Is the bailout a good idea?

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Is the bailout a good idea?

Postby cliffski » Tue Sep 30, 2008 7:57 am

I'm guessing it is, BUT there needs to be some serious oversight and conditions set. Also, and I the only one who thinks it is INSANE for the US administration to ignore this for 48 hours because of a religious holiday?
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Re: Is the bailout a good idea?

Postby sambrookjm » Wed Oct 01, 2008 12:17 am

cliffski wrote:I'm guessing it is, BUT there needs to be some serious oversight and conditions set. Also, and I the only one who thinks it is INSANE for the US administration to ignore this for 48 hours because of a religious holiday?


I feel like the bailout is a bad idea, actually. If Positech went under (I hope it doesn't!) would you expect the UK taxpayers to bail you out? As has been mentioned in these forums numerous times, the "middle-of-the-road" here in the USA is still very much to the right-of-the-middle in Europe. To me, the bailout is one of the most left-of-the-middle plans this country has ever proposed. The capitalistic solution is to let the companies fail. If the services are needed, someone else will provide them. It may be bad in the short term, but if more money is given to these companies, all they will learn is that they can play the market like this again, and the next time the bailout will have to be even larger. Give me short term pain for long term growth anyday.

As for oversight, the first version of the bailout was essentially Paulson saying "Give me $700 billion. I can spend it any way I damn well please, and there's nothing you can do or say about it." That one was changed slightly...it's now 106 pages, but the main point of the first version is still in there. From http://www.washingtonpost.com/wp-dyn/co ... 00900.html which gives a Cliff's Notes version of the bill:

Section 135. Preservation of Authority.
Clarifies that nothing in this Act shall limit the authority of the Secretary or the Federal Reserve under any other provision of law.

No oversight...again. Super, horribly, outstandingly, amazingly, putrid idea.

One of the problems is that nobody in DC has any credibility...so no matter how much the politicians say that this is absolutely necessary, the general public doesn't believe them. If you add the approval ratings of Bush and Congress together, you still get under 50%...and under 40% in some polls. McCain is getting hammered from both sides because he suspended his campaign to get the bailout to pass, and because it didn't pass. The switchboards in DC are jammed with calls, and the very high majority of them (>95%) are against the plan. If the will of the people means anything, the bailout will not pass. Of the congresscritters that are in tight races (i.e. the ones who still have to listen to the people in their district) the voting tally was 30-8 against.

On a personal level, I've tried to live within my means, put as much $$ as I could into my investments, and started saving for the college funds for my two kids (ages 1 and 3). In 2000, my wife an I bought a house. We had set an upper limit that we wanted to spend on our house of $200K. Our mortgage broker told us that we had been approved for $400K, at which point we both laughed at him. (This was well before the bubble started, so $400K would have bought a very large house on a dozen acres.) We realized that there was no way we would be able to pay that much...even over a 30 year mortgage. If the bailout passes, I feel like we will be punished for following all of the "good" financial advice that had been given by the same people who are now asking for $700 billion. This is above and beyond the increase in the national debt of close to $4 trillion that has already occurred in the past eight years. This Administration has set a standard for ineptitude that I hope is never approached, let alone matched...taking two days off for a "religious holiday" was an excuse for "Trying to figure out what the &%$&( do we do now?!?!?"
I think I've had this deja vu before.
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Re: Is the bailout a good idea?

Postby Food » Wed Oct 01, 2008 3:42 am

I'm pretty much with sambrookjm. While Congress tells us this is an indescribably urgent crisis, they're certainly not acting like it. As sambrook mentioned, if it's that serious, why take a two-day holiday right in the middle of it? On top of that, during the negotiations for the bill that got killed yesterday, there was stuff put in there that has nothing in the world to do with anything, i.e. a ban on shale oil drilling, and a slush fund for ACORN, of all things. So they're just not taking it seriously.

As I mentioned in another thread, the $700 billion figure was pulled out of thin air, and there's no way gov't would give the remainder back should they not need it. They'd find something to waste it on.

So I agree: However much it hurts, we should suffer for what the bad lenders/bad loaners did now rather than suffer what the bad gov't would do in perpetuity with a bailout bill.
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Re: Is the bailout a good idea?

Postby cliffski » Thu Oct 02, 2008 2:01 pm

sambrookjm wrote: If the bailout passes, I feel like we will be punished for following all of the "good" financial advice that had been given by the same people who are now asking for $700 billion.


Yes this is a good point. Personally I agree that if you borrowed too much, you should lose your home, not go crying to people that you were told it would be ok. That will make people who paid off their houses go ballistic.
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Re: Is the bailout a good idea?

