700 Billion Dollar Question

There is none. The religion of capitalism states, as a point of dogma, which you challenge at your peril, that the profit motive is all we need to assure quality and honesty. In fact, when the only acceptable motivation for economic activity is profit, the inevitable outcome is the rise and success of robber barons.

The survival power of capitalism lies in the fact that even poor people will support it, in the hope that some day they may become rich. Greed is more powerful than altruism. As long as we allow greed (a.k.a. "the profit motive") to be our economic religion, this sort of stuff will continue.

But I agree that the executives who made irresponsible decisions should forfeit all their property. It won't be possible, though, because they'll have transferred much of it overseas and/or to relatives, where it will be untraceable. So the next best thing will be very long prison sentences for them. That won't happen either, because they can afford the best lawyers, and our legal system is so corrupted by money that having a good lawyer is better than being innocent, and being poor is a guarantee you'll be found guilty.

Capitalism rewards white-collar criminal activity.

 

Let's see now. $700B/(301M people in the US) = $2326 for every man, woman and child in the US. I have a family of five: 5x$2326 = $11,630 for my household.

So, I'm paying $11,630 for what? To help the people who are ruining my neighborhood stay. To bail out greedy financial firms that took risks that I would never have taken and who have ruined the stock market, cheapened the dollar, and decreased my retirement fund, among other things.

On the other hand, if we are to believe the proponents of this plan, the market will collapse, unemployment will ensue, and the world will surely come to an end. Let's say I lose my job in the process... I could be out $11,630 very quickly in lost wages. I wouldn't be able to relocate for a new job without selling my house (yeah, right...in this market?), and maybe no one locally would be hiring. I experienced this back in 2001-2002. It wasn't any fun.

Sort of a damned if you do, damned if you don't situation.

I've written my congressman and senators to OPPOSE this plan. It's almost a forgone conclusion that some sort of bailout will pass. Maybe though, if a loud enough cry is heard from the masses, at least they might put some sort of limitations and public stock ownership on these firms, as well as boot the people that were responsible.

 

Fortunately, there seems to be quite a lot of bipartisan agreement that the current proposal is shite and doesn't address the root of the problem. Congress looks like they might be growing a small nub of a spine. Hopefully it'll grow into a fully developed backbone. It is encouraging that folks from both sides of the isle are against Paulsen's plan.

 

Why not let the system collapse? Wouldn't it be justice for greedy un-regulated financial firms and other people that can't seem to live within their means to get an object lesson on what money is, where it comes from, and how you get it without "fapping" down the plastic. Seems like every 2-3 generations the lesson has to be re-learned since none of them have read their history books.

The only thing that bailing them out teaches people is that when you run out of money, for whatever reason, you can always ask for more.

Of course, the Federal Reserve will go down in their basement and "crank out" a few more billion for everyone involved... further devaluing the already ailing dollar. Truly a catch-22...no money vs. money not worth anything.

What's the difference?

$700 billion is quite a grand and glorious "golden parachute" for financial mismanagement, almost a reward...

I hope congress grows a spine! Nobody would write any of us a check if our businesses went under!

 

Sure. Absolutely. It's not like the old, the poor and the disabled will bear the brunt of a financial collapse. I'm sure millionaire bankers would be the ones to pay the price.

And you, I'm sure your job and retirement savings would be safe.

America would be a better country if the children who survive are the strong ones who win the fight to feed themselves on the small amount of food that ConAgra won't export to countries with strong stable currencies.

 

i think its simply throwing money away... so we buy bad paper, attempt to resell it to get at least 50-75% of our money back. but what does it fix??

well, nothing as a matter of fact. it does buy us time. but to fix it, we need loan reform, no more unsecured debt being issued which will, in this over inflated housing market, create a scenario where now one must have a down payment AND afford to make large house payments.

this will greatly slow the housing market down which just about requires a steep drop in loan rates. i see someone who has cash now, waiting until home loans are running 4½ % and making a killing. interest rates will only stay that low until the housing glut is reduced, and it will go back up with a lucky few in a house at better than renters rates.

 

The first question by the original poster..."Where is money actually going?" - is one that I've been wondering myself. Being an engineer, I firmly believe in, and have witnessed, many fundamental laws of physics - conservation of mass, conservation of energy, etc. Similarly, I believe that the balance of currency in the world is nearly constant (governments do physically print more money on occasion, but I think it's a really small percentage). So, assuming a "conservation of money", where did these trillions of dollars go? Probably a mixture of overseas (foreign investors and trade imbalance) and numerous rich Americans who are sitting quietly on their money right now.

