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The Bailout... are you watching?


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I normally pay modest attention to the news.

 

Most of it doesn't really matter to me... and is just there to fill the time in our 24 hour a day news cycle.

 

However this is attracting me much like the way I was pulled to the news surrounding 9/11.

 

I've watched much of the hearings and the political posturing is both expected and disgusting.

 

So how about you... are you getting "pulled in" like I am?

 

M

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I'm not watching, but as someone who's scrimped and saved his entire life, and approaching retirement, I'm scared {censored}less and pissed off royally that my tax dollars are once again being awarded

Nope. However, I do find the entire situation comical in a way. Its much like electing a new president. Everyones talking change but no one is going to do anything about it. The FBI got involved but h

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I'm not watching, but as someone who's scrimped and saved his entire life, and approaching retirement, I'm scared {censored}less and pissed off royally that my tax dollars are once again being awarded to failures, while their leaders are getting $250M parachutes and laughing all the way to Antigua.

Emigration is looking better all the time.

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Nope. However, I do find the entire situation comical in a way. Its much like electing a new president. Everyones talking change but no one is going to do anything about it. The FBI got involved but how far down the rabbit hole are they going to go? Its too deep and too many political forces at work to see any thing "news worthy".

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I'm just hoping cooler heads prevail and somebody says "Wait a minute, we're throwing good money after bad in the space of a few weeks. Let's wait this out before we commit $700 BILLION"

 

Where did that number come from anyway? If this problem is so complex (it is) how do we know that the repair job is a simple $700 BILLION? How is that determined in a matter of weeks, when it took years to get things so convoluted?

 

Slow down, peeps.

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We should use the 700Billion to bail out Americans with bad mortgages,

 

Why? Isn't that rewarding failure as well?

 

How about people who default on car loans and credit cards? Why not bail them out, too?

 

The reality is, not everyone can afford a house. And anyone who needs a subprime loan to qualify is one of them.

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"Still one thing more, fellow citizens -- a wise and frugal government, which shall restrain men from injuring one another, shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned." --Thomas Jefferson in his first inaugural address

 

Maybe these idiots in congress should pay attention to one our more intelligent founders. We need a corrective recession- but these actions are just what Hoover and Roosevelt did 75 years ago to prolong and exacerbate that particular market correction.

 

There ain't no such thing as a free lunch.

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I have kinda strange political views. I'm very fiscally conservative yet tend to lean to the Democratic view points regarding how the government should spend.

 

I agree this correction is necessary, yet a large sum of money does need to be injected into the banking industry why?

 

Credit needs to be able to flow in order for business to continue in the short run. Without the ability to loan money to people and business, banks can not generate interest on those loans which is the way banks stay in business. If a bank can not cover its expenses, it goes out of business. If small business can't get a loan to start or expand, they go under. If car retailers can't extend credit (bank backed credit) to finance car purchases, they'll go under. Etc.

 

Now, should we be so dependent on credit? Perhaps not. Many would argue a return to a "cash and carry" society as it appears so many Americans just can't seem to spend responsibly. However, to prevent a complete collapse extending the money and allowing a slower change to the market is beneficial in my opinion. But not a blank check like their asking for...

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700 000 000 000 seems like a lot.

 

But you know what they say, maybe you could afford that with an ARM.

You could refinance as your situation changes.

 

This program is good for, lessee today is 2008-09-25, so 40 days.

 

But we aren't we really buying the home of our dreams. We are paying off the previous tenant's damage deposit.

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I'm not watching, but as someone who's scrimped and saved his entire life, and approaching retirement, I'm scared {censored}less and pissed off royally that my tax dollars are once again being awarded to failures, while their leaders are getting $250M parachutes and laughing all the way to Antigua.

Emigration is looking better all the time.

 

As a fellow forumite in a similar situation, I agree, but I'm wondering, if we don't have some sort of bailout, are we heading for a collapse and a deep deep depression? In the end, then, some sort of government bailout would be necessary. It's too bad we are in this situation, and I'm not in the know enough to be sure, but we may have to throw good money after bad to keep us all solvent.

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I keep coming back to this quote. And everytime I read it I follow it w/ a :facepalm:

 

I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.

Thomas Jefferson
, Letter to the Secretary of the Treasury Albert Gallatin (1802)

3rd president of US (1743 - 1826)

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What theyre proposing is not what anyone has stated here yet. Its not a bailout. What they're wanting to do is have the government buy up bad mortgage loans and resell them when the market comes back. If it works right taxpayers dont pay a dime and the government may even turn a profit.

