provide earnings assistance and tax relief to members of the uniformed services, volunteer firefighters, and Peace Corps volunteers, and for other purposes" that hands $700 billion (actually more...) over to a fellow who'll be doling it out to all of his old buddies from the finance industry with no oversight, we've already established that no sane discussion can take place. It's classic doublespeak on the order of the best the Soviets and Red Chinese ever came up with, and that duplicity in and of itself is enough to disqualify this bill from consideration by honest folks.
This is actually a prime example of why I genuinely like Ron Paul. I disagree with him on some major issues (immigration and abortion being the biggest), but I know where he stands, and I know he believes in what he says and acts accordingly. I think I'd like to see a lot more of that, from any side of the political spectrum. But, it seems like crooked Republicans get voted out only to be replaced by crooked Democrats. I'd be happy with a batch of honest Democrats or a batch of honest Republicans, but it seems the only way to keep them close to honest is to keep churning new people in, keep the parties roughly in balance, and keep them at each others throats so they can do the least amount of damage possible.
The bill is quite a bit toned down from how you described it (afaik). You're talking about the initial version of it, which I thought was absolutely horrible. The version that was voted on today seemed quite a bit better (more oversight, some limits on executive pay, not all the money is paid out at once among other provisions...), but I just think that the core of the bill is simply not a good idea.
Thanks, I wasn't too aware of exactly what had changed. I didn't realize that the transactions would not be made available to the public, that seems insane.
From what I heard, Peloisi gave a startlingly bad speech before putting the bill up for a vote. Something along the lines of how this was all the fault of Bush and his policies and then she tried to tie this to the federal deficit. Not sure. I need to find a copy and read it to get a better idea. Even without that speech, there was a lot in this bill to dislike. Namely, giving the sec. of the treasury a check of $700 billion with absolutely not controls is a patently idiotic thing to do.
This bill cannot pass. We will only make the problem that much worse in the end. We will be proping up this failed system to continue on. The legislation is so vague and flimsy it's virtually worthless.
The patching of the credit liquidity crisis right now is like using corks to patch a leaky submarine. Not only that, but you don't have enough corks to patch all the holes.
We are going to see a large recession in all of our markets. Even if you pass this bill, no serious economist knows the extent of the financial crisis. All of them can gaurentee, though, that it will be far above $1tril.
Don't fall for this nonsense the politicians and the rich are spouting about. They only want to sustain this failed lesse faire market and continue to benefit from it. We need our economy to be entirely restructured and this is the time to do that.
Good. Now get to work devising a bill that has more oversight and whose tactics are more agreed upon by economists (capital injection a la Sweden in '92: http://www.nytimes.com/2008/09/23/business/worldbusiness/23k...). Sweden spent 5% of its GDP but recouped 3% of GDP, for a 2% GDP net cost. Did anyone believe that 60% of the money spent by this defeated bill would have been recouped?
Well up to 40% could default on them before you got to that point. Right now no one knows what the rate will ultimately be. In some areas it is already 60%, but in some areas it is 5%, so 40% nationally would be a very high number. At that point the better question would be what to do with so many bankrupt people.
Remember, the 700 billion would purchase the worst bank assets, so presumably the associated mortgages would default at significantly higher rates than the national average.
I forget where I read this (Andrew Sullivan?). Someone predicted that now the Democrats will put out a new bill and it'll be voted through the house along party lines. Bush could veto it in the middle of his financial armageddon, or sign something with real teeth in it...
It seems like just buying equity in the failing companies is a more direct way to deal with the problem than throwing money at the problem, in exchange for promises that Paulson will write up warrants that benefit the American taxpayer.
Less than 75 years ago, it was essentially illegal in this country to be black. I wouldn't trust our government to clean up dog shit let alone handle $700 billion dollars trying to bail out our retarded amateur-hour financial institutions.
Forgive me if this is obvious, but I'm not sure most people realize that this wouldn't be $700 billion going straight from taxpayers to banks. The actual cost to taxpayers will be much less. The $700 billion would be used to purchase assets from banks, and sold to investors at a later time.
I've been saying that too, and yet most people don't realize that it would based off the default percentage. Do we really think 100% of people would default? I don't.
well when you don't know how much the asset was bought for and how much the gov will sell it for - that's all just conjecture. Records of the transactions themselves will not be publicly available; they will only be given to two small committees.
The $700 billion is a balance sheet number. My understanding was that the total amount to be spent had no preset limit in the defeated bill. In the end it's true that nobody knows what it'll cost. It cost Sweden between 0 and 2% (depending on accounting method) of their GDP in 1992 according to http://www.nytimes.com/2008/09/23/business/worldbusiness/23k.... The $700 billion figure is about 5% of US GDP.
