...power up the Crystal Ball.
I just can't decide if this big-buck government bail out is the best thing to do for our economy in crisis, or not.
I'm trying to put aside my skeptical attitude of ANYTHING the current administration proposes, and really understand the implications of buying up these bad loans or not.
I'm no economist, but have read and read and read all I could, yet I still just DON'T have a clue.
One on hand if we don't shore up the banks money will stop moving, the economy will falter. On the other hand, it's WAY TOO much of the taxpayer's monies to be bailing out, what I'm now considering, nothing more than white-collar crooks that have already made and spent more money than I'll see in a lifetime.
I know it makes no difference what I think, except that I may actually throw out my opinion to my representative legislator's prior to the actual vote. Still I'd like to be able to be for or against this bail-out plan, and if against it, what do we encourage our government to do?
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Alma wrote:
I lost my post
The main reason I am suspicious of the administration's motives behind the bailout is that its directly against the Republican dogma. Republicans want to remove the hand of government from the free market, yet they step in to bolster ailing companies? Its dumping taxpayer dollars directly into corporate coffers, and its wrong.
The real question is if it's even possible to stop the financial collapse at this point, or if these efforts are just delaying the inevitable. This is a complex problem that's been brewing for at least 7 or 8 years now and such problems are very rarely fixed by simple solutions.
For the short term the bailout would be great.
Long term - not so great IMHO.
If they don't approve the bailout then hold onto your hats because the economy is going in the crapper for a few years.
Long term - not so great IMHO.
If they don't approve the bailout then hold onto your hats because the economy is going in the crapper for a few years.
There's going to be a financial collapse eventually, the bailout(s) are just prolonging the inevitable. They're throwing money to prop up an inflated, broken market that really needs to naturally readjust. Sure, it'll be hell, but the end of the mess will come sooner than later.
I'm totally against it, and agree with bubspeed on this one; hold on to your hats. The economy needs to adjust, and delaying it is going to make it worse later anyway. Plus the bill as it was proposed stinks to high heaven... from the little I'd heard, which could admittedly be wrong. Something about golden parachutes for the leaders of these companies and making them immune to lawsuits. Lame.
If anything, I think the Republicans would benefit from having the Dems win this election and NOT funding this bill. The economy is going to be suffering; and after 4 years there will be a lot more support for a Pubby candidate.
But I agree with (ugh) Ron Paul on this. Let the government get the hell away from this stuff, let the market adjust like it needs to, and grin and bear it.
If anything, I think the Republicans would benefit from having the Dems win this election and NOT funding this bill. The economy is going to be suffering; and after 4 years there will be a lot more support for a Pubby candidate.
But I agree with (ugh) Ron Paul on this. Let the government get the hell away from this stuff, let the market adjust like it needs to, and grin and bear it.
LockeColeMA wrote:
hold on to your hats.
I read in an Australian paper yesterday, that on past similar experiences, whether or not the bail-out works to stabilise the economy, the Government actually stands to quite probably make a PROFIT on the bought-out debt in the long run. That is because the Government bought the debt from the banks and financial institutions at a substantial discount.
This substantial discount means that the banks and financial institutions actually DID receive a real spanking for their bad management, because it "crystalised" or "realised" a loss for them, on the loans they wrote out. The banks accepted the loss, because they gambled that that loss was better than a possible worse loss. They are still effectively punished.
The Government is in a better position to make it's money back on the loans than the banks were, because the government runs on a bigger budget, and is more stable than the banks, and can afford to hold onto the loans for the full life of the loans, and so is more likely to receive most of the loan repayments back in full, in the fullness of time. There will of course, still be further defaulters, but since the Government bought all the loans at a DISCOUNT price, that discount price will probably make up for all the final defaulters.
This whole thing is STILL a financial disaster, and a disaster for the USA economy, and probably will knock on to the World economy. HOWEVER, the American taxpayers will probably NOT be worse off in the long run for the government bail-outs made so far.
