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Old 09-21-2008, 06:23 PM
 
Location: Pennsylvania, USA
5,217 posts, read 4,111,845 times
Reputation: 908

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Okay everyone..

Again.. not a finanical wall street wiz.. not even close.

My gut tells me this bail out is wrong.. basically coddling the big banks for their stupidity..

But..lets have a clear and concise factual debate (no judgements passed on banks, homeowners etc.. as we must adhere to the strict standards ont his forum).

Tell me, based on your knowledge .. why you feel this is neccesary if you do and what are the ramifications if we do not do the "bail out".

And..

If you are on the side of NO bailout.. what are the possible ramifications if we do do it...

Go....
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Old 09-22-2008, 01:39 AM
Status: "Done with the 100s (hopefully)?" (set 23 days ago)
 
Location: East Central Phoenix
5,411 posts, read 8,295,751 times
Reputation: 5760
Quote:
Originally Posted by TristansMommy View Post
My gut tells me this bail out is wrong.. basically coddling the big banks for their stupidity..
Well, I guess I finally found a topic to agree with you on. Yes ... absolutely and without a doubt, the bailouts are completely wrong for many reasons. First of all, it's clear that we are currently in a bear market economy, which is unfortunate for a lot of us who have investments. However, in the history of the stock market, there are MORE bull periods (meaning higher capital gains and more investor confidence) than bear periods (times of decreased market value and low confidence). Bear market periods also affect our 401Ks negatively as well. I can't say for sure how long we will be in this bearish trend since I don't have a crystal ball ... but past bear markets were soon followed by bullish trends. Therefore, bringing Big Brother into the picture is stupid since the market will sooner or later correct itself.

Second of all, Wall Street is one of the examples of pure American capitalism. There are safe investments, and there are risky ones. That's part of the game. However, bailing out the investment banks and others who made careless mistakes is the OPPOSITE of what capitalism is all about. What kind of a message is this sending to young people, and to others around the world? It's saying that if you screw up, your nanny (the government) will be there to save you. That's not what America was founded on!

Even as much as we hate to see these firms go under, why should it be the taxpayers' responsibility to help bail them out? On that same note, why should all the people who bought new homes with sub prime loans be allowed to rip out plumbing from the house and walk away without facing the consequences of their stupidity? Our government is trillions of dollars in debt as it is thanks to all the social programs, all the bailouts, and all the intervention we do in foreign affairs. The ramifications are pretty easy to figure out: taxpayers will be flipping the bill for these maneuvers until Christ comes back ... and I don't even think HE can save us from the mess we've allowed ourselves to get in.
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Old 09-22-2008, 02:36 AM
 
Location: Ohio
17,999 posts, read 13,238,246 times
Reputation: 13786
The primary issue is liquidity.

If you did nothing, those banks would collapse, the employees would lose their jobs, it would create a panic and people would be withdrawing their money out of banks causing more bank failures, which would result in even more bank failures, even of banks that were financially sound. When the dust clears, for any banks that are still standing, you'd have a liquidity crisis (a credit crunch).

If you're a bank and you issue prime credit cards, you might have issued 100 Million cards and the total line of credit is $50 Billion. A percentage of that is backed by cash, and the rest by instruments, like sub-prime mortgages.

If customers pull their money out of the bank, you have no money to operate with, and if your financial instrutments were issued by Freddie Mac, they're worthless, so what do you do?

Stop issuing new credit card accounts. Develop a criteria for existing accounts, maybe a late payment in the last 6 months means your account is closed and your card canceled, and they call the debt (meaning the balance is due now), and then a late payment in the last 12 months gets your credit limit reduced to $500 and everyone else gets their limits reduced 10% to 50% or more.

Your sub-prime credit cards are in a different account, and you stop issuing new sub-prime credit cards, and probably cancel all existing sup-prime accounts. Your account for car loans has less money too. So yo can be sure people will be putting 10% to 20% down, and making payments for 36 months, not 60 or 72 months.

If you don't have a 20% down-payment for a mortgage, they probably wouldn't even talk to you, and if your credit score is less than 780, they'll probably want 30%, plus they'd do their own appraisal, and might insist on a 15-year mortgage.

Less money available for business loans/business startups and Fortune 500 companies are notoriously slow pays (except when paying a bank), and many companies have $Million lines of credit where they purchase semi-finished goods for manufacture, or import finished goods for resale, then use revenues to pay off their credit lines. You definitely won't have that any more. If you owned a retail outlet, you'd have to pay cash up front or a substantial amount, like 50% to 75% to purchase new inventories for resale.

It would only take 90 days for the unemployment rate to reach 15% and then it'd be approaching 25% in the next 90 days.