In their infinite wisdom, Congress decided to wipe out $1.2 trillion in market capitalization by not passing the plan, thus costing the economy $500 billion more than the bailout would have -- assuming the bailout would have no effect at all. Brilliant.
uh...wrong. You cannot know if investor confidence will be stronger or weaker with this bailout. Time will tell and we only get to play it one way. There are no "do overs" here.
One point not mentioned in the article. The subgroup of the House that was most in favor of the bill were those with the least conflict of interest between their personal political future, and the good of the country as they perceived it: the Representatives who were not running for reelection.
They were overwhelmingly in favor.
What does that say about the state of our democracy
You can read this different ways.
"those with the least conflict of interest between their personal political future"
But those not up for reelection could do business as usual, right? Most of us think that "business as usual" means legislation not in the interest of the many.
197 comments
[ 4.0 ms ] story [ 259 ms ] threadtaxpayers who pay their bills and live wisely don't need credit, they live on cash. these people should not be punished for the greed of everyone else on wall st and main st
Unfortunately, 90% of America isn't described in the above sentence.
There are plenty of people who put 20% down on a fixed rate mortgage, are paying that off perfectly, and the market value of their house is now below what they paid for it. Those people are going to get hammered if they sell the house and owe the bank tens of thousands of dollars. In that situation you just don't sell your house.
But what if you have to sell your house? Medical bills? Job changes? Want to retire?
It's nice that you think you are superior to all this vain people, but this crisis is not about vain people getting fucked. It is about responsible people have their American dream burned to the ground by morons with oversized sub prime mortgages and the banks that lent to them. This goes beyond hurting the people who caused the mess!
I do not think I'm superior; I just try to know what I'm doing before acting.
The people who took out those loans knew what they were getting in to, and if they didn't, they should have. If it sounds too good to be true...
I'm well aware that this affects everyone in some way. We're at a point where fixing liquidity is crucial and something needs to be done, and we need to make sure to profit from any money lent. I really like what Sweden did: http://is.gd/3iO2
I just worry our government is going to react instead of decide.
What about the other 90% of people who live on the same street as the asshole with the sub prime mortgage who are now unable to sell their house if they need to because the sub prime one is at auction for half the price they need to get?
Liquidity isn't going to fix that, we have a problem with too many houses on the market and too few people buying them. If you have enough money you can still get a prime mortgage, people just don't want to buy right now.
"Houses are not an investment vehicle. If you buy one, it should be for the long-term."
To first order, this is great for you. Stocks are going on sale. You want to do your saving immediately after the massive crash, not before.
Of course, that's just the first-order analysis. The second-order problems are potentially, um, annoying: If the economy tanks you might not earn any money to save next year. And your joy at being able to invest in a bear market (because you've got plenty of time to wait for the recovery) might be dampened by the sight of your parents moving in with you to save money because their retirement fund just evaporated. (They don't have time to wait for a recovery.)
For example, depressed real estate markets can create high demand for rentals. You might be able to make money each month on a mortgaged property (a real novelty in Australia for example). And if rental demand is high, prices will probably eventually recover.
The issue is that a recession by definition means most people are worse off.
that might not help, so here's a picture of a pack of corgis on a beach, hope it helps: http://media.tumblr.com/b9vfl4b63eh5j0pmcEfbxxxGo1_500.png
I am sorry to be the bearer of bad news . . . but we are almost certainly on our own with this.
China and Mexico may give token assistance as they are able.
You are correct about our dependence on resources, but the US is only one of several markets we export to. I'm sure China and India won't mind buying our oil and trees.
Simply untrue. The debt to income ratios are about the same, but US households on average still have more assets and cash.
Also, given the dramatic drop in US housing values and only a leveling off of Canadian prices, I question your second point as well, at least looking forward.
Just because you've done everything prudently on your own micro scale doesn't mean macro events can't hurt you.
In any case, most of the discussion that's worth anything is coming from economists, of which there are a wide variety to read. Most people on sites like this one don't seem to have the expertise to say much that's useful, either for or against (and that includes me, thanks).
http://economistsview.typepad.com/
http://econlog.econlib.org/
http://www.marginalrevolution.com/
http://www.economist.com/blogs/freeexchange/
http://economix.blogs.nytimes.com/
http://delong.typepad.com/
http://www.ft.com/cms/s/0/290ca9f6-8d8b-11dd-83d5-0000779fd1...
As you can see even those guys are peddling their own ideologies to various degrees, along with everyone else with vested interests - and that's a lot of people, because 700 billion combined with a potential collapse of the economy is pretty high stakes. This doesn't make it easier to understand.