Getting the money back from those who profited fairly or unfairly isn't going to happen. Thus, Americans are faced with swallowing a tough pill right now. On the surface, a $700 billion "bailout" sounds wrought with unfairness. I originally thought so too. Then I heard several financial analysts on the news today mention that a "bailout" would not be the case of simply giving the money to failed corporations, no strings attached. The U.S. government would be buying a stake in these companies, an investment that would likely grow in the years ahead. The U.S. government has done this before, and has actually profited.

So, I'm confident a "bailout" can be successful and be in the best interest of the average American, as long as the right provisions are written into action. But that's not enough, it won't reduce or stop the future flow of money to those who are profiting unfairly or illegally. So, congress needs to pass new laws to help prevent future ill financial dealings and policies that have manifested themselves in our present situation.

 

anyone catch bush's press conference tonight?

 

Yep, there's never been any question whether he supports it or not. I don't think he said anything we don't already know. Obama and McCain will jointly come out in the next several nights and support it as well (because neither wants to preside over an uncomfortable situation).

I don't think the president did much to justify or explain how the 700B would be used. Just sounded like scare tactics to me...

 

Scare tactics is all he has ever done to justify spending.

 

If there was no bailout there would be a major slowdown in the economy. It would not collapse. People who bought these bad loans would pay the price, and it might be hard to get a loan for a year if you don't have anything to back it up.

The only way I would like to see the government buy these bad loans is at fire sale prices, which the banks don't want to sell at. Screw them, they should not get more then these loans are worth. If they need liquidity they should get it at the market price, not some inflated price.

 

Seeing as it's going to cross over into short stocks, mortgages and credit card debt that people can't pay, is it too late for me to default on all my debt so I can't get a part of this sweet deal?

Seriously, don't worry about the GOV, they'll make plenty money off this deal. Hell I've made $55 off Freddie and it's only been a day.

 

Weapons of Mass Financial Destruction.

Something about this whole thing seems eerily familiar.

 

You jest, but I can just see meetings in the board rooms of major financial institutions all over the world... asking "how can we can get in on this action?". Not to mention the small time opportunists (or "home owners" as they're called in the press), builders, real estate agents and flippers. Hold onto your wallets people, we're about to be screwed again.

I wonder if the government will mow the lawn on the foreclosed house down the street? Maybe they'll use it as a new form of public housing. I can hardly wait.

No. There's no way it's going to work. It'll just get worse.

 

I do not know whether the bailout is necessary to prevent a general financial collapse, or even if the bailout is sufficient to prevent a general financial collapse, but to those who ask, "Why not allow the financial system to collapse?" I offer these observations: For the effects of a collapse, look at the 1929 depression, who was affected and how:

A small number of speculators who had bought stocks on margin were wiped out so completely they killed themselves.

Working-class folks were thrown out of work in huge numbers; many people starved; many became hobos, riding the rails looking for work. The people who lived through it as young adults are up around 90 years old now, but you can still find some and ask them what it was like. It was very, very hard.

Rich people lost on paper maybe half or more of the market value of their portfolios, but continued to live quite nicely.

The people who caused this mess are not going to suffer from a collapse. There will be a few who were reckless with their ill-gotten gains, but the smart ones put them into sound investments and will be sitting pretty no matter what happens to the general economy, unless they are put on trial for malfeasance or criminal activity.

Note that the people who made money on this are the ones who made the bad loans, bundled them into securities, and sold those securities; and the people who bought homes during the bubble and sold them before it burst. The people who lost are the banks and investors who bought the securities and were left holding them; and lenders who had made bad loans but not sold them off when the bubble burst; and honest home buyers whose homes are now worth far less than they paid for them. The winners are here at home, the folks at the beginning of the loan chain. The losers are mostly higher up the ladder, domestic and foreign investors, as well as the honest home buyers here.

But this whole story raises a deeper question:

When I asked my Congressman to vote for more money for social programs, he replied that he'd love to, but asked me where the money would come from. They never ask that question when the president wants a trillion dollars for a war, or half a trillion to bail out the S&Ls, or three-quarters of a trillion to bail out mortgage lenders. How about bailing out all the people in financial ruin because an accident or illness left them with hospital bills they'll never be able to pay off? Aren't they more deserving than bankers who made stupid or dishonest investment decisions?

We have our priorities wrong.

And a postscript: This was not set off by laws against redlining. This was set off by investors' demand for mortgages to buy, and dishonest loan officers willing to meet that demand by making bad loans.

 

CORRECTION: Three Trillion dollars .. http://www.timesonline.co.uk/tol/comment/columnists/guest_contributors/article3419840.ece

 

Here's how Gotham City reacts to Bush's plan