The $700 Billion Bailout Package

micro fixes, I understand what you are saying, but if we start talking about that this thread will devolve into a political pissing match quickly so I'll leave a lot of that alone.

On GM and the automakers though, that is something that should have the entire country massively pissed off. Giving them money is like pouring water in a bucket with no bottom. They are asking for government welfare for years of poorly negotiated, unrealistic union contracts and benefits.

The politicians know that, but they also know the votes available from the auto industry. Bush will be very happy to let Obama handle that one.....and we are going to get stuck with the bill to keep an outdated, unsustainable business model afloat.

well, i'm not trying to get political either, i just wonder why all of the elements i've mentioned (plus more i'm sure) have been diagnosed as emergency basket cases, yet the operating rooms, surgeons, anesthesiologists, radiologists, pharmacists have been only assigned to work on two of the patients, namely wall st and the big corporations. FDR was so much broader in his approach. america took up the challenge and did miraculous things that were unfathomable at the time to get us on back scoring again, like the Golden Gate Bridge, Hoover Dam, Tennessee Valley Project, Los Angeles Olympic Games, etc. recently nothing like this has been happening at all. it's like the u.s gov't is all at church, on their knees, praying for jesus to come back and save america.

micro fixes wrote:

to: Carnivore 69, In the biz, anEconomist

why is the gov't fixated on only bailing out Wall St, GM, big corps. there has been no massive public works projects like FDR did. why is has there been no fundamental changes made by the gov't to Wall St, Corps, nat'l debt, corp welfare, social welfare, holy-crusades/war-on-terrorism ?

Those industries are extremely tied to the common man. Everyone has a financial account of some sort somewhere, be it savings, checking, brokerage, insurance, pension, whatever. If the financial industry completely fails, everyone's money is in jeopardy. So they have to save that first, even if it looks like it is rewarding a few fat cats for a job poorly done. And they did make some very important fundamental changes to Wall Street.

I don't think there is any amount of money that can save automakers at this point. They have an outdated business model, with unions and pension liabilities forming a dual drag on cash flow. They made commitments years ago (when times were good) that they cannot get out of now. Like $20+ billion per year in pensions for workers who retired years ago. (That's just Chrysler). Foreign firms figured out a better model 25 years ago and Detroit never copied it. So Detroit is dead meat. The government may not even try a bailout there, since many of the workers and suppliers and dealerships can convert to foreign made, and won't necessarily be completely screwed.

As for welfare stuff, we are already a nation on welfare. Millions of people have been dependent on government for years. Both political parties realize that we have to get out of the business of propping people up, and start teaching self-reliance. We don't have to look any farther than the original settlers 300-400 years ago for a very good example of what to do.

I think the new administration is going to be very focused on providing incentives for people to take back control of their lives, and not so much in the business of handouts. contrary to the rumors about Obama, he knows that socialism will not work here. Many of the movers and shakers and business people would leave/opt out/quit, and the workers would be worse off than ever.

I don't think we need big public projects and social programs, we just need serious education. Remember the old rule about always save 20% of what you make each month? That went out the window 25 years ago, and since then people have lived closer and closer to the edge of financial insanity. This crisis is the final push off the cliff for many of them. And banks used to always require 20% down on a house. For the last 10 years, that rule was ignored too, until this summer.

Another thing: People have had an increasing sense of entitlement over the last few decades, and need to be reminded of a simple phrase. You are not entitled to anything but life, liberty, and the pursuit of happiness. You are not entitled to a house, or a car, or a job, or a roof over your head, or food on your table, or a family. All of these must be earned, and people have to earn them. Not everyone is cut out to be a homeowner. That might offend some people, but it's true. The moment we relearn this simple phrase is the moment we will begin to recover and prosper once again.

The sad thing is that many of these lessons got learned in the 1930s, and few people today paid any attention, and now we are repeating history.

it just isn't common sense to me to bail out WallSt and the Big Corps who have failed. the gov't should agree to receive any company who elects to fail (i.e. needs a bailout), assume the accounts of the depositors, mortgage holders, and then fire all of their employees. if it's GM, allow GM to file for bankruptcy, assist the sale of the GM assets to Ford, Toyota, BMW, etc., and provide for unemployment, re-training, tents, hot meals, etc. Wall St/GM should be treated the same way Katrina victims should have been and not left to fend for themselves. but artificially propping up 'failed models' such as GM or Wall St is socialism. the gov't should be spending the money on american ingenuity and brainpower, and develop a national bullet train for instance. i just don't see wasting money on old failed institutions when there are so many new and exciting things that can be done immediately.

Kind of like ag subsidies-- tied to the common man-- without food, people starve.

Or coal subsidies-- tied to the common man-- without heat, people freeze.

You can't be serious... Could you keep a straight face when you wrote this?