There's a brick wall looming up ahead, and we just cut the line to the brakes.
http://www.marginalrevolution.com/marginalrevolution/2008/09...
This way the following doesn't collapse: http://www.nomoneylimitsblog.com/blog/_archives/2008/1/10/34...
While subprime mortgages got this whole ball rolling, the credit crisis extends way beyond that now, and has taken on a life of its own. This bailout plan was to try and fix the credit crunch by restoring confidence in the financial sector, taking toxic assets off their books, and giving them a more stable capital base. The housing crisis is now a separate issue, and if lawmakers want to address it, it should be in a separate bill.
If the housing crisis continues, it hurts a lot of people that made bad borrowing decisions and it hurts a lot of banks that made bad lending decisions, but the turmoil is mostly in the financial/construction/materials sectors. If the credit crunch continues, just about anything could fail unexpectedly, including things as diverse as insurers and big manufacturers, which could leave a lot of people out of work, and turn this from a Wall St crisis into a Main St crisis.
There's a crucial link in the chain she is missing.
There was one hedge fund that setup a company with $4.5 million dollars to be able to cover a possible default of into the billions.
Those contracts are worse then worthless and should be annulled like a marriage to Britney Spears.
"You deposit $100,000 into a CD. The bank creates three loans based on the original $100,000 deposit. Loan /Asset #1 = $90,000 Loan/Asset #2 = $81,000 Loan/Asset #3 = $72,900. The total = $243,900 in assets for the bank. This is $243,900 in new money."... ..."After it pays you 5% interest, the bank has made a tidy profit of $238,900. ($243,900 - $5,000 = $238,900.)"
The crucial link that wasn't mentioned is that when as loan is issued that money is returned to a bank as a deposit (usually). Only then can then re-issue it as a loan.
The car analogy is stupid. There is no brake and there is no gas pedal. There is a natural balance between savings, loan interest rates, and consumer demand. What's happening now is that demand and savings rates are trying to return to their natural balancing levels after having been knocked out of whack by fake interest rates. The powers that be don't like that rebalancing, but it will happen one way or the other. Government can only exacerbate the process (and make certain insiders rich at public expense).
The simple fact is that thousands of businesses NEED to go under and lots of people NEED to lose their jobs. Many of the businesses and jobs were created to service demand that doesn't really exist. The demand was an illusion created by fake cheap credit. The faster this process is run through the better the ultimate outcome.
No? Then I don't see how it's seen to be acceptable to demand that action of others. The effects of the crunch will go much further than fat cats on wall street.
Thousands of nail salons and restaurants were built because cheap credit made them temporarily profitable as future consumption was taken today while debt loads rose. Well, the future arrived. And now consumption must be forgone. The nail salons and restaurants will go bankrupt and the workers will go unemployed. The faster we get it over with the better.
The question becomes: would you rather have $700 billion to ensure unemployed people don't starve? Or would you rather use it to temporarily prop up nominal asset prices owned by rich people?
> In that case, will you be declaring bankruptcy
I have no debt at all, so that's kind of impossible. However, my savings are part of the solution. The problem is we need more savings. The solution to that is dramatically lower consumption, which is what a recession is all about.
The nail salons and restaurants will go bankrupt and the workers will go unemployed. The faster we get it over with the better.
Those nail salons and restaurants are real people with real money. It may in fact be that many of them are destined to fail, and that many of them shouldn't have been in business in the first place, but the people that allowed them to get in over their heads - that would be the collective American republic - have a duty to make sure they fall as gently as possible. By temporarily putting trust back into the credit markets, this bill would have bought the time to explore the options.
To simply pull the rug out from under the little guy is a violation of the contract that the government has with its people.
It will devalue the dollar, that much is true. Interest rates are fubared either way. Feathering the nest of elites was a major concern, but with proper oversight injected into a succeeding bill, this will be mitigated.
You seem to favor emotional appeals over a discussion of the macroeconomic reality.
And you seem to favour the "let the fuckers burn" attitude that is so similar to that which created this mess: greed and an unfounded confidence in the self.
Outstanding consumer and business debt is something like $40 trillion. Way more than $700 billion of it is at risk. The bailout bill is so small relative to the real credit markets that it can ONLY possibly be a political act for certain well connected individuals. It cannot drive the macroeconomic conditions related to the whole credit market.
Sounds like conspiracy theory territory to me, but maybe I'm misconstruing what you're saying. On the surface, your argument regarding 700 billion vs 40 trillion sounds plausible, but then again, it doesn't seem to be convincing guys like Larry Summers, Mark Thoma, or The Economist ( http://www.economist.com/world/unitedstates/displayStory.cfm... ), and I don't think they're all in on the plot, yet are pretty smart.
