[Uncle Skeleton]

Hey I have a new question that's probably easy to answer: why was the amount of the bailout not debated or negotiated? You know, considering they just made up the number from the start...

[Eug]

No feeling of entitlement. Just looking at the situation realistically. To put it different terms:

This is the way things have been working for a very long time. Suddenly, everything is taken away, and everyone suffers. Now it's true that some of what has been taken away shouldn't have been there in the first place, but that shouldn't necessarily mean that sudden withdrawl of everything is a good thing.

BTW, a small word of advice. Having $19K in credit card debt is a bad idea. Unless you have $75000 of credit card room or something, having $19000 in credit card debt is not good for your credit rating. Since you already have a mortgage that may not affect you now, but if you were to say move next year and wanted to get new mortgage, you might not be able to get it with optimal terms (and this is completely ignoring the credit crunch for the time being). ie. You could be hit with higher rates than you really should be. That bad karma can stay on your record for two years too.

Furthermore, getting new credit cards just for the sake of getting new credit cards is also bad for your rating. It's been statistically shown that those who apply for lots of new credit cards are higher credit risks than those who have been using the same credit cards for the past several years. While this doesn't apply to you (or me), it does apply in general, so they slash your credit rating because of it.

Check out this bit about credit scores.

Originally Posted by Uncle Skeleton 

Hey I have a new question that's probably easy to answer: why was the amount of the bailout not debated or negotiated? You know, considering they just made up the number from the start...

It has been discussed but as you can imagine, it's pretty vague. Probably something like $100 billion would be too small to do anything at all. And I suspect going for a bigger number would have prevented it from getting passed, cuz it would be that much heavier a burden.

[Uncle Skeleton]

Originally Posted by Eug 

No feeling of entitlement. Just looking at the situation realistically. To put it different terms:

This is the way things have been working for a very long time. Suddenly, everything is taken away, and everyone suffers. Now it's true that some of what has been taken away shouldn't have been there in the first place, but that shouldn't necessarily mean that sudden withdrawl of everything is a good thing.

Ha! Explain how that's different from entitlement again?

BTW, a small word of advice. Having $19K in credit card debt is a bad idea.

thanks mom. Look I'm not going to get into this for risk of encouraging anyone reading to jump into something without proper preparation, but let's just say I have my bases covered. You can PM me if you want to discuss it further.

[Eug]

Originally Posted by Uncle Skeleton 

Ha! Explain how that's different from entitlement again?

This is different because it affects the greater economy, not just a few individuals at the bottom rung of the credit scale.

thanks mom. Look I'm not going to get into this for risk of encouraging anyone reading to jump into something without proper preparation, but let's just say I have my bases covered. You can PM me if you want to discuss it further.

I'm just saying that even if your situation is good it can't hurt to pay attention to your credit rating. However, if you have your bases covered then fine. Let's just leave it at that for this thread.

[Uncle Skeleton]

Originally Posted by Eug 

This is different because it affects the greater economy, not just a few individuals at the bottom rung of the credit scale.

Are you trying to say that entitlement error can't also affect the middle and upper rungs?

[ebuddy]

Look Eug, you're a champ for hanging in there and being respectful. I feel a little bad because frankly, this whole thing kind of pisses me off and it may have seemed I was using you (someone who supports doing "something") as the scapegoat. I realize we all have good intentions.

That said; there simply is no crisis here. There are small banks and community banks that can access your credit rating and will be more than happy to extend credit to good risks. They will continue to do so because they can earn interest on the proportion of your money they can turn around and sell elsewhere. The three of us discussing this issue have a sufficient amount of credit and as it seems... used it wisely. This includes having the means to attain things had the credit not been made available. The problem is, too many have not. Too many from the top down have made a life of credit their livelihoods. Businesses that have not allowed for similar contingencies are irresponsible and I should not be asked to bail them out. This will only lead to a suckling piglets mentality in need of more bail-out nipples with no fear of recourse. They will assume all of the profits if it works while we assume all the risks when it eventually fails. This is BS.

The examples of actual businesses failing are few and far between. The examples of those with good credit not getting credit is scant if any. If this bailout works at all, it will primarily benefit the "big dogs" and will be a temporary "fix". Because of the amount the large banks have lost, they will take their corporate welfare and hold their assets. Only time will tell if I'm right, but I have this real strong hunch we're going to be saying "now what?" within the next 12 months. Worse, J6Pk is getting worked up over something that will not affect him in the least bit. J6Pk works at the mill, at the utility, and generally provides the services we'll need regardless of market conditions. He will still earn a living wage. Will he have a boat? Maybe not. Will he have a 4 bedroom house when there are three in his family? Maybe not. This will affect those with horrible credit and those at the top who used to prey on them. Period. It was artificial to begin with and the chicken has come home to roost. If this is proposed again in my lifetime, I'm organizing. That's just how strongly I feel about it.

[Eug]

Well, I do think this bailout will have a significant chance of failing, so no argument there, but I also do think this bailout is better than doing nothing. However, we won't know what would have happened had they done nothing, because the bill has passed.

