The Bailout... are you watching?

[Anderton]

I got the following email this morning, and it explains exactly why we're in trouble: People can't add, subtract, multiply, or divide any more. Hint: $85 billion divided by 200 million is $425, not $425,000!

 

Here is an interesting approach.

 

I

[WRGKMC]

That whole email doesnt make sence to me at all.

Its basically saying you'll give yourself a loan and pay yourself back.

The question is "Where's the money coming from" you're talking about to give to the people?

From the same tax payers that you want to give it to?

Its like those email scams from nigeria, or that movie the Flim Flam Man.

Someones gonna make out, its because of greed, something for nothing, nothing else.

The loan has to be paid back by us and our kids, and our kids kids as a TAX.

There are no freebees here.

If the situation is a bailout, buyout or Loan someones going to have to pay for the debt it creates.

And for the use of MY tax money I get nothing back.

 

Why dont they just not tax me, Let ME pay my own bills, mortgage, credit cards etc and save a ton of money from not having to move it from my bank to the IRS then to dish it out to the same people who paid the taxes in the first place?

 

Highly unlikely and very much impossible.

Theres no motivation to Earn Anything without the threat of loosing everything.

What would occur if that email happend would be All the deadbeats and illegals will be legally picking your pocket and it will be against the law to stop them from raping your wallet.

 

They do that now. What have got to loose? Bitching up a storm and pushing through laws while the rest of us a busting hump trying to earn their way out debt from all the money they're stealing from us.

The whole USA is a big Tit to these people who cant quit sucking off of.

They need to be kicked off the government the same way as you should have been from your parents when you got out of school.

Problem is, so many think the President is their Father and the Government their family and since their familys rich they should be too. The Parents only hear the whining and shut them up with money.

[sventvkg]

Here. This is the email I just got from Ron Paul who I believe explains this very well.

 

 

 

Dear Friends:

 

The financial meltdown the economists of the Austrian School predicted has arrived.

 

We are in this crisis because of an excess of artificially created credit at the hands of the Federal Reserve System. The solution being proposed? More artificial credit by the Federal Reserve. No liquidation of bad debt and malinvestment is to be allowed. By doing more of the same, we will only continue and intensify the distortions in our economy - all the capital misallocation, all the malinvestment - and prevent the market's attempt to re-establish rational pricing of houses and other assets.

 

Last night the president addressed the nation about the financial crisis. There is no point in going through his remarks line by line, since I'd only be repeating what I've been saying over and over - not just for the past several days, but for years and even decades.

 

Still, at least a few observations are necessary.

 

The president assures us that his administration "is working with Congress to address the root cause behind much of the instability in our markets." Care to take a guess at whether the Federal Reserve and its money creation spree were even mentioned?

 

We are told that "low interest rates" led to excessive borrowing, but we are not told how these low interest rates came about. They were a deliberate policy of the Federal Reserve. As always, artificially low interest rates distort the market. Entrepreneurs engage in malinvestments - investments that do not make sense in light of current resource availability, that occur in more temporally remote stages of the capital structure than the pattern of consumer demand can support, and that would not have been made at all if the interest rate had been permitted to tell the truth instead of being toyed with by the Fed.

 

Not a word about any of that, of course, because Americans might then discover how the great wise men in Washington caused this great debacle. Better to keep scapegoating the mortgage industry or "wildcat capitalism" (as if we actually have a pure free market!).

 

Speaking about Fannie Mae and Freddie Mac, the president said: "Because these companies were chartered by Congress, many believed they were guaranteed by the federal government. This allowed them to borrow enormous sums of money, fuel the market for questionable investments, and put our financial system at risk."

 

Doesn't that prove the foolishness of chartering Fannie and Freddie in the first place? Doesn't that suggest that maybe, just maybe, government may have contributed to this mess? And of course, by bailing out Fannie and Freddie, hasn't the federal government shown that the "many" who "believed they were guaranteed by the federal government" were in fact correct?

 

Then come the scare tactics. If we don't give dictatorial powers to the Treasury Secretary "the stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet." Left unsaid, naturally, is that with the bailout and all the money and credit that must be produced out of thin air to fund it, the value of your retirement account will drop anyway, because the value of the dollar will suffer a precipitous decline. As for home prices, they are obviously much too high, and supply and demand cannot equilibrate if government insists on propping them up.