On the other hand, if things don't go to hell without the bailout, it will show that Paulson et al. were indeed quite wrong.
http://www.economist.com/finance/displaystory.cfm?story_id=E...
> The technology bubble in the late 1990s at least left behind a modern capital stock, which continues to yield productivity gains; a property boom, in contrast, does nothing to boost long-term growth. Instead, it diverts resources away from more productive sectors and by fuelling consumer spending it exacerbates America's economic imbalances. Eventually, there will be a price to pay.
Also, I'm not sure that predictions of problems equate to knowing what to do to best wind down the current mess. You're right (elsewhere) that some things need to go under. However, I think the point of the 'bailout proponents' is that more will go under than otherwise needs be without it.
Of course I guess we'll really never know for certain in any case, as it's impossible to know what would have happened otherwise. We could have no bailout and massive failures just as we could have a bailout and still have massive failures. Or no massive failures in either case.
I've seen this movie before. If bailouts and stimulus packages worked Japan would have been the economic star of the 1990s and the Depression would have ended before FDR ran for the nomination.
Raines may be in a dream business, but the net result of Fannie Mae’s actions in the credit markets is a nightmare of resource misallocation and massive systemic risk.
Note that he's contributed $5 billion to the bailout of Goldman Sachs, in the form of convertible senior debt, at an interest rate of 10%.
Differences: preferred stock only pays a dividend when Goldman makes a profit. In a bankruptcy, preferred is ahead of common, but behind creditors. At any time, Goldman can pay Buffett a 10% premium to the issue price, and get the preferred back. If Buffett exercises his warrants, he will still own the preferred.
The vast majority of the bailout criticisms I've heard are woefully uninformed.
Credit demand is collapsing as an economic bubble bursts and this is DRIVING the deleveraging. Not the other way around. If the economy were truly starved for credit you'd see 8% rates on CDs as banks scramble to raise reserves to lend out.
You're going to have to explain that more. How does lower credit demand force deleveraging? I was under the impression that the deleveraging is being caused my huge losses on heavily levered investments.
"If the economy were truly starved for credit you'd see 8% rates on CDs as banks scramble to raise reserves to lend out."
The markets for debt have just taken a huge beating. I'm guessing the banks aren't meeting the demand for credit because it has just become more difficult to sell debt. If they are having issues with the loans they've already made, it's easy to see why they aren't rushing to issue more.
I can't prove that the economy is starved for credit, but it's clearly the conventional wisdom. If you're going to call that propaganda, you need to prove that the conventional wisdom is wrong.
You can get a loan at very reasonable rates right now if you meet the criteria. That's just a fact, and I'm not in a mood to give you documenting links. Outstanding credit continues to grow at only a slightly lower rate than before. There is not a credit shortage. There is a shortage of viable uses for credit. There is huge overcapacity in retail, housing, etc. People who can't reasonably be expected to pay back loans can't get them right now. Which is basically a good thing. Businesses can't get loans to expand because nobody in their right mind thinks many kinds of business SHOULD be expanding.
The macro-economic conditions are driving the markets, not the other way around. The financial firms are suffering because the REAL economy ran out of greater fools and hit its maximum tolerable debt load. The real economy is not shuddering because the masters in Wall Street can't grease the wheels; it's the other way around.
However, I wouldn't say that's why the financial firms are suffering. They're suffering because they all made the same bad investments.
Anyway, I doubt that the situation is as simple as what I've laid out here. I don't trust my previous justification for the bailout, but even the economists who opposed it said we still need to do something (http://faculty.chicagogsb.edu/john.cochrane/research/Papers/...).
I would be interested in a link elaborating on your view. The facts I'll take your word on;)
It sounds sensible to me & I am having trouble making sense of all this. It seems plasuible because
-a- The US as a whole consistently borrow to spend. You need to run into a wall sometime. I'm not sure what the wall should look like.
-b- I am aware of the credit stuff you're referring to. It's unwillingness to lend, not inability to that is crunching. Loans were defaulted on.
This is a good point, and one I've read elsewhere. However, I've also read this, which seems to add some nuance, if not quite contradict the above quote:
"The interbank-funds market has seized up and even the most creditworthy corporate and financial firms are paying punitive rates."
http://www.economist.com/world/unitedstates/displayStory.cfm...
It's possible those firms aren't really creditworthy, but giving the 'newspaper' the benefit of the doubt, this would make the situation a bit more complex than you paint it.
Not if he has his savings in stocks. In fact, if he followed the conventional wisdom and put (100 - age) percent of his assets in stocks, a 40 y.o. stingy saver just lost 5% of his savings today alone. Which is almost certainly more than his share of the $700 billion.