The same thing can be said of many banks/IB's receiving gov't handouts...

I love the terminology:

-When the gov't gives money to corps, it's a "bailout."

-When the gov't gives money to individuals, it's a "handout."

That's double-plus-ungood...

Great-- why not apply that same theory to corps? Financial services is simply too large a portion of the economy. Let some of them die or nationalize them and be done with it...

Carnivore, you have a good argument for the Bailout plan. As an auditor for a public accounting firm in NY, I want to argue against the current bailout package. First, your argument has a very aggressive theoretical approach. You have laid out the bailout as if it isn't to be implemented now, the world is doomed. As someone who loves statistics and following prices and market movement, it was clear in 2006-early 2007 that home prices were extremely inflated and obviously some sort of adjustment had to come soon. As to the cause of the surge in home prices, it's simple who's to blame, the Fed. They decided to keep lowering interest rates because the impact was seen as fovorable, as if these leaders never learned basic economics... It's obvious they knew that at some point, the bubble would burst. Yet, they decided to use an economic policy of creating a market bubble. I believe the accountability rested with them for this reason, they were unable to control what they started... and as much as it's easy to see it as a domino effect, I think it's the multiplier effect that is really taking effect. I don't think they should have continued to drop rates as fast as they did if they knew they wouldn't be able to quantify or put a stop to the effect. How come deregulation continued even as they were effecting such laxed policies? It is obvious they knew any financial institution w/ half a brain would push as many easy mortgages through as they could, knowing that the market for such instruments would remain active as long as the bubble didn't burst. Take Bank of America as an example of an organization who played it safe though, they did not give a mortgage to just anyone who wlaked through the door. My father is a real state broker and my uncle is a mortgage broker. Their job is to push as many contracts and mortgages through, as long as the banks think the customer is qualified. See where I'm getting at? This was the result of the continuous deregulation... banks and other mortgage providers were pretty much allowed to set their own qualification measures for customers. Most were as soft as possible when approving customers for loans. It is human nature to ride a good wave, and it is humans who run organizations. I think the Fed should have made some attempt to regulate the intitutions' approval processes, bu simply denied anything negative could happen.

Anyway, do large companies who are significantly tied to the performance of the economy be bailed out of needed? I think it's necessary for some. Still, if a $700B+ bill could be passed, why not pass another $100B as aid to homeowners accross the country who are at the brink of losing their homes? I think this would do a lot in terms of regaining confidence in the markets. The negative impact is inevitable, so might as well help everyone. Also, you say the fatcats are not abusing their privileges? BS! How come after the first round of the AIG bailout was passed a group of the top officers of the giant went on an extravagant $500,000 yatch party? Where's the regulation there? I know the answer to all of this is not easy, but if the taxpayers are going to bear some of the burden anyway, then why not help everyone then?

The truth is... 95% of people in gov't are not qualified to make financial decisions of this sort. And those that are cannot do anything without the consent of the majority, which for the most part is made up of individuals who have failed miserably at running various businesses in the private sector. Incompetence and ignorance are a recipe for disaster. I think too many companies are going to cry for help bc they think they can get bailed out, and the financial pressure this will put on the gov and the amount of confidence that will take away from investors will be even more difficult to shake. That plan is no good if it doesn't at least help fight the root of the current problem, which is homeowners not being able to pay their mortgages and handle their monthly expenses well enough that they can spend again and boost economic activity and confidence in the markets.

Holy smokes, you need to use paragraphs buddy. You are going to give a lot of people headaches.

If you didn't notice, there are 3 paragraphs. Did you also need the spaces in between the paragraphs to make reading an easier process for you? Sorry I didn't spend more time on the formatting, how about you add something to the discussion instead of glancing at my comment and thinking its too difficult to read.

I disagree with some of this but to make it readable online....

Carnivore, you have a good argument for the Bailout plan.

As an auditor for a public accounting firm in NY, I want to argue against the current bailout package.

First, your argument has a very aggressive theoretical approach. You have laid out the bailout as if it isn't to be implemented now, the world is doomed. As someone who loves statistics and following prices and market movement, it was clear in 2006-early 2007 that home prices were extremely inflated and obviously some sort of adjustment had to come soon. As to the cause of the surge in home prices, it's simple who's to blame, the Fed.

They decided to keep lowering interest rates because the impact was seen as fovorable, as if these leaders never learned basic economics... It's obvious they knew that at some point, the bubble would burst. Yet, they decided to use an economic policy of creating a market bubble. I believe the accountability rested with them for this reason, they were unable to control what they started... and as much as it's easy to see it as a domino effect, I think it's the multiplier effect that is really taking effect. I don't think they should have continued to drop rates as fast as they did if they knew they wouldn't be able to quantify or put a stop to the effect.

