What happens if there is no bailout?? (bankruptcy, loans, creditors)

[DAP443]

What happens if there is no bailout??

[Dd714]

Actually, no one really knows for sure.

[Woof Woof Woof!]

You can read the article I linked to in another thread "Bankruptcy not bailout"

[chuck22b]

Well, the main reason we have a credit freeze is because of uncertainty. without the bailout, uncertainty will remain, and credit will continue to get tight until probably 2012 when all the option arms and everything else resets.

As a result... we'll have a large contraction since most businesses and households rely on credit to some degree. Because of this contraction... more than likely businesses will go under, households will go under, and unemployment will rise to the double digits further burdening our government system.

In the mean time, the Fed and other central banks will still try to "inject" capital into the system ($650 billion the other day) regardless of whether this bill passes. But, this doesn't eliminate risk (buying off the toxic stuff off bank books), but tries to maintain some liquidity so that there wouldn't be a total collapse at once.

At the end, we'll have high unemployment, probably higher crime, fewer opportunities for education (no loans and government is funding unemployment), social security for the elderly will probably collapse (fewer people funding into the system while a huge drawl will come out starting already), and those capable (wealthy) will leave the country to find other places that have a more favorable climate. We'll probably see the first time in decades of a population exodus (net reduction).

Eventually, don't know when or how, those remaining will find a way to survive and live on.... and maybe grow. Or we might just stay stagnant for decades until WWIII.

-chuck22b

[mojo_1979]

Originally Posted by chuck22b

Well, the main reason we have a credit freeze is because of uncertainty. without the bailout, uncertainty will remain, and credit will continue to get tight until probably 2012 when all the option arms and everything else resets.

As a result... we'll have a large contraction since most businesses and households rely on credit to some degree. Because of this contraction... more than likely businesses will go under, households will go under, and unemployment will rise to the double digits further burdening our government system.

In the mean time, the Fed and other central banks will still try to "inject" capital into the system ($650 billion the other day) regardless of whether this bill passes. But, this doesn't eliminate risk (buying off the toxic stuff off bank books), but tries to maintain some liquidity so that there wouldn't be a total collapse at once.

At the end, we'll have high unemployment, probably higher crime, fewer opportunities for education (no loans and government is funding unemployment), social security for the elderly will probably collapse, and those capable (wealthy) will leave the country to find other places that have a more favorable climate. We'll probably see the first time in decades of a population exodus (net reduction).

Eventually, don't know when or how, those remaining will find a way to survive and live on.... and maybe grow. Or we might just stay stagnant for decades until WWIII.

-chuck22b

Very good analysis, but I believe it is a flawed analysis. It appears you've made the assumption that if this bailout passes, that credit will once again start to flow. Yet, there is no indication that this will happen. As you've stated, the FED has already pumped nearly $1 Trillion into the banking system in an attempt to keep credit flowing. So far, it has failed miserably as Wall Street has simply put this money in their pocket (so to speak). There is no guarantee that banks will start lending money again if this bailout passes. The situation you described above may happen regardless of whether or not this insane bailout passes.

[jimj]

And then you'll get all those "no to the bailout" people back on here railing about those no good people who filed bankruptcy!!!

[chuck22b]

Originally Posted by mojo_1979

Very good analysis, but I believe it is a flawed analysis. It appears you've made the assumption that if this bailout passes, that credit will once again start to flow. Yet, there is no indication that this will happen. As you've stated, the FED has already pumped nearly $1 Trillion into the banking system in an attempt to keep credit flowing. So far, it has failed miserably as Wall Street has simply put this money in their pocket (so to speak). There is no guarantee that banks will start lending money again if this bailout passes. The situation you described above may happen regardless of whether or not this insane bailout passes.

The issue is risk. Of course the cash injections haven't worked since the risk is still in the system and growing. The Fed and central banks are injecting cash to maintain some liquidity. As more businesses collapse, risk of default increases, and hence the Fed will pump even more money. Meanwhile, the risk spread increases... tightening the costs and availability of credit.

The goal of the bail out is to eliminate as much of the risk as possible by giving the Fed or whatever agency the ability to buy off risky assets. Of course this won't make credit flow like it has in the past. But, it'll help investors and our creditors better measure the level of "risk" they are dealing with in the system. Therefore... halting the constant need for "injections" and a downward spiral or domino effect.

The bailout however will increase inflation (increase the money supply). The government and the Fed will have to cut waste, payoff debts, and print money.

-chuck22b

[tony23]

Originally Posted by chuck22b

The goal of the bail out is to eliminate as much of the risk as possible by giving the Fed or whatever agency the ability to buy off risky assets. Of course this won't make credit flow like it has in the past. But, it'll help investors and our creditors better measure the level of "risk" they are dealing with in the system. Therefore... halting the constant need for "injections" and a downward spiral or domino effect.

I really don't follow - it seems to me that you're saying the bailout decreases the risk to investors and creditors. As a result, they will measure their risk better, thus eliminating the need for future bailouts.

That doesn't make sense. If investors are protected from the losses of risky investments, they will not have any incentive to stop making risky investments - which will necessitate more bailouts in the future.

[J Arp]

Fire and brimstone coming down from the skies! Rivers and seas boiling! Forty years of darkness! Earthquakes, volcanoes... The dead rising from the grave! Human sacrifice, dogs and cats living together... mass hysteria!

[Wild Style]

Originally Posted by chuck22b

Well, the main reason we have a credit freeze is because of uncertainty. without the bailout, uncertainty will remain, and credit will continue to get tight until probably 2012 when all the option arms and everything else resets.

As a result... we'll have a large contraction since most businesses and households rely on credit to some degree. Because of this contraction... more than likely businesses will go under, households will go under, and unemployment will rise to the double digits further burdening our government system.

In the mean time, the Fed and other central banks will still try to "inject" capital into the system ($650 billion the other day) regardless of whether this bill passes. But, this doesn't eliminate risk (buying off the toxic stuff off bank books), but tries to maintain some liquidity so that there wouldn't be a total collapse at once.

At the end, we'll have high unemployment, probably higher crime, fewer opportunities for education (no loans and government is funding unemployment), social security for the elderly will probably collapse (fewer people funding into the system while a huge drawl will come out starting already), and those capable (wealthy) will leave the country to find other places that have a more favorable climate. We'll probably see the first time in decades of a population exodus (net reduction).

Eventually, don't know when or how, those remaining will find a way to survive and live on.... and maybe grow. Or we might just stay stagnant for decades until WWIII.

-chuck22b

see Argentina