Government bail-outs of Banks: Welfare? (insurance, companies, rating, economy)
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The Fed Gov't can't afford to have an angry mob of the population beating down its door during frustrating times so they'll do whatever for businesses to keep the population employed via complacent.
Is this the Socialism and communism America detests so much??
Why should the American public be slugged with higher interest rates, because the banks cant do they jobs? esp the Reverse Bank
Are you speaking of the Bear Stearns deal? If so, yes.
Are you speaking of the FDIC Insurance of the bank accounts so that there isnt a run on the bank, then no. Thats a fund that the banks pay into, and its flush with cash, its not funded at all with taxpayer funds.
The Fed is trying to prevent a panic and total selloff. These bandaids work for a short time and then they have to intervene again. The economy is in trouble..credit is maxed out and that is not good for a consumer driven economy. I think the Fed is just injecting funds to prevent a steep drop..we are in the mist of a slow soft drop.
That is a heck of a lot easier than panic selling and bank runs.
And what is now coming out is that there was a panic run on Bear Stearns just before that weekend bailout with everyone and their brother pulling their money out. Bear Stearns was due to report 1Q earnings that Monday. If the Fed had not bailed them out they would have declared bankruptcy that Monday. Imagine the panic that would have caused.
The Fed is trying to prevent a panic and total selloff. These bandaids work for a short time and then they have to intervene again. The economy is in trouble..credit is maxed out and that is not good for a consumer driven economy. I think the Fed is just injecting funds to prevent a steep drop..we are in the mist of a slow soft drop.
That is a heck of a lot easier than panic selling and bank runs.
And what is now coming out is that there was a panic run on Bear Stearns just before that weekend bailout with everyone and their brother pulling their money out. Bear Stearns was due to report 1Q earnings that Monday. If the Fed had not bailed them out they would have declared bankruptcy that Monday. Imagine the panic that would have caused.
First, the stock holders would have lost their money only (which they did anyways), second it would have caused a run on Bear Stearns, no where else. People need to keep their money somewhere, they simply would have moved it to local banks that were FDIC Insured.. (Bear Stearns is not).
According to this, its ok for everyone else to file bankruptcy but not Bear Stearns and financial institutions.. Sorry but companies can and do file bankruptcy.. If they need federal bailing out, then they should have been allowed to go under..
While Bear Stearns isn't the biggest house on Wall Street, it is a very important piece of the pie. Bear Stearns was the biggest clearing house for trades. A bankruptcy would have effected a lot more than shareholders. Bear Stearns - Wikipedia, the free encyclopedia
Errors with the news story:
"the latter of whom would find themselves holding guarantees from a firm that was not in a position to guarantee anything"
They are still finding themself holding guarantees from a firm not in a position to guarantee anything.
"Taxpayers would have ended up footing the bill for assets that were federally insured, effectively a different kind of bailout."
First Bear Stearns was not FDIC, which the story acknowledges "Bear Stearns may not technically be a bank" since FDIC bailouts only involve "banks". In addition, FDIC Insurance is paid by the banks to insure these funds.. While its a governmental run program, its not a governmental/taxpayer funded program. These funds come from other banks and are already in an account thats flush with cash.
Brokerage firms have SIPC insurance. Banks have FDIC insurance. But with the mixture of brokerage firms doing banking and banks now doing investing there are holes in the insurance coverage. There are lots of people that do not realize this.
Bank insurance covers your banking money (accounts, CDs) and brokerage insurance covers your stock trading account.
In fact FDIC seems to be looking to hire people "just in case" and bring some back from retirement. Free Preview - WSJ.com
Just make sure you stay under the FDIC limits for account balances.
Whats bad is you think they would learn from history. They learned very clearly from the S&L crisis that if tough economic times you loosen funding restrictions not tighten them.
Try getting a loan in todays day and age to buy a new home.. Good luck.. Its nearly impossible.. Who's going to buy out all of those homes that are being repo'd? No one... and as no one is buying them the prices will continue to fall.
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