There are a lot of people really hurting from this, just because we're a bunch of hackers living in apartments saying HAHA now I can buy a house! Doesn't mean that families who made previously responsible decisions are not getting really hammered. To say "GOOD!" to this is incredibly callous and most likely a sign of great ignorance to what is really going on.
In fact, according to the Case-Shiller index, homeowners in the 20 largest metro areas of the U.S. have seen their homes increase in value by over 60% between January 2000 and June 2008. Of course, this is down from 106% as of the summer of 2006. Falling house prices have definitely put a large number of homeowners underwater, but these people either bought in the past few years or took out one or more HELOCs (home equity line of credit).
I want to keep an eye on those 205 SOBs
I've been reading and racking my brain and it doesn't make sense to me.
Fortunes are made buying in bear markets. Though I wouldn't suggest its easy to recognize the bottom.
Different means - same ends.
Just stick it in an index fund and let compound interest be your friend.
Plus, what would you expect to happen? Investors were counting on about $1 Trillon of free money from the government, and then the government pulled it back at the last minute. In a few days there will be news of a new deal and the DJIA will be up 500 points again. And, if the House of Representatives keeps doing its job, then the DJIA will fall 500 points again when the next "no" vote comes.
The key is this: The DOW dropped 500 points because nothing happened. Theoretically, the markets are in the exact same position they were in Friday, yet they fell.
Once more Wachovias start pilling up, that's when you'll see the slide begin.
"To amend the Internal Revenue Code of 1986 to provide earnings assistance and tax relief to members of the uniformed services, volunteer firefighters, and Peace Corps volunteers, and for other purposes"
I think the real reason it failed is that they didn't title it "Flags for Orphans and other stuff".
To amend the Internal Revenue Code of 1986 to provide earnings assistance and tax relief to software developers, information architects and dolphin trainers
In my opinion this is a good thing. You can't have unchecked growth forever. You need to have a downturn to jolt consumer confidence and investor confidence.
When your portfolio "dropped" today you didn't gain or lose anything. You still own the same tiny fraction of some company. All that happened is that some guy sold his tiny fraction to some other guy for less than you paid.
At least, that's how I understand it. I was curious if the original commenter meant something different.
Computers are depreciated around 3 years.
The above is true only if a purchase is "capitalized" and classified as an asset. This "depreciation" allows you to deduct a loss per that 3 or 5 years on your taxes, or incrementally decrease your assets on your balance sheet.
If it is not capitalized and classified as an asset, it is an expense. An expense is noted on the income statement and the entire cost is accounted for in that quarter.
or since most ppl assumed they had that money and spent other money on that assumption, it could also be called 'wealth destruction'
[1] http://video.google.com/videoplay?docid=-9050474362583451279
you are clueless dude... there is wealth creation and wealth destruction. try an econ 101 course!
wealth could have been transferred today if people were allowed to short securities, but what actually happened to many was the realization of losses on the books of the finance industry - at least those who bought for the short term.
but you also have wealth being transferred to those who have been holding stock for several years (long term) and watched them wildly appreciate over the past 5 years, and started selling in the past 2 weeks when they realized the bubble has burst.
The money itself is only as good as the wealth it can purchase, and as that wealth steadily grows, we need more money to carry out the transactions. So it is by no means a zero sum game.
Just read this http://pavankumar.info/?p=52 , If I am wrong, Please let me know.
How can you trust a body that operates like that. Imagine running a company like that.
The only options are a system with where minor laws are passed dishonestly or Stalin.
a country is not a company
OK. But I was not taking the analogy very far. I'm saying that if bills are passed by tacking on little unrelated clauses that benefit the particular interests of certain politicians while flying under the radar in order to bypass democracy, you lose some respect & trust in an institution. It also makes me leery of anyone that thrives in the environment.
These institutions are decision making bodies making decision on behalf of others.
BTW - Apparently (see the comment on substitute bill), this is just a technical trick to bypass paperwork & speed this along.
The White House lobbied heavily for the measure, and the Republicans in the House shot it down. That's interesting.
House Republicans are the only group that are (fiscally) conservative anymore.
I'm so glad my representative (Barbara Lee) voted against this madness.
The bill is duplicitous from the get go. It's entitled "To amend the Internal Revenue Code of 1986 to provide earnings assistance and tax relief to members of the uniformed services, volunteer firefighters, and Peace Corps volunteers, and for other purposes"! If that kind of doublespeak don't get yer hackles up, I can't imagine what would.
Some honest discussion, some real consequences for the people that caused this meltdown (and it was caused, it was not an accident), and some oversight in how a bailout proceeds. Perhaps we, as the folks footing the bill, would also like to know what the total is actually going to be before agreeing to it. My understanding of the bill (admittedly weak) is that it is a blank check for Paulson to distribute amongst his friends in the finance industry, with no oversight and no transparency about how it's going to be used.