 

As for my own thought on it,

1. Theres noone in governmant qualified to run a government operated savings and loan (If there was they'd make alot more on wall street)

2. This is one step closer to complete Socialisim/Communisim/Dictatorship

3. Government buying these up is better than having forign companies

buy up all our homes.

4. They got to quit giving deadbeats lons they cant pay back.

5. They can suspend capitol gains taxes and get the same results as what

there proposing. The difference is weather you want the government to

destroy the free market (Like they bankrupted SSI) or have the CEOs

sucking the life out of the economy.

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Why? Isn't that rewarding failure as well?


How about people who default on car loans and credit cards? Why not bail them out, too?


The reality is, not everyone can afford a house. And anyone who needs a subprime loan to qualify is one of them.

 

I agree but the problem is more complex then that. Its the Poisons Fraudulent Derivatives packaging and trading that is the main cause of this mess. The Subprime Mortgage debacle is but a small portion of this financial mess. We have to remember, the corporate mainstream media isn't explaining the reason for this meltdown. Their job is to pacify us and convince us the agenda of the bankers is Good for The American People which clearly it is not. What's good for the goose is NOT good for the gander in this case. Here's a really good anylisis of the problem:

 

http://www.doomers.us/forum2/index.php/topic,25876.0.html

 

To understand this completely contrived financial mess here are some links. This proposed bailout amounts to nothing less then financial dictatorship where there is no oversight and absolute power given to the Treasury and private Federal Reserve. If they want to shut down your accounts its automatic. If they want to take your house, they take it.

 

http://www.financialweek.com/apps/pbcs.dll/article?AID=/20080921/REG/809219995/1036

http://www.huffingtonpost.com/larisa-alexandrovna/welcome-to-the-final-stag_b_127990.html

 

The whole mess was created by the bankers who created the debt by packaging up heaps of bad debt. Then they sliced it all up into tiny pieces and traded them but they were never worth anything Plus with fractional Reserve these banks, JP Morgan Chase, Citi, Bank of America, Wachovia, WAMU, Wells Fargo, etc are leveraged at ratios that would make your head spin and eyes pop out because they just kept creating all this money out of thin Air. Let us not forget, the banks create most of the money in circulation in the form of debts when you borrow money for loans. The Federal Reserve only creates about 8%.

 

http://market-ticker.denninger.net/archives/2008/09/P3.html

http://theinternationalforecaster.com/International_Forecaster_Weekly/A_700_Billion_Bailout_With_No_Review_or_Oversight_Whatsoever

 

This is a planned meltown and they have planned solution that was already drawn up much like the Patriot act. Friends, this is the end of our country.

 

Quote from the http://market-ticker.denninger.net/ site:

 

"Finally, we learned today that The White House was planning this little piece of financial dictatorship for quite some time:

 

"Fratto insisted that the plan was not slapped together and had been drawn up as a contingency over previous months and weeks by administration officials.

He acknowledged lawmakers were getting only days to peruse it, but he said this should be enough."

 

That should get you started down the rabbit hole. If anyone needs detailed links to really explain this whole thing I will make a comprehensive post with links to all info you need explained much more eloquently then I could ever hope to. God help us all.

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I am no tax expert but from what I understand it would work.

The government will resist it though because its a big moneymaker for them the same way fuel tax is. If they wanted to lower fuel costs they could suspend the tax on it and we'd save about 30% the cost per gallon.

If they suspended capitol Gains they could always reinstate it in a year or two when the economy stabolizes.

Wallstreet would boom and the problem would resolve itself practically overnight. Problem is they would in turn have to shut down deadbeat government programs to counterbalance the loss of money coming in which is unlikely so close to an election and everyone with their hands out. Theres also things in motion that would make the players billions profit. The government would be set to make trillions profit and would start spending that money now before the profit is made to grow government.

 

Capitol gains, If companies didnt have to pay taxes on the sale of mortgages this would in effect eleviate the additional losses by them selling off the loans. They could break even or reduce the hit on the sales. (It would be like reducing the debt on a loan). The free market would buy up the loans at a a bargan price and hold them till the property value increases as the market rebounds before reselling.