Postby Eight of Clubs » Thu Oct 02, 2008 4:41 pm

sambrookjm wrote:
I feel like the bailout is a bad idea, actually. If Positech went under (I hope it doesn't!) would you expect the UK taxpayers to bail you out? As has been mentioned in these forums numerous times, the "middle-of-the-road" here in the USA is still very much to the right-of-the-middle in Europe. To me, the bailout is one of the most left-of-the-middle plans this country has ever proposed. The capitalistic solution is to let the companies fail.



I'm not sure you quite understand the scale of the problem. If the financial sector fails, or at least a sufficiently large minority of it does, the economy does not just loose half a dozen hight street banks, It loose a massive slice of GDP. Pensions would be worthless, credit would be impossible to raise. Hundreds of thousands if not millions of jobs would go not only in finance, but in companies across the country who rely on financing to operate.

The reason Positech would not be bailed out is because the total impact would be one company. If 3 or 4 banks go bust the knock on effect is enormous.
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Re: Is the bailout a good idea?

Postby Eight of Clubs » Thu Oct 02, 2008 4:52 pm

sambrookjm wrote:
On a personal level, I've tried to live within my means, put as much $$ as I could into my investments, and started saving for the college funds for my two kids (ages 1 and 3). In 2000, my wife an I bought a house. We had set an upper limit that we wanted to spend on our house of $200K. Our mortgage broker told us that we had been approved for $400K, at which point we both laughed at him. (This was well before the bubble started, so $400K would have bought a very large house on a dozen acres.) We realized that there was no way we would be able to pay that much...even over a 30 year mortgage. If the bailout passes, I feel like we will be punished for following all of the "good" financial advice that had been given by the same people who are now asking for $700 billion.



You have acted very sensibly here, but the bailout is not for consumers, it is for the banks. The credit crunch refers to the supply side of money on the wholesale capital market. The people who unlike yourself made very silly decisions on how much to borrow are still going to be massively indebted for the next 30 years + are still going to be totality screwed.

If the bailout does not pass, your may well find that we will still be in a recession by the time your kids start college.
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Re: Is the bailout a good idea?

Postby sambrookjm » Fri Oct 03, 2008 1:26 am

Eight of Clubs wrote:You have acted very sensibly here, but the bailout is not for consumers, it is for the banks. The credit crunch refers to the supply side of money on the wholesale capital market. The people who unlike yourself made very silly decisions on how much to borrow are still going to be massively indebted for the next 30 years + are still going to be totality screwed.

I am well aware that the bailout is not for the consumers (read: taxpayers) but for the banks. If this bailout were for the taxpayers, the banks would be paying us $700 billion dollars. Do you think we're ever going to see something that big happen?? That's nearly $2300 for every man, woman, and child in the US. What this bailout is gong to do is show big companies that they can make huge mistakes and the government will be there to pay for the mistakes they made with taxpayer money. In three years (if not sooner) we'll be in the same mess, only with a larger price tag attached, because other companies are going to use this as an excuse to do the same stupid behavior. "But...but...but you bailed out the banks!"

I'm not sure you quite understand the scale of the problem. If the financial sector fails, or at least a sufficiently large minority of it does, the economy does not just loose half a dozen hight street banks, It loose a massive slice of GDP. Pensions would be worthless, credit would be impossible to raise. Hundreds of thousands if not millions of jobs would go not only in finance, but in companies across the country who rely on financing to operate.

The scope of the problem is enormous. $700,000,000,000...and you can probably multiply that by at least a factor of three once everything is said and done. And it's money that the US doesn't have because our debt is already over $9,400,000,000,000. That number is just too large to comprehend...and it's only going to get worse.

A significant reduction of credit is not necessarily a bad thing...it would force people to start living within their means. If that means that the Smith's can't keep up with the Jones's, that's just fine.

The reason Positech would not be bailed out is because the total impact would be one company. If 3 or 4 banks go bust the knock on effect is enormous.

Who will decide which companies get bailed out, and which ones fail? Would Google be allowed to fail? What about Microsoft? General Electric? Chrysler? Amtrak? Delta Airlines? You could make cases for each of these companies being too big to fail.

If the bailout does not pass, your may well find that we will still be in a recession by the time your kids start college.

You may be right about the recession when my kids start college. That may be true with or without the bailout. Economic cycles have ups and downs. People forgot that fact, and everyone in the system was more than happy to perpetuate the myth that housing values would only go up from here until the end of time...so long as they continued to make money off of people stupid enough to believe that.