 

It's the same destructive strategy that government tried during the Great Depression: prop up prices at all costs. The Depression went on for over a decade. On the other hand, when liquidation was allowed to occur in the equally devastating downturn of 1921, the economy recovered within less than a year.

 

The president also tells us that Senators McCain and Obama will join him at the White House today in order to figure out how to get the bipartisan bailout passed. The two senators would do their country much more good if they stayed on the campaign trail debating who the bigger celebrity is, or whatever it is that occupies their attention these days.

 

F.A. Hayek won the Nobel Prize for showing how central banks' manipulation of interest rates creates the boom-bust cycle with which we are sadly familiar. In 1932, in the depths of the Great Depression, he described the foolish policies being pursued in his day - and which are being proposed, just as destructively, in our own:

 

Instead of furthering the inevitable liquidation of the maladjustments brought about by the boom during the last three years, all conceivable means have been used to prevent that readjustment from taking place; and one of these means, which has been repeatedly tried though without success, from the earliest to the most recent stages of depression, has been this deliberate policy of credit expansion.

 

To combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about; because we are suffering from a misdirection of production, we want to create further misdirection - a procedure that can only lead to a much more severe crisis as soon as the credit expansion comes to an end... It is probably to this experiment, together with the attempts to prevent liquidation once the crisis had come, that we owe the exceptional severity and duration of the depression.

 

The only thing we learn from history, I am afraid, is that we do not learn from history.

 

The very people who have spent the past several years assuring us that the economy is fundamentally sound, and who themselves foolishly cheered the extension of all these novel kinds of mortgages, are the ones who now claim to be the experts who will restore prosperity! Just how spectacularly wrong, how utterly without a clue, does someone have to be before his expert status is called into question?

 

Oh, and did you notice that the bailout is now being called a "rescue plan"? I guess "bailout" wasn't sitting too well with the American people.

 

The very people who with somber faces tell us of their deep concern for the spread of democracy around the world are the ones most insistent on forcing a bill through Congress that the American people overwhelmingly oppose. The very fact that some of you seem to think you're supposed to have a voice in all this actually seems to annoy them.

 

I continue to urge you to contact your representatives and give them a piece of your mind. I myself am doing everything I can to promote the correct point of view on the crisis. Be sure also to educate yourselves on these subjects - the Campaign for Liberty blog is an excellent place to start. Read the posts, ask questions in the comment section, and learn.

 

H.G. Wells once said that civilization was in a race between education and catastrophe. Let us learn the truth and spread it as far and wide as our circumstances allow. For the truth is the greatest weapon we have.

 

In liberty,

 

 

 

Ron Paul

 

 

 

[Dean Roddey]

I think he's saying, in a very long winded way, that we need reform of the financial markets and to stop living so much on credit. That all seems reasonable. But that's not necessarily an argument against the current action to prevent a panic. If there's a panic and it grows, we will be seriously screwed.

 

And it's not like all the debt they are buying isn't ever going to be repaid to one degree or another. Some of those folks will end up being able to pay their loans. Some will be bought out by other people who have the means. And the rest, once this disaster calms down, will return to more normal prices that they can be sold for, possibly at a good profit.

 

Actually, it would seem that, after this whole thing is behind us, that there will be a pent up market for homes because people who otherwise would have been legitmately ready and able to buy homes during all of this won't be able to (including some who maybe couldn't before hand either due to the huge run up in costs.)

 

The problem with 'what the people want' is that it's not necessarily based on an understanding of what may happen if they get it. If you ask people if they like this bill, most would probably say no. If you ask them if they are willing to risk a depression to avoid this bill, that might be another matter. Maybe a depression wouldn't occur if people remained calm. But the same people who say this is a big scam, if it doesn't happen and the fear spreads would probably be the same people who make a run on the bank and we could end up in a bad downward spiral.

 

You always have to factor herd mentality into these things. What happens will not just be based on rational theories. People don't act rationally and could easily screw the whole country into a depression by trying to avoid their own personal loss.

 

If there's a way to avoid the panic without the bailout, I'd be all for that. But if that's what it takes, we should do it.

[MichaelSaulnier]

Reading these comments... it's very clear to me that the bailout plan is not being explained successfully... or rather... most people don't seem to understand what has been proposed.

 

I think the biggest thing is that the proposed money is intended to purchase assets... in other words, it's not just money that goes to the financial institutions, it's an INVESTMENT and PURCHASE of assets that are currently not liquid due to market conditions.

 

The assets themselves include mortgage backed securities and other debt.