That actually happened in late 1930. Banks started to fail and the Federal Reserve and government did nothing. People panicked and made runs on the banks to withdraw their money, and more banks closed. Those banks closing caused even more banks to close, and by the time the Federal Reserve stepped in it was too late. By the end of 1932, most states had ordered banks to close. When FDR was sworn into office in April 1933, the first thing he did was order all remaining banks to close.

If you tried to let existing banks buy up those that are failing, the end result is still the same, but it might take a few more months to get there.

The only option is to keep pumping money into the economy.

Summers, who was Clinton's treasury secretary, said on CSPAN the other day that the housing "crisis" will last through 2010-2011. Nobody cares about the national debt. It's a big number, and that's all people need to know.

But that isn't the issue, the issue is Cost Inflation and it will last until the US goes into an economic depression (not a recession). The only way to stop Cost Inflation in the US is to stop consuming, and with consumer spending driving 72% of the GDP, you should be able to guess what will happen if people reduce consumption.

Summers and few others were saying another stimulus check needs to be issued for the fall, but I don't see it happening. It would be better to wait until spring.
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Old 09-22-2008, 01:57 PM
 
Location: Atlanta, GA
2,290 posts, read 4,946,710 times
Reputation: 784
Quote:
Originally Posted by TristansMommy View Post
Okay everyone..

Again.. not a finanical wall street wiz.. not even close.

My gut tells me this bail out is wrong.. basically coddling the big banks for their stupidity..

But..lets have a clear and concise factual debate (no judgements passed on banks, homeowners etc.. as we must adhere to the strict standards ont his forum).

Tell me, based on your knowledge .. why you feel this is neccesary if you do and what are the ramifications if we do not do the "bail out".

And..

If you are on the side of NO bailout.. what are the possible ramifications if we do do it...

Go....
Your gut is right. Our government is committing almost a trillion dollars toward bailing out businesses that could never have survived if there was even the slightest amount of self-policing and self-regulating.

This kind of bailout is wrong on many levels. Chief among them is that our dollar is already weak enough. Flooding Wall Street with unearned money will weaken the dollar to the point where it'll be on par with European currency.

Another problem with this bailout is that it rewards the very shady and risky business practices that got Wall Street in this mess in the first place.

Finally, this bailout comes with literally no conditions. No court oversight. Once Wall Street gets this money, they're on their "honor" that the problem won't happen again.

And guess who gets to pay the tab for this trillion dollar Christmas gift?
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Old 09-22-2008, 02:00 PM
 
Location: Pennsylvania, USA
5,217 posts, read 4,111,845 times
Reputation: 908
Quote:
Originally Posted by backfist View Post
Your gut is right. Our government is committing almost a trillion dollars toward bailing out businesses that could never have survived if there was even the slightest amount of self-policing and self-regulating.

This kind of bailout is wrong on many levels. Chief among them is that our dollar is already weak enough. Flooding Wall Street with unearned money will weaken the dollar to the point where it'll be on par with European currency.

Another problem with this bailout is that it rewards the very shady and risky business practices that got Wall Street in this mess in the first place.

Finally, this bailout comes with literally no conditions. No court oversight. Once Wall Street gets this money, they're on their "honor" that the problem won't happen again.

And guess who gets to pay the tab for this trillion dollar Christmas gift?

so basically governemnt is going to give it to them , yet keep them unregulated..

Wow.. HUGE mistake!

Boy.. I'm glad on moving to a farm where i can learn to grow my own vegetables.. I have a baaaaddd feeling about this.
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Old 09-22-2008, 04:49 PM
 
Location: Pennsylvania, USA
5,217 posts, read 4,111,845 times
Reputation: 908
I was watching the nightly news on NBC.. and some good ideas were passed around.. about how profits from the companies should be shared with the gov't and limiting the salaries of CEO's of these companies that are benefiting off tax payers bail out.

I definately think that we can't just write a blank check and that there will have to be stipulations.. not ones that last a long time, but ones that last for as long as the economy and the tax payers are paying for their "recovery"...

What do you all think?
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Old 09-22-2008, 08:22 PM
 
Location: wrong planet
5,115 posts, read 10,031,894 times
Reputation: 4133
I am learning more about this also and came across an interesting article about this issue...
Print: Paulson Bailout Plan a Historic Swindle

Add this to the cost of the war and our defense spending.... I think there are very tough times ahead.
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The price of anything is the amount of life you exchange for it. ~Henry David Thoreau


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Old 09-23-2008, 08:15 PM
 
3,320 posts, read 4,702,383 times
Reputation: 11125
Quote:
Originally Posted by Mircea View Post
The primary issue is liquidity.

If you did nothing, those banks would collapse, the employees would lose their jobs, it would create a panic and people would be withdrawing their money out of banks causing more bank failures, which would result in even more bank failures, even of banks that were financially sound. When the dust clears, for any banks that are still standing, you'd have a liquidity crisis (a credit crunch).