The only concerning thing is that since the USA treasury is presently in deficit, so they did this on borrowed money (how ironic!) up front, and so the taxpayer is currently incurring interest payments on the capital amount of the Bail-Out. Hopefully the eventual profit from the Bail-Out will cover the present interest payments on it.
Edited, Sep 24th 2008 11:25am by Aripyanfar
This substantial discount means that the banks and financial institutions actually DID receive a real spanking for their bad management, because it "crystalised" or "realised" a loss for them, on the loans they wrote out. The banks accepted the loss, because they gambled that that loss was better than a possible worse loss. They are still effectively punished.
The Government is in a better position to make it's money back on the loans than the banks were, because the government runs on a bigger budget, and is more stable than the banks, and can afford to hold onto the loans for the full life of the loans, and so is more likely to receive most of the loan repayments back in full, in the fullness of time. There will of course, still be further defaulters, but since the Government bought all the loans at a DISCOUNT price, that discount price will probably make up for all the final defaulters.
This whole thing is STILL a financial disaster, and a disaster for the USA economy, and probably will knock on to the World economy. HOWEVER, the American taxpayers will probably NOT be worse off in the long run for the government bail-outs made so far.
The only concerning thing is that since the USA treasury is presently in deficit, so they did this on borrowed money (how ironic!) up front, and so the taxpayer is currently incurring interest payments on the capital amount of the Bail-Out. Hopefully the eventual profit from the Bail-Out will cover the present interest payments on it.
Edited, Sep 24th 2008 11:25am by Aripyanfar
Not all the mortgages are in foreclosure. In fact, a small amount actually are in trouble (like 5%). The problem is that everything was bundled together and sold as a security, which dropped like a rock because there were no buyers.
The Gov't could actually make a ******** of money on this deal because they are getting these securities for pennies on the dollar.
The 300k a bank wants for a foreclosed property was just purchased (assuming bailout happens) by the gov't for about 30k. The Feds then can turn it around and sell it for 200k and make a huge profit.
The rest of the mortages that are good and current are essentially a high yield return for the gov't.
The Gov't could actually make a ******** of money on this deal because they are getting these securities for pennies on the dollar.
The 300k a bank wants for a foreclosed property was just purchased (assuming bailout happens) by the gov't for about 30k. The Feds then can turn it around and sell it for 200k and make a huge profit.
The rest of the mortages that are good and current are essentially a high yield return for the gov't.
Aripyanfar wrote:
I read in an Australian paper yesterday, that on past similar experiences, whether or not the bail-out works to stabilise the economy, the Government actually stands to quite probably make a PROFIT on the bought-out debt in the long run. That is because the Government bought the debt from the banks and financial institutions at a substantial discount.
This substantial discount means that the banks and financial institutions actually DID receive a real spanking for their bad management, because it "crystalised" or "realised" a loss for them, on the loans they wrote out. The banks accepted the loss, because they gambled that that loss was better than a possible worse loss. They are still effectively punished.
The Government is in a better position to make it's money back on the loans than the banks were, because the government runs on a bigger budget, and is more stable than the banks, and can afford to hold onto the loans for the full life of the loans, and so is more likely to receive most of the loan repayments back in full, in the fullness of time. There will of course, still be further defaulters, but since the Government bought all the loans at a DISCOUNT price, that discount price will probably make up for all the final defaulters.
This whole thing is STILL a financial disaster, and a disaster for the USA economy, and probably will knock on to the World economy. HOWEVER, the American taxpayers will probably NOT be worse off in the long run for the government bail-outs made so far.
The only concerning thing is that since the USA treasury is presently in deficit, so they did this on borrowed money (how ironic!) up front, and so the taxpayer is currently incurring interest payments on the capital amount of the Bail-Out. Hopefully the eventual profit from the Bail-Out will cover the present interest payments on it.
Edited, Sep 24th 2008 11:25am by Aripyanfar
This substantial discount means that the banks and financial institutions actually DID receive a real spanking for their bad management, because it "crystalised" or "realised" a loss for them, on the loans they wrote out. The banks accepted the loss, because they gambled that that loss was better than a possible worse loss. They are still effectively punished.