The fact that a bailout is being presented as "OMG! We have to do this now, imagine the consequences if we don't!" it has a strikingly similar ring to the "We have to invade Iraq now!" pose of a few years ago. I don't trust salesguys that insist I need to buy now, and I really don't trust politicians when they use the same tactic, especially when they're arguments are based on lies and misdirection.
Yes, something must be done. Accountability would be a great start. Bringing some trust back into our finance industry would be a good way forward. A bailout? I dunno. Maybe there are other ways forward that directly help the people hurt rather than the millionaires and billionaires that caused it.
I don't understand. Surely if all the banks failed that would be a great opportunity for people to start new banks with extra incentive to prove their honesty and trustworthiness, for instance.
It can't be the case that banks will collapse and everyone goes "Oh shit money is now worthless, I'm shutting down my business, firing everyone and going to find a soup kitchen".
Can it? Really?
Good question. And one I think ought to be asked. It's a standard tactic of both sides to frame a debate such that any result is one they'd be happy with. This appears to be a classic case of that. Both sides want a bailout, and so they've framed the debate as "What kind of bailout do we want?" rather than "Do we need a bailout, or can this problem be solved in other ways?"
Interestingly, a huge percentage of Americans (even a few who understand what's going on) don't want a bailout, at all.
Yet the oft mentioned depression of the early 1900s showed people queueing for handout foods.
Farmers would still work because people still need to eat. People would still trade with farmers because they need to eat and farmers need work doing. People would trade with builders and mechanics and plumbers and cooks and delivery people and oil companies because they want things that those people have, and in exchange they have skills that other people want. This is business, this is life, has been for hundreds of years.
So how can that also coexist with unemployed people relying on handouts? What went missing to turn the ongoing network of trades into a fallen pile of cards?
Why are some economies sparkling and growing and others filled with peasants eeking a miserable existance?
Is credit somehow the missing link I'm not getting? If so, why doesn't printing more money fix Zimbabwe? If it's not credit, what else can vanish? America isn't suddenly out of education, is it? Is it trust?
Is there really any kind of meaningful answer to this that doesn't involve pointing at the whole world and saying "that, that's it. Everything that is, that's the answer"?
Zimbabwe has deep problems unrelated to money supply. If you build a successful business in Zimbabwe Mugabe's thugs will kill you and steal it (or allow you to escape the country with the clothes on your back, if you're lucky). In a culture where everyone has to either be a part of the gang that runs the place, or pay for the privilege of mere existence, business cannot grow. The incentives are simply wrong for business to exist. There is no incentive to work hard, build something new, take risks on new ideas, or provide a service (to anyone other than the thugs in charge). If you had no hope of becoming successful would you start a new business? Would you bother working every day to maintain an existing one? Everyone who has the capacity to build products, grow food, and provide knowledge services, has either fled the country or been killed or imprisoned by the government. Of course the economy of Zimbabwe is a shithole.
So, I don't have any answers to any of your other question. I'm by no means an expert on the subject. But the causes of the economic failure of Zimbabwe seems pretty obvious to me. And, the more the US looked like Zimbabwe, politically speaking, the more our economy would look like the economy of Zimbabwe. Luckily, we have a long way to fall to be in quite the same kind of mess as Zimbabwe. But, I do think a bailout without serious oversight and some accountability for the people that caused the problem, would be a big step in the wrong direction.
Base populism has accidentally arrived on what I think is the correct side, for once.
Economics is far from a fundamental science. Very far. It is really more of a description of what happens via all sorts of analogies that usually hold true & help to explain the things that we see happening. Some parts of economics are stronger then others because they are based on manipulating tautologies of various sorts. But others are really more along the lines of: 'If we put a dog here, the sheep will go there'.
As with most non fundamental sciences, economics can break down in extreme circumstances. Neuton's Mechanics is not as fundamental as relativity. It breaks down in extreme cases. That only seems strange because physics is very fundamental. But with Zoology, Sociaology, Phsychology or other "downstream" sciences, this is expected. No one's surprised when techniques break down during psychoanalysis of a woman raised by wolves.
Psychology is explained by Biology, explained by chemistry, explained by physics. And each of those words is just really a number of links in this chain in themselves. Economics is two or three links up that chain. So here's how we go back to the topic:
If a supermarket chain that supplied 85% of food in a region goes out of business, leaving it empty of competitors, what happens? The rules still apply. Consumers seek alternative. Small shops, mail order shopping, markets become very lucrative. Consumers spend more on food or get 'less' for a period. Eventually, a new equilibrium is found.