 

These assets are not currently tradeable, because currently the only buyers are wanting to buy at pennies on the dollar. The US Gov't will probably be willing to pay 2 or 3 times more for these assets than the market currently does... and this will allow these financial firms to remove these assets from their books... thereby releasing billions in monetary assets they have set aside as a reserve to capitalize them.

 

Keep in mind that at this time, these assets are undervalued, but not valueless. Even in the sub-prime market, the majority of the loans are still being paid for by homeowners.

 

However the leverage on these securities and the derivatives that were created from these was so great, (I've heard over 20:1 in some cases), that downward price pressure was magnified, (just like profits were during the up market times).

 

The $700 billion number, btw, was not "pulled from a hat" as has been suggested. It represents about 5% of all mortgages in the US... The percent that are or are likely to default.

 

The plan seems to be... the US can buy these troubled securities, hold them until market conditions improve, (2 to 5 years), then sell them back to the commercial sector at the then market prices.

 

This has the potential to be revenue neutral or have a small gain or loss. Most importantly, the whole 700 billion will not be "gone"... there will be assets of some future value that will exist and will be owned by the Federal Gov't.

 

If, as we are hearing, there is some sort of plan to help stem the ever growing rise in foreclosures at the root of the calamity... the market could stabilize sooner rather than later.

 

One of real concerns I see is that banks have moved to a posture where only the best possible credit qualifies for ANY loans. This situation is not "forced" to change by this action... merely "encouraged" to by freeing up the banks capital needs so they can lend.

 

I'm very worried that banks WON'T ease their restrictive posture very quickly, and therefore the stated goal of the program... getting banks to make lots of loans to people and businesses won't be achieved.

 

I don't understand why there's no provision for this whatsoever... at least in the news reports. If the banks choose to stay "tight"... we're still in deep trouble.

 

M

[Bubbalou]

 

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.

 

 

 

It is a bailout albeit a temporary one or maybe better worded (a rescue), for without the government stepping in they would go under. If it works as stated then I am all for it. I am not for burdening the common person with debts to rescue the rich. Yes, I know now that this is not doing that. I do think someone needs to put some checks and balances on many large companies that have a profound affect on the common worker. In my opinion this should include the Oil companies as well. I mean a 7.5 million dollar bonus for an oil CEO is totally ridiculous. We are paying higher prices at the pumps while these jerks are lining their pockets at our expense.

 

-Gary

[spokenward]

MichaelSaulnier has hit on the stuff that I wonder about

 

 

These assets are not currently tradeable, because currently the only buyers are wanting to buy at pennies on the dollar. The US Gov't will probably be willing to pay 2 or 3 times more for these assets than the market currently does... and this will allow these financial firms to remove these assets from their books... thereby releasing billions in monetary assets they have set aside as a reserve to capitalize them.

 

 

Necessarily for the plan to work, we have to pay a premium over and above their valuation.

 

 

The plan seems to be... the US can buy these troubled securities, hold them until market conditions improve, (2 to 5 years), then sell them back to the commercial sector at the then market prices.

 

 

At which time the government will be competing against the institutions that it propped up. It is in their interest to pay the least.

 

Just what are the reserves for the FDIC?

[MichaelSaulnier]

 

It is a bailout albeit a temporary one or maybe better worded (a rescue), for without the government stepping in they would go under. If it works as stated then I am all for it. I am not for burdening the common person with debts to rescue the rich. Yes, I know now that this is not doing that. I do think someone needs to put some checks and balances on many large companies that have a profound affect on the common worker. In my opinion this should include the Oil companies as well. I mean a 7.5 million dollar bonus for an oil CEO is totally ridiculous. We are paying higher prices at the pumps while these jerks are lining their pockets at our expense. -Gary

 

 

I have to disagree with you in principle regarding CEO salaries and bonuses in businesses like Oil. They have every right to negotiate with the board of directors a compensation package based on the success of their company... and the oil companies are doing very well... record profits. But the percentage of profit to price is actually in the low-middle of many industries. It's just the price of the raw material, crude oil has risen and therefore all the profits in all the parts of the market have too.

 

If you don't like the price of gas. Don't buy it.

 

I'm not trying to be a jerk here, but it's the business of the oil company to make a profit, and the business of the executives to lead these companies and achieve rewards based on their success.

 

I don't know what you do for a living, but would you reduce your salary because your clients think the price of your goods or services are too high?