The Government is in a better position to make it's money back on the loans than the banks were, because the government runs on a bigger budget, and is more stable than the banks, and can afford to hold onto the loans for the full life of the loans, and so is more likely to receive most of the loan repayments back in full, in the fullness of time. There will of course, still be further defaulters, but since the Government bought all the loans at a DISCOUNT price, that discount price will probably make up for all the final defaulters.
This whole thing is STILL a financial disaster, and a disaster for the USA economy, and probably will knock on to the World economy. HOWEVER, the American taxpayers will probably NOT be worse off in the long run for the government bail-outs made so far.
The only concerning thing is that since the USA treasury is presently in deficit, so they did this on borrowed money (how ironic!) up front, and so the taxpayer is currently incurring interest payments on the capital amount of the Bail-Out. Hopefully the eventual profit from the Bail-Out will cover the present interest payments on it.
Edited, Sep 24th 2008 11:25am by Aripyanfar
Point #1: The government has no money. It has the public's tax money and it has debt, which is our children's tax money.
Point #2: I wouldn't count on any kind of profit from the resale of those securities down the road any more than I counted on the oil profits from invading Iraq. At best they will manage to break even, but it's more likely this will end up costing tax payers a significant amount of money. Remember, a security's value is defined by the price to purchase in the market. Right now those securities have an effective value of 0. The government purchased them well over market price and they are currently illiquid. It's pure speculation to assume they will rebound to an even greater value in the foreseeable future.
LockeColeMA wrote:
I'm totally against it, and agree with bubspeed on this one; hold on to your hats. The economy needs to adjust, and delaying it is going to make it worse later anyway. Plus the bill as it was proposed stinks to high heaven... from the little I'd heard, which could admittedly be wrong. Something about golden parachutes for the leaders of these companies and making them immune to lawsuits. Lame.
If anything, I think the Republicans would benefit from having the Dems win this election and NOT funding this bill. The economy is going to be suffering; and after 4 years there will be a lot more support for a Pubby candidate.
But I agree with (ugh) Ron Paul on this. Let the government get the hell away from this stuff, let the market adjust like it needs to, and grin and bear it.
If anything, I think the Republicans would benefit from having the Dems win this election and NOT funding this bill. The economy is going to be suffering; and after 4 years there will be a lot more support for a Pubby candidate.
But I agree with (ugh) Ron Paul on this. Let the government get the hell away from this stuff, let the market adjust like it needs to, and grin and bear it.
bubspeed wrote:
Not all the mortgages are in foreclosure. In fact, a small amount actually are in trouble (like 5%). The problem is that everything was bundled together and sold as a security, which dropped like a rock because there were no buyers.
The Gov't could actually make a sh*tpile of money on this deal because they are getting these securities for pennies on the dollar.
The 300k a bank wants for a foreclosed property was just purchased (assuming bailout happens) by the gov't for about 30k. The Feds then can turn it around and sell it for 200k and make a huge profit.
The rest of the mortages that are good and current are essentially a high yield return for the gov't.
The Gov't could actually make a sh*tpile of money on this deal because they are getting these securities for pennies on the dollar.
The 300k a bank wants for a foreclosed property was just purchased (assuming bailout happens) by the gov't for about 30k. The Feds then can turn it around and sell it for 200k and make a huge profit.
The rest of the mortages that are good and current are essentially a high yield return for the gov't.
Alma wrote:
I lost my post
I also think I'd feel much better supporting this if the country weren't already so far in debt.
I don't want to get pwnt by the Chinese.
I don't want to get pwnt by the Chinese.
Alma wrote:
I lost my post
Elinda wrote:
bubspeed wrote:
Not all the mortgages are in foreclosure. In fact, a small amount actually are in trouble (like 5%). The problem is that everything was bundled together and sold as a security, which dropped like a rock because there were no buyers.