And now, to "sweeten" the deal to get more votes for this plan to pass, tax cuts are being added to the plan. So we're going to raise spending by $700 billion, and pay for it by cutting revenue by $150 billion??? Can someone else please explain how this is going to help matters? I'm only a simple engineer, with apparently no clue how economics works...
I think I've had this deja vu before.
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Re: Is the bailout a good idea?

Postby ohms_law » Fri Oct 03, 2008 4:49 am

Regardless of all of the political debate surrounding the issue, the fact is that we must bail out the banks here. The consequences of not doing so are simply unfathomable...

That and all the political games being played on this issue are really pissing me off. Not that I should be surprised, since this is occurring in the middle of the election. Still, I'm convinced that just about every representative in the House is purely concerned with re-election rather than the welfare of the country now...
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Re: Is the bailout a good idea?

Postby Eight of Clubs » Fri Oct 03, 2008 12:13 pm

sambrookjm wrote:A significant reduction of credit is not necessarily a bad thing...it would force people to start living within their means. If that means that the Smith's can't keep up with the Jones's, that's just fine.

Who will decide which companies get bailed out, and which ones fail? Would Google be allowed to fail? What about Microsoft? General Electric? Chrysler? Amtrak? Delta Airlines? You could make cases for each of these companies being too big to fail.

You may be right about the recession when my kids start college. That may be true with or without the bailout. Economic cycles have ups and downs. People forgot that fact, and everyone in the system was more than happy to perpetuate the myth that housing values would only go up from here until the end of time...so long as they continued to make money off of people stupid enough to believe that.

I'm only a simple engineer, with apparently no clue how economics works...


The general principle you talk about is not wrong, but what your not doing is seeing the special role banks have in the economy. So to cover off some of those points: Yes, Google, Microsoft, General Electric, Chrysler, Amtrak, Delta Airlines can all fail, that's fine. The talented will be redistributed and their customers redirected. It will be painful for some as when Enron failed, but the effect on the economy as a whole is slight. If however a third of the banks fail the finance sector become non-functional and will ruin the economy for a generation.

I don't know what sort of engineer you are but lets assume you put together factories. And down the road from you a soft drinks manufacturer wants to expand. What companies don't do is save up for 15 years, then build a new factory. They build it as soon as they can see the incremental improvement in revenues, and they borrow the money which is paid off monthly over many years as the asset that was financed produces. Its the classic matching costs of an asset to the revenue it produces. So if we enter a depression the soft drink manufacturer does not build that new factory because the finance industry is non functional and does not create new jobs. It does not call on your company to engineer the factory. So the knock-on effect is maybe 200 jobs directly, and less work for people like you.

You might ask why we need new jobs all the time. Simple, birthrate is always up, and businesses close down all the time, there is a constant flow of jobs out of an economy always, we need a larger flow of jobs into an economy if there is to be growth. If we have a depression jobs are lost at an accelerated rate, but those companies that are actually functioning properly are unable to expand and create new ones.

Ultimately its not a question of the Smiths buying a new plasma TV because the Jones have got one, its that Smith looses his job and Jones gets a pay cut and his two kids can't find anything but minimum wage work.

The way you talk about it seems to assume your be immune to the the effects of a depression. You won't be, no one will.
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Re: Is the bailout a good idea?

Postby cliffski » Fri Oct 03, 2008 4:16 pm

surely once all the banks have gone through reporting cycles and thus accountants have managed to trawl through the books and see exactly who is screwed and who isn't, then the nervousness will fade as the sensible banks resume lending to other sensible banks.
Is this not just short-term paranoia and overreaction because people are suspecting ever financial institution is in a worse-case situation that they may not be in?
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Re: Is the bailout a good idea?

Postby sambrookjm » Sat Oct 04, 2008 12:34 am

cliffski wrote:surely once all the banks have gone through reporting cycles and thus accountants have managed to trawl through the books and see exactly who is screwed and who isn't, then the nervousness will fade as the sensible banks resume lending to other sensible banks.
Is this not just short-term paranoia and overreaction because people are suspecting ever financial institution is in a worse-case situation that they may not be in?

And this was another thing that bugged me about the bailout. It had to be done NOW NOW NOW NOW NOW! DON'T THINK! JUST VOTE YES!! The last bill that had this kind of "urgency" was the USA PATRIOT Act, and that has also turned out to be a nightmare. I'm guessing this over-reaction had a lot to do with the timing (five weeks before an election) than anything else. If this had happened one year ago at this time, the reaction may have been slower.