If you're a bank and you issue prime credit cards, you might have issued 100 Million cards and the total line of credit is $50 Billion. A percentage of that is backed by cash, and the rest by instruments, like sub-prime mortgages.

If customers pull their money out of the bank, you have no money to operate with, and if your financial instrutments were issued by Freddie Mac, they're worthless, so what do you do?

Stop issuing new credit card accounts. Develop a criteria for existing accounts, maybe a late payment in the last 6 months means your account is closed and your card canceled, and they call the debt (meaning the balance is due now), and then a late payment in the last 12 months gets your credit limit reduced to $500 and everyone else gets their limits reduced 10% to 50% or more.

Your sub-prime credit cards are in a different account, and you stop issuing new sub-prime credit cards, and probably cancel all existing sup-prime accounts. Your account for car loans has less money too. So yo can be sure people will be putting 10% to 20% down, and making payments for 36 months, not 60 or 72 months.

If you don't have a 20% down-payment for a mortgage, they probably wouldn't even talk to you, and if your credit score is less than 780, they'll probably want 30%, plus they'd do their own appraisal, and might insist on a 15-year mortgage.

Less money available for business loans/business startups and Fortune 500 companies are notoriously slow pays (except when paying a bank), and many companies have $Million lines of credit where they purchase semi-finished goods for manufacture, or import finished goods for resale, then use revenues to pay off their credit lines. You definitely won't have that any more. If you owned a retail outlet, you'd have to pay cash up front or a substantial amount, like 50% to 75% to purchase new inventories for resale.

It would only take 90 days for the unemployment rate to reach 15% and then it'd be approaching 25% in the next 90 days.

That actually happened in late 1930. Banks started to fail and the Federal Reserve and government did nothing. People panicked and made runs on the banks to withdraw their money, and more banks closed. Those banks closing caused even more banks to close, and by the time the Federal Reserve stepped in it was too late. By the end of 1932, most states had ordered banks to close. When FDR was sworn into office in April 1933, the first thing he did was order all remaining banks to close.

If you tried to let existing banks buy up those that are failing, the end result is still the same, but it might take a few more months to get there.

The only option is to keep pumping money into the economy.

Summers, who was Clinton's treasury secretary, said on CSPAN the other day that the housing "crisis" will last through 2010-2011. Nobody cares about the national debt. It's a big number, and that's all people need to know.

But that isn't the issue, the issue is Cost Inflation and it will last until the US goes into an economic depression (not a recession). The only way to stop Cost Inflation in the US is to stop consuming, and with consumer spending driving 72% of the GDP, you should be able to guess what will happen if people reduce consumption.

Summers and few others were saying another stimulus check needs to be issued for the fall, but I don't see it happening. It would be better to wait until spring.
Well said and I agree with the reality of your assessment
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Old 09-23-2008, 09:32 PM
 
Location: Ohio
17,999 posts, read 13,238,246 times
Reputation: 13786
Quote:
Originally Posted by katzenfreund View Post
Add this to the cost of the war and our defense spending.... I think there are very tough times ahead.
Those are irrelevant. What I love about this whole thing is how Americans are going to get blind-sided and taken down because they got distracted by non-issues.

They focus should be solely on Cost Inflation and the value of the US Dollar, since they're inter-related.

The only thing more useless than the stock market as an indicator of the health of the economy is the GDP. It isn't the processing of raw materials that drives the US economy, nor the domestic or export sale of finished raw materials, nor the domestic or export sale of goods, rather it's John and Jane Doe spending money that drives the economy.

If John and Jane Doe have a disposable income of $900 and they're spending $100 on fuel, $400 on groceries and $400 on restaurant/entertainment, the GDP does not reflect that, just as it doesn't reflect when they're spending $300 on fuel, $500 on groceries and $100 on restaurant/entertainment, because they're still spending $900/month.

There's little doubt the restaurant/entertainment industry is taking a hit but you won't see that in the GDP.

Commodity demand will put continuous pressure driving Cost Inflation up, and a falling US Dollar increase costs and aggravating the situation.
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Old 09-24-2008, 08:22 AM
 
Location: Atlanta, GA
2,290 posts, read 4,946,710 times
Reputation: 784
Quote:
Originally Posted by TristansMommy View Post
Okay everyone..

Again.. not a finanical wall street wiz.. not even close.

My gut tells me this bail out is wrong.. basically coddling the big banks for their stupidity..
Your gut is right. In a nutshell, the investment entities who funded these banks for the purpose of taking on these risky mortgages, now want to be bailed out. They not only want a free pass, but they want to pass along the lost profits to you and me--the taxpayers.

To make matters worse, they want the government to bail them out, but they DON'T want the government to bail out the people who took out the mortgages and are facing foreclosures. They want those people to keep paying on those mortgages so that they can continue to make money.

How sick is this?
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