The Gov't could actually make a sh*tpile of money on this deal because they are getting these securities for pennies on the dollar.
The 300k a bank wants for a foreclosed property was just purchased (assuming bailout happens) by the gov't for about 30k. The Feds then can turn it around and sell it for 200k and make a huge profit.
The rest of the mortages that are good and current are essentially a high yield return for the gov't.
The Gov't could actually make a sh*tpile of money on this deal because they are getting these securities for pennies on the dollar.
The 300k a bank wants for a foreclosed property was just purchased (assuming bailout happens) by the gov't for about 30k. The Feds then can turn it around and sell it for 200k and make a huge profit.
The rest of the mortages that are good and current are essentially a high yield return for the gov't.
bubspeed wrote:
The Gov't could actually make a sh*tpile of money on this deal because they are getting these securities for pennies on the dollar.
The 300k a bank wants for a foreclosed property was just purchased (assuming bailout happens) by the gov't for about 30k. The Feds then can turn it around and sell it for 200k and make a huge profit.
The rest of the mortages that are good and current are essentially a high yield return for the gov't.
This is not correct. For the plan to work and get banks back on their feet, the govt has to buy these mortgage backed securities at close to the price they were before the market crashed. Buying them for pennies will do nothing to give the banks the liquidity they need.
Personally, I believe that there should be no bailout package. None whatsoever. These comapnies should be aloud to fail. It is a free market you know.
As an economist (yes, I am an economist) the bailout needs to happen. If these banks fail, there will be no liquidity in the market. If there isn;t liquidity, we might as well all stay home.
The bill will pass but not in its current state. There will be an oversight committee, executive bonus plans etc...
Elinda wrote:
I also think I'd feel much better supporting this if the country weren't already so far in debt.
I don't want to get pwnt by the Chinese.
I don't want to get pwnt by the Chinese.
Heck, the Chinese don't even have to buy us out. At their current rate of breeding their culture will simply overwhelm us in the near future...
same with the mexicans...
shadomen wrote:
As an economist (yes, I am an economist) the bailout needs to happen. If these banks fail, there will be no liquidity in the market. If there isn;t liquidity, we might as well all stay home.
Could you elaborate on this?
If there is no liquidity, you mean it will be very hard to borrow money? And there will be a massive economic slowdown if it gets really hard to borrow money? (Sorry to guess).
Without liquidity you cannot move money, So you can't pay people, buy anything or fund anything.
Very basicly, it's a tad more complicated than that.
Think of it like this.
I am a bank worth $300bn of which $270Bn is tied up in assests such as mortgages and funds, I use the other $30bn to move the other $270bn around.
If I lose $40Bn due to bad debts then i cannot move assests around and i have to somehow find $10bn to pay creditors dispite being worth $260bn on paper, at that point the shares plummet and i become the target of hostile takeovers from people with liquidity looking to buy up my $260bn + $40 bad debt for $100bn.
Very basicly, it's a tad more complicated than that.
Think of it like this.
I am a bank worth $300bn of which $270Bn is tied up in assests such as mortgages and funds, I use the other $30bn to move the other $270bn around.
If I lose $40Bn due to bad debts then i cannot move assests around and i have to somehow find $10bn to pay creditors dispite being worth $260bn on paper, at that point the shares plummet and i become the target of hostile takeovers from people with liquidity looking to buy up my $260bn + $40 bad debt for $100bn.
shadomen wrote:
bubspeed wrote:
The Gov't could actually make a sh*tpile of money on this deal because they are getting these securities for pennies on the dollar.
The 300k a bank wants for a foreclosed property was just purchased (assuming bailout happens) by the gov't for about 30k. The Feds then can turn it around and sell it for 200k and make a huge profit.
The rest of the mortages that are good and current are essentially a high yield return for the gov't.
This is not correct. For the plan to work and get banks back on their feet, the govt has to buy these mortgage backed securities at close to the price they were before the market crashed. Buying them for pennies will do nothing to give the banks the liquidity they need.