The media in the US is definitely fear mongering. "WE'RE ALL GONNA DIE! EVERYBODY PANIC!" gets much higher ratings than "Things aren't that bad, so let's stop and think about what to do next" Since the media is looking for ratings rather than informing the public, we get the "Shark Attack!" stories every summer, the "Bird Flu: The Next Pandemic?" stories...and very little actual news.

Eight of Clubs wrote:The way you talk about it seems to assume your be immune to the the effects of a depression. You won't be, no one will.

I don't think that I would be immune to a depression....as you said, nobody would be. However, I think that the choice that we had was to have a depression now, or a worse one later. This bill postponed the inevitable, at the cost of making the eventual crash that much harder. I will concede this - the original bailout bill that the house rejected was better than the one that actually did pass today...the original one didn't have $150 billion in "earmarks" that had nothing to do with the bailout. *sigh* Just when you think things in DC can't get any more fouled up, they prove me wrong. If the final cost of this bill is under $2 trillion, I will be stunned. I would rather go through a "mild" depression of a few years now than a decade long "Great Depression 2: Electric Boogaloo" in ten years.

ohms_law wrote:That and all the political games being played on this issue are really pissing me off. Not that I should be surprised, since this is occurring in the middle of the election. Still, I'm convinced that just about every representative in the House is purely concerned with re-election rather than the welfare of the country now...

I agree with you 100% about the political games being played right now. However, if they were truly concerned with re-election, they would have listened to the vast majority of voters in their districts and voted this bailout down. I really hope it comes back to bite them on Election Day. The sad thing is that both McCain and Obama voted for this..which goes along with the comment you made in the VP thread that the Democrats and Republicans are basically the same thing. In a perfect world, a third party candidate could REALLY use this issue to kick start things.

For what it's worth, I'm an Aerospace and Nuclear engineer (dual major) by degree. I don't do factories, but I could design a missile AND a nice warhead to go on it. :-) My actual job has very little to do with either of these fields, though...I'm doing computer simulations.
I think I've had this deja vu before.
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Re: Is the bailout a good idea?

Postby ohms_law » Sat Oct 04, 2008 4:06 am

The problem is that the sub-prime mortgage problem (which is what the "bailout" is directly addressing, it's not really a "bailout" at all) is so widespread that there are no "responsible lending institutions" left. Every single bank holds a large portfolio of them, and the real estate bubble (finally) bursting is what's dragging them all down.

The United States currently has a significant portion of it's debt owned by foreign investors. The primary reason for that is that the US backs it's debt, no questions asked. If that were suddenly to come into question, which it is beginning to happen with this mess about the bailout bill, it's very likely that those foreign investors will call on their debt quickly. That would be absolutely devastating to the US, to the point that it would go beyond the definition of a "depression". A run on US banking institutions by investors would create a panic that would put the stock market crash of 1929 to shame.
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Re: Is the bailout a good idea?

Postby rboni » Mon Oct 20, 2008 3:25 am

Just to remind people of how big this bailout is, $700 billion is 70% of Australia’s GDP.

I have noticed that George W Bush is reaffirming his administrations cast iron support for neo-liberal economics, but what are the chances that a more Keynesian economic order will emerge from this!


http://www.globalinfo.nl/content/view/1728/26/

http://www.attac.org/spip.php?article2
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Re: Is the bailout a good idea?

Postby sambrookjm » Tue Oct 21, 2008 12:22 am

rboni wrote:Just to remind people of how big this bailout is, $700 billion is 70% of Australia’s GDP.


And don't forget the other $150 billion in "sweeteners" that they needed to pass the bill in the first place. That's another 15% of their GDP.

It sounds like the bailout is the equivalent of taking nearly a full year's worth of money from everything Australia produces. Wow...
I think I've had this deja vu before.
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Re: Is the bailout a good idea?

Postby sambrookjm » Wed Oct 29, 2008 1:48 am

http://abcnews.go.com/Blotter/WallStree ... 933&page=1

"[B]anks have spent or set aside $108 billion to pay out bonuses to top executives, Waxman said, referencing the firms' public filings.

The bonuses would reportedly range from around $100,000 for a lower-level employee to over $1 million for senior employees. Experts have said the payouts will be plumper than they would have been in such a disastrous year because of the taxpayer money flowing into the institutions."

Both of the Senators from my state voted for this bailout. They have lost my vote from here on out. I never thought there would be a single issue that would be able to make me to do that...but this bailout just keeps getting worse and worse. The people who caused the mess are not only keeping their jobs, but getting bigger bonuses because they were so stupid the government had to bail them out.

On the bright side, the representative in our district voted against it...too bad there weren't more that followed his lead.
I think I've had this deja vu before.

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