 

Short of nationalizing the oil industry... and considering that net profits from oil production and distribution are well within the norms of percentage of profits from other industries... you have to let the market for executive compensation control how much the CEO's of successful companies make.

 

On the other hand, I do believe that people like the CEO of Merrill Lynch, who has apparently walked away after leading the destruction of his company, with a $130 million severance package is being rewarded unfairly.

 

However, that package was certainly negotiated at the time of his initial employment with the company, and was agreed to by the board... so even then... I'm not sure what can or should be done.

 

I'm not trying to be an apologist, I'm just pointing out that I want rewards based on my success, and so do CEO's of oil companies. And if you say THEY can't have them, then you're also saying that you and I shouldn't either.

 

M

[MichaelSaulnier]

 

MichaelSaulnier has hit on the stuff that I wonder about Necessarily for the plan to work, we have to pay a premium over and above their valuation.

 

 

This is the most mysterious and dangerous part of this whole thing imho. There is NO proposed mechanism to price these assets, but according to Treasury, THEY will be able to figure out the "right price". Things like a "reverse auction" and other means were discussed in the testimony, but it's an article of faith as to the exact method, and no guarantee as to how it will occur.

 

This also brings in the spectre of politics. Leaders of financial institutions, just like any other people cross the political spectrum. So when the next Treasury Secretary, (remember we'll have a new one in mid-Jan 2009), gets this power... who will get the first or best deals? The ones that support the current administration, perhaps? This won't happen overtly, but it's not hard to imagine that behind the scenes this could be a big concern.

 

 

At which time the government will be competing against the institutions that it propped up. It is in their interest to pay the least.

 

 

Well, it's a wide group of investors that may be interested in these securities, once the final resolution of the housing crisis is behind us. Not only banks and insurance companies, (not investment banks, since we no longer have any)... but private capital, mutual funds, private investors, and more will be interested. Mortgage backed securities in a reasonably stable market has been a good investment... and will one day be again. It's entirely possible that if some method of saving millions of individual homeowners from foreclosure is provided, these investments may be able to be sold for MORE than the US Gov't paid.

 

I'm not predicting this... but it's not out of the realm of possibility. A lot depends on what happens in the lending side of the market and what will happen to the multitudes facing balloon payments. If those can be forced to be renegotiated... maybe millions of foreclosures can be avoided.

 

In San Diego, where I live, two years ago... 70% of the home loans originated were of the interest only, balloon payment type. Those balloons are going to come due in the next year or so, and it happened all over the US. This is a timebomb if affordable refinancing is not available to these people.

 

 

Just what are the reserves for the FDIC?

 

 

The FDIC is an insurance program administered by the Federal Gov't. All the banks, credit unions, and other firms covered by it pay into a fund. In over 65 years, not a single individual has lost a cent under this program.

 

The FDIC capital fund is NOT exposed directly to any of this... their only role would come in when banks actually fail. They guarantee the depositors their money back up to the limits based on the type of institution.

 

One thing I have not heard much about was an idea expressed by John O'Neil, the Treasury Sect'y in Bush's first term. He wondered why we're buying these assets, when the US Gov't could simply "guarantee them" at the prices we're about to buy at... That way private investors could buy them from the banks with confidence that they know the "minimum value" and US Gov't money wouldn't have to be committed.

 

I don't know why this idea has not made it's way forward. Sounds smart to me.

 

M

[Anderton]

I'm beginning to think Michael Saulnier should take over for Henry Paulson.

[MichaelSaulnier]

I'm beginning to think Michael Saulnier should take over for Henry Paulson.

 

 

M

[spokenward]

The FDIC is an insurance program administered by the Federal Gov't. All the banks, credit unions, and other firms covered by it pay into a fund. In over 65 years, not a single individual has lost a cent under this program. The FDIC capital fund is NOT exposed directly to any of this... their only role would come in when banks actually fail. They guarantee the depositors their money back up to the limits based on the type of institution.

 

I am not above answering my own question. I was hoping somebody else would do my legwork.

 

They had about 45B in reserves at the end of June.

 

The agency had $45.2 billion in its coffers as of June 30, far short of the $200 billion Whalen says it will need to pay claims by the end of next year. The U.S. Treasury will almost certainly come to the rescue by lending money to the FDIC.

 

So Bloomberg thinks they might need 150B more. Mr. President have pity on the working man.

 

http://www.bloomberg.com/apps/news?pid=20601087&sid=amZxIbcjZISU&refer=home

 

It seems to me are taking care of the investment banker mess and not the Mom and Pop mess.