Okay, but home prices were very high before the market crashed. Typical homes in my neighborhood fell from US$600,000 (although very few sold at this level) to US$450,000 so about 25% less then the peak value. Can't the US government buy the securities at, say, 75% of that peak value (I'm assuming the security price is reflected in home price...which could be totally wrong...are the securities worth like 10x what the homes are worth? More?) or roughly the current price?
The housing market will rebound, but it will maybe be decades until it gets back to the level it was at the peak. And during that time we'll be paying billions in interest.
Also it is my rather primitive understanding that mortgage back securities did not exist until a short time ago. Perhaps we should make them illegal again (excepting the ones already in existence?)
Baron von tarv wrote:
Without liquidity you cannot move money, So you can't pay people, buy anything or fund anything.
Very basicly, it's a tad more complicated than that.
Think of it like this.
I am a bank worth $300bn of which $270Bn is tied up in assests such as mortgages and funds, I use the other $30bn to move the other $270bn around.
If I lose $40Bn due to bad debts then i cannot move assests around and i have to somehow find $10bn to pay creditors dispite being worth $260bn on paper, at that point the shares plummet and i become the target of hostile takeovers from people with liquidity looking to buy up my $260bn + $40 bad debt for $100bn.
Very basicly, it's a tad more complicated than that.
Think of it like this.
I am a bank worth $300bn of which $270Bn is tied up in assests such as mortgages and funds, I use the other $30bn to move the other $270bn around.
If I lose $40Bn due to bad debts then i cannot move assests around and i have to somehow find $10bn to pay creditors dispite being worth $260bn on paper, at that point the shares plummet and i become the target of hostile takeovers from people with liquidity looking to buy up my $260bn + $40 bad debt for $100bn.
...and normally you'd be able to borrow the $10bn, but right now money is tight and you can't, so you get sold?
I'm not seeing the downside. Yes, stock prices will fall on some but fortunes will be made by the brave.
Isn't that how it is supposed to work?
Or is it so bad that there is not enough money out there to buy up the viable assets? (I seem to hear something along these lines...not sure if it is true). Normally the company would be sold but right now there is no one who has any money to buy since everybody is in the same mess?
Quote:
Or is it so bad that there is not enough money out there to buy up the viable assets? (I seem to hear something along these lines...not sure if it is true). Normally the company would be sold but right now there is no one who has any money to buy since everybody is in the same mess?
The other effect is that other companies are being forced to borrow at extremely unfavourable rates and that mean people like you and me are facing higher pass on costs in addition to everything else.
Here's my view on this:
The Feds: Let's deregulate mortgages!
Wall Street: WHEEEE DRUNKEN ORGY!!! PARTY ON!
*They party, get drunk, trash Wall street, make a huge mess*
Free Market: Party's over. You're all naked, you know.
Wall Street: *sobering up* Oh ****. What a mess . . . We really trashed this place . . . man it's gonna cost billions . . .
Bear Stearns: Ugh I'm not gonna make it home *barf*
JP Morgan: I'll help ya man.
AIG: Oh man oh man my Main Street's gonna kill me for trashing the place I can't afford to fix everything oh man oh man oh man *chews on fingernails*
Lehman Brothers: It's over. GOODBYE CRUEL WORLD *jumps*
Goldman Sachs: Holy ****! Lehman just committed suicide!
Morgan Stanley: Aw man the cops are coming. We're gonna be in so much trouble . .
The Feds: Hello boys. My, my, my. This is quite a pickle. Looks like it's too late for Lehman, but maybe we can help you out.
Wall Street: *hopeful* Really?
The Feds: Sure thing. AIG, we got your ***. The rest of you . . . mmmm, this looks like it's gonna be close to $700 billion.
Wall Street: We're saved!
The Feds: Now, Main Street, give us all your money and we'll be able to fix Wall Street.
Main Street: Wait. Give you our money? What for?
The Feds: Well, Wall Street is full of The Haves. The Haves are who have the money so that they can lend it to other people and let them buy stuff. If The Haves don't actually have any money, then they can't loan it to other people. Lehman's already gone, but maybe we can help the other guys.