How come deregulation continued even as they were effecting such laxed policies?

It is obvious they knew any financial institution w/ half a brain would push as many easy mortgages through as they could, knowing that the market for such instruments would remain active as long as the bubble didn't burst. Take Bank of America as an example of an organization who played it safe though, they did not give a mortgage to just anyone who wlaked through the door.

My father is a real state broker and my uncle is a mortgage broker. Their job is to push as many contracts and mortgages through, as long as the banks think the customer is qualified. See where I'm getting at?

This was the result of the continuous deregulation... banks and other mortgage providers were pretty much allowed to set their own qualification measures for customers. Most were as soft as possible when approving customers for loans. It is human nature to ride a good wave, and it is humans who run organizations. I think the Fed should have made some attempt to regulate the intitutions' approval processes, bu simply denied anything negative could happen.

Anyway, do large companies who are significantly tied to the performance of the economy be bailed out of needed?

I think it's necessary for some. Still, if a $700B+ bill could be passed, why not pass another $100B as aid to homeowners accross the country who are at the brink of losing their homes? I think this would do a lot in terms of regaining confidence in the markets. The negative impact is inevitable, so might as well help everyone.

Also, you say the fatcats are not abusing their privileges? BS! How come after the first round of the AIG bailout was passed a group of the top officers of the giant went on an extravagant $500,000 yatch party? Where's the regulation there?

I know the answer to all of this is not easy, but if the taxpayers are going to bear some of the burden anyway, then why not help everyone then?

The truth is... 95% of people in gov't are not qualified to make financial decisions of this sort. And those that are cannot do anything without the consent of the majority, which for the most part is made up of individuals who have failed miserably at running various businesses in the private sector.

Incompetence and ignorance are a recipe for disaster. I think too many companies are going to cry for help bc they think they can get bailed out, and the financial pressure this will put on the gov and the amount of confidence that will take away from investors will be even more difficult to shake. That plan is no good if it doesn't at least help fight the root of the current problem, which is homeowners not being able to pay their mortgages and handle their monthly expenses well enough that they can spend again and boost economic activity and confidence in the markets.

good interview of what is going down from the perspecitive of a hedge fund manager.

dude knows what he is talking about.

http://www.charlierose.com/view/interview/9498

You want the 700 billion bailout?

http://i38.tinypic.com/idzj8w.jpg

'nuff said.

So we should just all quit paying our mortgages now! Let the government pay for our houses.

Quit giving MY money to others. I earned the money the government has taken from me. I don't appreciate them giving it to others.

Its MY money, and I want it NOW!

The bailout came too late. We are going to 6000.

Bump

I went back and reread all of this thread today. I am amazed at all the predictions and what wound up happening.

Carnivore didn't get it exactly right, but he was close. The low point on the Dow was 6440 in March. Most of the auto companies and many smaller financial firms did fail. I would agree that the bailout saved us from much higher unemployment and massive financial failure. Banks will never be the same after 2008 - there are so many regulations being put in place that it will be difficult to tell the difference between the bank and the government in some places. Rather than 30% unemployment, the bailout has held that number to around 10% so far.

Now I think we need to stop all this government spending and focus on saving. Obama is right to think that health care is important, but it is not the right time for the country, he is trying to do too much while he is still popular.

Now that it is almost a year later, thoughts?

Are you sure Carnivore was wrong?

Does anybody else think that we may retest those lows in the next 18 months?

No, I'm not sure, but I think the worst has passed for now anyway. Volatility has dropped back to low levels and the market is up to 9000. Of course, I think that we are at a short-term high and that we could drop 15-20% as Obama's popularity fades and businesses continue to stop spending.

Things bottomed out in 1931, then went up for awhile before getting cut in half again in 1937-1938, so it could definitely play out like that again. But I don't think that the country will make the same mistakes now that they did then.

Bernanke saying there will basically be a jobless recovery. Structural unemployment - built in jobless.

those jobs that were related to consumer demand are GONZO!

Savings will be at least 5% for the near term. With consumption at 70% of the economy, thats a clip 3.5% on GDP. So unless the Feds spend $14trn *3.5% ~$500bn additionally every year, GDP will be down, to flat at BEST.

If you can explain to me where the $ will come from, I'd love to hear.

This savings will most likely be plowed into Treasuries, so rates will remain low, with the curve steep.

There is no "Happy Days are Here Again" for a while. A new prominent underclass is developing, and they have just taken another significant leg down in their standard of living. A modern day version of, "Panem et circenses"

photofinish wrote:

Things bottomed out in 1931, then went up for awhile before getting cut in half again in 1937-1938, so it could definitely play out like that again. But I don't think that the country will make the same mistakes now that they did then.

Too late, same mistake already repeated but on steroids, it's called Obama.