[nerol1st]

So I'm watching the news now. The idea got p0wnd.

[Will Chen]

Washinton Mutual went under overnight...

[Music Calgary]

Largest bank failure in U.S. history but at least we've got guns!

http://www.bizjournals.com/albany/stories/2008/09/22/daily40.html

 

"When the gov't prepares for the worst we call them fascists."

- BlueStrat

 

Nice preparation... "The worst" is eating your lunch. Pwned.

[nerol1st]

Whatever WaMu was a {censored} bank anyhow. I'm guessing your an anti gun person.

[Music Calgary]

Whatever WaMu was a {censored} bank anyhow.

 

HAW!!

[shniggens]

The 2nd amendment is irrelevant to this conversation. Why bring it up?

[Music Calgary]

I'm guessing your an anti gun person.

 

Nope. I'm anti-stupidity.

[Super 8]

Does any of this mean an end to these {censored} hole title loan stores due to tighter regulations? If so, it'll all be worth it to me.

 

 

I'm beginning to think Michael Saulnier should take over for Henry Paulson.

 

 

Michael sure explained a lot.

Michael, are you an economist?

 

Everything I've caught on the news has basically agreed with what Ken posted. This whole thing sucks, but if government doesn't step in, it's gonna be a long drop.

 

I'm just amazed the economy has been so resilient after everything that's been happening. People seem nervous, but we all seem to just keep chugging along. Maybe we'll ride this one out with minimum impact.

[WRGKMC]

The best one i heard yet last night that 20 billion of that so called deal they were working on was going to go to ACORN.

I told you yesterday there was something rotten in the trash.

Anyone who doesnt know thats the urban development org in Chicago Obama worked for as a community organizer. Its in all kinds troubble with voter fraud, embezzelment, and Misuse of Tax money.

 

Annother problem with this deal is The ones perposing it were the ones who created it. they also knew for the past year this thing was getting ready to happen. They deliberately kept it quiet till its at a chrisis point so they could put a knife to our throats and say gimme or else.

The congress was flooded with calls from the people and shut down their switchboards with people saying No Way.

The Bailout wont be a Bailout it will be a loan in combination with cooking the books with a rolling average and maybe a suspension of capitol gains but we wont know more till thay complete this meeting going on again today.

And as far as that Debate, The media is all upset about it but the people could care less. They already know who theyre voting for.

[Music Calgary]

Annother problem with this deal is The ones perposing it were the ones who created it

 

Bingo.

 

I'm always amazed that, no matter how many times they rape us, people continue to believe that it will be a rich guy in a suit who will save us from the rich guys in suits. Hee.

 

The position that "we need this or worse will come" is pure nonsense. The only thing that will happen without the bailout is that the rich people will absorb a minor dent -- man on the street will not be any better off with the bailout than they will be without. Either way they are fully and completely {censored}ed.

[Super 8]

people continue to believe that it will be a rich guy in a suit who will save us from the rich guys in suits.

 

Well, you can't say "rich white guy" anymore.

[chipmcdonald]

 

Annother problem with this deal is The ones perposing it were the ones who created it. they also knew for the past year this thing was getting ready to happen. They deliberately kept it quiet till its at a chrisis point so they could put a knife to our throats and say gimme or else.

 

 

Exactly. Now we have no choice. I don't have a $22 million golden parachute...

[spokenward]

 

The best one i heard yet last night that 20 billion of that so called deal they were working on was going to go to ACORN. I told you yesterday there was something rotten in the trash. Anyone who doesnt know thats the urban development org in Chicago Obama worked for as a community organizer. Its in all kinds troubble with voter fraud, embezzelment, and Misuse of Tax money. Annother problem with this deal is The ones perposing it were the ones who created it. they also knew for the past year this thing was getting ready to happen. They deliberately kept it quiet till its at a chrisis point so they could put a knife to our throats and say gimme or else. The congress was flooded with calls from the people and shut down their switchboards with people saying No Way. The Bailout wont be a Bailout it will be a loan in combination with cooking the books with a rolling average and maybe a suspension of capitol gains but we wont know more till thay complete this meeting going on again today. And as far as that Debate, The media is all upset about it but the people could care less. They already know who theyre voting for.

 

 

Please use sources. Really. It will save you a lot of heartburn and distress.

 

20 billion. Of course, 20 Billion. Acorn, right? 20 Billion? Please look it up.