But what happens if the equivalent food producers go out of business? Wheat doesn't get sown. Coke doesn't get bottled. Sure it's a great opportunity for boutique vegie growers. But the same rules no longer apply. 20% of the food supply means there isn't enough for everyone to eat right. Maybe people sell off Apartments to buy houses with backyards (to grow food). Maybe they take time off work to plant. Maybe things are too volatile for boutique farmers to get investment to grow.
I'm not saying this is a close analogy. I'm certainly not saying the 'bailout' should've happened. If I were American, I'd be as suspicious as SwellJoe of a bill that's called "tax breaks for Peace Corps & stuff" which gives unreal sums to big companies while the salesman-like proponents chants 'This is too complicated for you to understand', 'You need to decide now' & 'Apocalypse is coming so pick mine.' But I am saying that relying on high level economic principles here is not like relying on gravity. Not at all. At best it's like relying on wolves attacking a calf over a bull. It makes sense. It usually happens. But who know what happens to traumatised wolves from a a circus during a thunderstorm.
I'm not in favor of footing the bill for mistakes these financial institutions made. But if we don't help them out it will continue to trickle and things will get worse. But we may help them out and things may get worse anyways. We are in some big trouble and its not even close to over.
I was greatly disappointed to see your vote of "Aye" for the bill entitled "To amend the Internal Revenue Code of 1986 to provide earnings assistance and tax relief to members of the uniformed services, volunteer firefighters, and Peace Corps volunteers, and for other purposes". The bill, of course, includes the provision for the "bailout" of the financial sector.
My first problem lies in the title of the bill. As a friend of mine said, "If that kind of doublespeak don't get yer hackles up, I can't imagine what would." Have you read George Orwell's 1984, sir? I would not like to imply that we are in such a situation, but to allow a bill to pass which is so clearly titled in an obfuscating way is a mistake, one that is insulting to the American people.
My second problem lies in the bailout itself. Instead of punishing those companies that mismanaged their finances, we are instead calling for the entire country to pay for their mistakes. A massive tide of bankruptcies would have 3 major effects:
1. People employed by such companies would lose their jobs. These people are largely white-collar workers who should have some savings put away and should be able to find another job without much trouble. Surely it is better for these individuals to be out of work than for the entire country to be handed a debt that was created by the private sector.
2. It will be harder to get low-rate credit. In a nation that is addicted to such credit, I consider this to be a good thing in general, as it will encourage saving (or filing bankruptcy and starting over without a penchant for overspending). This still poses a minor problem, which I will address below.
3. Some people will lose their retirement investments. This, of course, is a bad thing.
Based on points (2) and (3), I think that $700B+ would be better allocated to:
1. Subsidize home mortgage interest rates and/or offer tax credits for people in low tax brackets. This will allow lower- and middle-class individuals to still be able to purchase homes and spaces for small businesses in spite of the inevitable credit crunch.
2. Create a program for individuals meeting certain criteria (age, total assets) that uses government funds to restore some of their lost investments. This will bring some relief to those who depended on the ill-run companies for their retirement.
I believe that my ideas are better than a bailout because instead of punishing the entire country for the mistakes of a few, it offers relief to the uninvolved parties who will be hit the hardest, while allowing those responsible for this mess to receive the brunt of the punishment.
If, instead, the government proceeds with the bailout, the government is subsidizing the risk of high-risk business practices, which causes companies to take irrational risks and unfairly rake in short-term profits, profits which are later paid for by tax payers who bail the company out when it inevitably goes under.
I plead with you to consider the fair course of action in this case, the one which does not punish everyone for the mismanagement of a few. And if the bailout package is allowed to go through, at least ensure that the bill is correctly titled.
If there is only $100 in the world, and a bank gives it to you and you pay it back with interest, where does the interest come from?
If there's $100 in the world, and a bank "gives $100" to 10 people, who all have to pay back $100 + interest, where does that come from?
You have to borrow it from another bank. Total money in the world increases, the economy grows, but it's a con, a mirage, a convenient consensual fiction. A system based on eternal growth, which relies on pushing around ever increasing debt for its very existence, where repaying the total debt would require giving the banks back all the money they ever loaned plus all the stuff in the world to the value of the conjured extra. How is this not silly?
That's not how fractional reserve banking works. Banks don't lend more than they have in their vaults, they just have less in their vaults than the sum of their depositors' accounts.
That's tangential to your main point, which seems to be an objection to a perpetually increasing amount of money that only exists as numbers in a computer backed by nothing. That only becomes a problem in a severe recession, where the rate of wealth creation slows so much that loans can't be paid back. The system breaks, and governments have to intervene to fix it. This isn't done by just giving banks money, as you suggest. The government typically takes over the banks. The proposed bailout involves buying assets, but it's still not giving banks money.