Basically its a reshuffeling of the debt to those who can afford to wait and freeing up the cash the institutions need now. Its the same way as our government would by buying the loans tax free and selling them later at a profit. The difference again is, do you want private investors to keep an eye on their investments or a bloated governmant who doesnt have the qualified people to work the debt to a profit and could care less if theres a profit loss so long as thay can tax the people to cover the debt.

 

I am not for Nationalizing the mortgage industry as you can guess.

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While not as pessimistic as Sean, I have serious reservations about the way this is being ram-rodded through congress like the force-feeding of geese to make foie gras. (How's that for an elitist metaphor? :D )

 

I'm reminded of an old joke about a businessman who kept selling 50% of his business to silent partners. Everybody thought they were getting 50% of the whole business, not 50% of his remaining 50% (25%, 12.5%) after the first split.

 

Then when he sells the business, his silent partners come forth and ask for 300% of the business. :D

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Keep in mind most of the loans are not in default. Theres is just too many given to people who were not qualified and cant pay. This reduces the ability of banks to make loans and threatens peoples credit. Banks could call in their credit cards to get cash for example.

The loans that arent in default could make huge profits for the government which is why they're salavating over it. (Especially Democrats who will spend it on all those government programs they been promising. Problem is when those profits are spent the programs will remain intact forever like all the other obsolite ones have. So guess who will have to pay for them)

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The 700B has nothing to do with the actual cost. It's about preventing panic. If everyone panics and starts pulling their money out, it'll be one of those situations where everyone does what seems best for their interests, but in the process screws themselves and everyone else. So all they needed was a really big number that would just calm people down that their money wasn't going to be lost. The actual value is meaningless for that purpose.

 

As culpable as the people in these companies probably are, in the end the people who signed those mortages did so of their own free will, and all of us who live on credit and debt don't have much of a foot to stand on to point at the govt for doing the same.

 

There are obviously legitimate reasons for credit. Most companies have to use credit to expand, and expansion creates jobs and taxes and all that. And that credit needs to remain available for those legitimate purposes. The current situation was threatening to close it down to the legitimate needs as well as the bad ones.

 

I noticed that the minimum payment on my Visa card suddenly jumped way up (like 5 times as much as before.) So clearly they are looking to get some revenues in fast.

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The 700B has nothing to do with the actual cost. It's about preventing panic.

 

I mostly agree with the other stuff you said about the legitimate uses of consumer credit.

 

And I'll agree the goal is to show support for the credit system and buy time for a sorting out. And that $700 Billion is basically a made-up number pulled from a hat.

 

So if that's the case, why the rush to seal a deal? Why not make a "General agreement in principal to provide good-faith support" and allow the next Congress (after the election) to make the specific quantification?

 

This would allow a more precise accounting of the problem loans, and also make a de facto referendum issue for the upcoming election, which is not just the president, but also the House of Representatives and 1/3 of the Senate. :idea: A quick deal now takes "economic referendum" off the ballot.

 

Ya think that's why McCain wants to push for a quick passage? :o

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This is an article from U.S. News and World Report about how we need to do the bailout to prevent much worse financial damage. Please note that I do not necessarily agree with the article, and that I am posting it mostly because I think people might be interested. I don't feel like I have enough of an understanding of this bailout to agree or disagree with the article, but regardless, it presents another point of view even though I personally do resent bailing out fiscally irresponsible people and organizations.

 

http://www.usnews.com/blogs/capital-commerce/2008/9/22/bailout-prevents-great-depression-20.html

 

Bailout Prevents Great Depression 2.0

September 22, 2008 11:35 AM ET | James Pethokoukis

 

 

What would be the dollar cost of not bailing out Wall Street? Try a number north of $30 trillion. (The awful math is detailed below.) That's why Hank Paulson and Ben Bernanke were so scared last week. And, yes, I think "scared" isn't too strong a word. You don't think they convened an emergency nighttime meeting of congressional leaders and then walked out with something close to a blank check for a trillion bucks because they thought we were headed for an outright recession, even a fairly nasty one?

 

Nope, I think they believed, and got Congress to believe, that the economy was on the verge of something far worse than the worst downturn in a generation. And that is why they went with the so-called nuclear option: the biggest financial bailout in history. In the words of JPMorgan Chase economist James Glassman, "Thankfully, we and our friends around the world who are watching the economic lights come on will never know where events would have led, if the clock had not stopped [last] Thursday afternoon.... Last week's events made the 1987 stock market crash look like child's play."

 

As plumbers say about pricey repairs, "Sure, it costs money. It costs money because it saves you money." And plumber in chief Paulson had a pretty big pipe, loaded with toxic debt, to unclog.