Main Street: . . . let me think about this for a second . . . HELL ******* NO!
The Feds: The alternative is unthinkable.
Wall Street: QQ
Main Street: We don't have much sympathy for executives who make as much in a day as we make in a year.
The Feds: Oh, true. Wall Street, you're maybe gonna have to take a pay cut.
Wall Street: NOOOOOO! Then we don't wanna!
Main Street: YES!
The Feds: And we'll need an oversight committee, and you can't claim to have destroyed the chandelier, we can see it's just fine, and . . . *ticks off*
And that's where we are now.
The Feds: Let's deregulate mortgages!
Wall Street: WHEEEE DRUNKEN ORGY!!! PARTY ON!
*They party, get drunk, trash Wall street, make a huge mess*
Free Market: Party's over. You're all naked, you know.
Wall Street: *sobering up* Oh ****. What a mess . . . We really trashed this place . . . man it's gonna cost billions . . .
Bear Stearns: Ugh I'm not gonna make it home *barf*
JP Morgan: I'll help ya man.
AIG: Oh man oh man my Main Street's gonna kill me for trashing the place I can't afford to fix everything oh man oh man oh man *chews on fingernails*
Lehman Brothers: It's over. GOODBYE CRUEL WORLD *jumps*
Goldman Sachs: Holy ****! Lehman just committed suicide!
Morgan Stanley: Aw man the cops are coming. We're gonna be in so much trouble . .
The Feds: Hello boys. My, my, my. This is quite a pickle. Looks like it's too late for Lehman, but maybe we can help you out.
Wall Street: *hopeful* Really?
The Feds: Sure thing. AIG, we got your ***. The rest of you . . . mmmm, this looks like it's gonna be close to $700 billion.
Wall Street: We're saved!
The Feds: Now, Main Street, give us all your money and we'll be able to fix Wall Street.
Main Street: Wait. Give you our money? What for?
The Feds: Well, Wall Street is full of The Haves. The Haves are who have the money so that they can lend it to other people and let them buy stuff. If The Haves don't actually have any money, then they can't loan it to other people. Lehman's already gone, but maybe we can help the other guys.
Main Street: . . . let me think about this for a second . . . HELL ******* NO!
The Feds: The alternative is unthinkable.
Wall Street: QQ
Main Street: We don't have much sympathy for executives who make as much in a day as we make in a year.
The Feds: Oh, true. Wall Street, you're maybe gonna have to take a pay cut.
Wall Street: NOOOOOO! Then we don't wanna!
Main Street: YES!
The Feds: And we'll need an oversight committee, and you can't claim to have destroyed the chandelier, we can see it's just fine, and . . . *ticks off*
And that's where we are now.
Beuatifully put Cat!
And the trouble with the hangover from a stupendous weekend of partying?
It wears off just in time for the following weekend, so you can go and do it all over again!
Wheeeeeeeee!
And the trouble with the hangover from a stupendous weekend of partying?
It wears off just in time for the following weekend, so you can go and do it all over again!
Wheeeeeeeee!
"If you have selfish, ignorant citizens, you're gonna get selfish, ignorant leaders". Carlin.
Aren't you supposed to flip the tea leaves, and then toss the bones??
I can't see any good solution to this at this point in time. Worse yet, is the credit card chickens may come home to roost soon which would utterly destroy anything resembling a viable economy.
The weird thing is I don't see people terribly concerned at this stage, almost like it's a theoretical to them or too vast to comprehend.
Totem
The weird thing is I don't see people terribly concerned at this stage, almost like it's a theoretical to them or too vast to comprehend.
Totem
Too vast, is my guess. Plus, it's more than three layers deep and most of us have no experience in thinking past one or two layers of complication and redirection.
I've moved a little money around. Hope my bank stays up.
I've moved a little money around. Hope my bank stays up.
In a time of universal deceit, telling the truth is a revolutionary act.
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