That is only a problem if you think we'd be better off with the slower economic growth that would result from banning fractional reserve banking. We're not. A system that breaks on a regular basis sounds like a bad idea, but you still have to compare it with the alternative before you condemn it.
As for fractional reserve banking (the regulated version, anyway...), the bank needs only to hold enough capital to write down expected losses on loans. Much of this mess has been caused by the banks voluntarily levering out of this safety margin.
Basically: money lent is less or equal to money deposited; no interest (only fees). Interest including fees is ~2.5%, and will "never" change.
The main difference is that that system isn't built on the assumption that the economy will always expand, which the current system is. I'll leave it to someone who actually knows something about the pros and cons of each to tell you if that's good or bad.. But basic reasoning tells me that it's not likely that something that takes place in a fixed environment (Earth) can expand for ever.
You could skip money and use seashells or chickens or whatever you wanted, the mechanism would still work.
Seize a bank when it's in trouble, "fix" it, and sell it in a public offering. If the income from the sale nets more than the government spend to fix it, that profit is distributed to the original shareholders.
This happened i Sweden in the early 90's. Some banks were in trouble, and the government said that they'd help them, but by nationalization. One of the major banks were then suddently conveniently able to get some capital, and survived on it's own.
And never mind the fact that even if you support a bailout this one was setup with language to specifically prevent oversight of any kind and would hence almost certainly be extremely corrupt, which rather does characterize that bailout as an attempted net transfer of wealth to me.
They didn't. My comment wasn't an argument, it just stated my position. Someone else replied with a different position, and I explained further. In an ideal world, I would've fully explained my position in the first place, but it wasn't worth the time if no one disagreed.
I do call things "silly" too much.
If you're interested in how specific Representatives voted, we (I work at the Post) grabbed the data before house.gov keerashed.
So, either Republicans (in the House) have more integrity than I'd given them credit for lately (and more than Democrats, on the whole), or I have less understanding of the bill than I thought I did.
Also, the Washington Post is either a little bit batshit crazy, or they have a strange sense of humor: You can sort the results by astrological sign. If you really wanted to have one more sorting type...the length of time in office would be more interesting to me (and not indicative of being ready for a quiet retirement with fewer disturbances in life).
The older I get, the more I realize that character in politicians is far more important than ideology. Decent people can disagree on the right way to solve the problems our nation faces, including this (very large) one...but lining the pockets of supporters at the expense of everyone else in the nation, particularly those least able to protect their assets, strikes me as a despicable and crassly self-serving act. The only way to a solution that most everybody can agree on is to honestly discuss the issues.
With a bill named "To amend the Internal Revenue Code of 1986 to provide earnings assistance and tax relief to members of the uniformed services, volunteer firefighters, and Peace Corps volunteers, and for other purposes" that hands $700 billion (actually more...) over to a fellow who'll be doling it out to all of his old buddies from the finance industry with no oversight, we've already established that no sane discussion can take place. It's classic doublespeak on the order of the best the Soviets and Red Chinese ever came up with, and that duplicity in and of itself is enough to disqualify this bill from consideration by honest folks.
This is actually a prime example of why I genuinely like Ron Paul. I disagree with him on some major issues (immigration and abortion being the biggest), but I know where he stands, and I know he believes in what he says and acts accordingly. I think I'd like to see a lot more of that, from any side of the political spectrum. But, it seems like crooked Republicans get voted out only to be replaced by crooked Democrats. I'd be happy with a batch of honest Democrats or a batch of honest Republicans, but it seems the only way to keep them close to honest is to keep churning new people in, keep the parties roughly in balance, and keep them at each others throats so they can do the least amount of damage possible.
Not to mention that while payments would be made in installments, there was still no cap.
If I had my druthers, we wouldn't waste ink to put astrological bullshit in the paper every day.
(Length of time in office would indeed be pretty cool. I'll run it by Politics.)
The patching of the credit liquidity crisis right now is like using corks to patch a leaky submarine. Not only that, but you don't have enough corks to patch all the holes.
We are going to see a large recession in all of our markets. Even if you pass this bill, no serious economist knows the extent of the financial crisis. All of them can gaurentee, though, that it will be far above $1tril.
Don't fall for this nonsense the politicians and the rich are spouting about. They only want to sustain this failed lesse faire market and continue to benefit from it. We need our economy to be entirely restructured and this is the time to do that.
It seems like just buying equity in the failing companies is a more direct way to deal with the problem than throwing money at the problem, in exchange for promises that Paulson will write up warrants that benefit the American taxpayer.
They were overwhelmingly in favor.
What does that say about the state of our democracy
I don't think your perspective is clear.