 

OK, let's run the numbers. Paulson is asking for $700 billion. But that massive amount doesn't include previous government actions to cure the credit crisis (like propping up Fannie Mae and Freddie Mac), nor does it take into account money the government may get back from selling the bad assets it will be purchasing. So let's say those situations cancel each other out, and we are really talking about $700 billion. Now that money is being borrowed. So you take $700 billion borrowed for 30 years at prevailing interest rates, and you are talking about $2.5 trillion. But as Paulson said last week, "I am convinced that this bold approach will cost American families far less than the alternative: a continuing series of financial institution failures and frozen credit markets unable to fund economic expansion."

 

Now let's do the math on the "alternatives." What would doing nothing cost?

 

1) Scenario 1: Great Depression "Lite." This is supposed to be the worst financial crisis since the 1930s. So let's assume that the total freezing up of American and global credit markets caused something half as bad as the Great Depression. From 1930 through 1933, the U.S. economy shrank by about 25 percent. Now let's say that by doing nothing and letting Mr. Market do his worst, the $12 trillion U.S. economy shrinks by half that amount (12.5 percent), or around $1.5 trillion over four years. (Also, figure a near doubling in unemployment.) But there's also the opportunity cost of not returning to growth, even at a so-so 2.0 percent a year. Doing nothing costs $1.1 trillion more in lost growth. So now we are down $2.6 trillion.

 

But wait: There's more. Let's assume the stock market drops an additional 25 percent or so. That's $3 trillion more in lost market capitalization. Plus, we are forgoing the opportunity to gain back what we have lost in the market, about $3 trillion. So, add the $6 million in lost market capitalization to the lost economic output, and we are at $8.6 trillion.

 

Then there is housing, already down $5 trillion, or roughly 20 percent. Let's conservatively say that we lose another $5 trillion by doing nothing. Plus, we forgo a partial rebound, say, $2.5 trillion. Adding together further housing losses (plus the lost opportunity to recoup some losses), and we are talking about a total cost of doing nothing of $15 trillion in four years for the whole megillah. But it could be worse.

 

2) Scenario 2: Great Depression 2.0. The economy shrinks by 25 percent over four years, or $3.2 trillion, plus $1.1 trillion in lost opportunity growth. Economic cost: $4.3 trillion. The market falls two thirds from its peak, losing $7 trillion in value from its current level, plus $3 trillion from not getting a rebound. Stock market cost: $10 trillion. Housing falls an additional $10 trillion from current levels, plus the lost opportunity of $2.5 trillion from a rebound. Housing cost: $12.5 trillion. Total four-year financial and economic cost of doing nothing: $26.8 trillion.

 

Now this is all a very rough guesstimate and doesn't include the costs of all sorts of other ramifications. Here is a fun one: the dissolution of China. Its economy is built for hypergrowth. A dramatically rising standard of living is both keeping the Communist Party in power and keeping the country together. Neither might survive a global economic meltdown. What is the economic impact of that? I don't know. My guesstimator just blew up.

 

Bottom line: Lots of folks have problems with the bailout. Liberals don't like a government bailout of Wall Street (instead of more homeowner help). Conservatives don't like a government bailout of Wall Street (vs. letting the market have its way). In a commentary on the National Review website, Newt Gingrich shows great skepticism toward the Mother of All Bailouts, advising that Congress "had better ask a lot of questions before it shifts this much burden to the taxpayer and shifts this much power to a Washington bureaucracy." He also presents several other actions government could take: 1) suspend the mark-to-market accounting rule; 2) repeal the Sarbanes-Oxley law; 3) eliminate the capital-gains tax; 4) undertake an "all of the above" energy plan to keep at home $500 billion of the $700 billion we currently send overseas for imported energy.

 

Count me as "all of the above" for Gingrich's ideas. (Toss in a corporate tax cut while you're at it.) But what would have been a smart, free-market plan in August 2007 or March of this year isn't enough for right now. Just as government created the environment for the credit crisis, it failed to enact quick solutions. The situation has gone critical. It's time for shock and awe.

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Separately, a lot of the problem is about over-valuing derivatives, and the resultant distortion when you re-assemble the package. You end up with un-collateralized loans.

 

Combine that with equity imbalance caused by zero-down and interest-only mortgages sold into a declining real estate market.

 

You have a lot of loans with more outstanding value than there are assets to recover.

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