I'm just hoping it does work. Not only because a good American economy is good for the American people, but selfishly, also because a good American economy is good for Canadian people as well. We sell so much crap to the US that any downturn in the US will affect us significantly. And of course, I do own some US stock. While my stock isn't the core of my nestegg, it'd be nice to get more out of them.

BTW, what pisses me off too is that we've actually been talking about the real estate stupidities since 2006 on MacNN BEFORE the meltdown, based on books and articles and "expert" opinions voiced years before that. Yet, the American banking industry and the American government simply turned a blind eye. There is most definitely something seriously wrong when even we stupid little MacNN forum members are raising the red flags on stuff that the US should have done something about years ago but didn't.

I said the same thing for the Canadian market, that they should not follow the lending practices of the US. Well, they were actually considering it, and do have some limited sub-prime lending, although nowhere near as risky as in the US. They've now tightened back up on stuff they had loosened up a few years ago, but as far as I'm concerned they shouldn't have allowed that type of risk into the system in the first place.

[Eug]

Well, today was a fine example of the $700 beelleon doing its job.

[Uncle Skeleton]

Someone please correct me if I'm wrong, but did McCain just say he wants government to ensure that real estate prices never go down (in the second debate on 10/7)? If so, isn't that incredibly stupid?

[tie]

Originally Posted by John McCain

And I think that this problem has become so severe, as you know, that we're going to have to do something about home values.

You know that home values of retirees continues to decline and people are no longer able to afford their mortgage payments. As president of the United States, Alan, I would order the secretary of the treasury to immediately buy up the bad home loan mortgages in America and renegotiate at the new value of those homes -- at the diminished value of those homes and let people be able to make those -- be able to make those payments and stay in their homes.

Is it expensive? Yes. But we all know, my friends, until we stabilize home values in America, we're never going to start turning around and creating jobs and fixing our economy. And we've got to give some trust and confidence back to America.
...
So this rescue package means that we will stabilize markets, we will shore up these institutions. But it's not enough. That's why we're going to have to go out into the housing market and we're going to have to buy up these bad loans and we're going to have to stabilize home values, and that way, Americans, like Alan, can realize the American dream and stay in their home.

I think it is brilliant. We also need the government to ensure that nobody loses a job. Maybe guarantee everyone's salary so if they are fired they still get the same paychecks? Is it expensive? Yes. But that way Americans, like Alan, can realize the American dream.

Actually, I think that McCain is just ignorant about economics and sloppy with words, and probably didn't realize what he was saying. I hope what he meant was, roughly, that dramatically falling home prices have been one sign of the current recession, and we'd like to end the recession and therefore (?) stabilize home prices. But his phrasing---"we're going to have to go out into the housing market and we're going to have to buy up these bad loans and we're going to have to stabilize home values"---implied that the government should directly prop up home prices.

[Uncle Skeleton]

Originally Posted by tie 

I think it is brilliant. We also need the government to ensure that nobody loses a job. Maybe guarantee everyone's salary so if they are fired they still get the same paychecks? Is it expensive? Yes. But that way Americans, like Alan, can realize the American dream.

That tactic (or is it a "strategy?") can solve all our problems, just think, they can buy auto loans to make sure everyone can afford their giant SUVs and monster trucks, thereby saving US auto makers too. They can also buy up all the gasoline and sell it at a loss so everyone can still afford to drive those monster trucks around town (hey, it worked for China and Venezuela). What else is part of the American dream... women! McCain is going to bail me out of all the loans I took out for my wedding rings, wedding, counseling, divorce lawyer, and why not throw in the second wedding too! Man, my ship has come in. Assuming he wins of course.

[Eug]

Hmmm... That's pretty strange.

Cuz it sounds like he's saying that if prices do drop he'd make the treasury eat the difference and just renegotiate so that the home buyer pays less. Essentially, he's pushing the idea doing what has already happened, which is have the greedy banking and real estate industry push mortgages hard on everyone, and then have the government take over any bad mortgages, and then go one step further to renegotiate any bad mortgages so the home buyer pays less.

That seems completely asinine. I think the only real solution is to enforce proper regulation in the industry, and to promote more conservative and reasonable lending practices through that legislation. These industries have already said they don't want more regulation and that they've learned their lesson and will keep a tighter reign on things in the future. Of course, this is utter bull, because without proper "guidance" they'll eventually screw everyone over yet again.

[ebuddy]

He's proposing using $300 billion of the already-established $800+ billion "rescue package" to buy up these sub-prime mortgages to allow those people to keep their homes at a lower cost. Yes, he's proposing the taxpayer simply eat this difference.

I hate the idea, but what's the alternative? The foreclosures move the sub-primers out and the home goes uninhabited awaiting sale at decreased value? Especially considering we kind of own the bad paper already? Someone explain. I apologize if someone already has and I've missed it.

[tie]

My own opinion is that if the government is buying mortgages, then it should do whatever is necessary to maximize its profit on those mortgages. Sometimes this may mean renegotiating them for lower amounts, sometimes not. Unfortunately, government is a lot better at giving things away than at maximizing profit. If the government feels the need to give away money to help the economy, then it should write us stimulus checks, and not hide the gifts as part of a larger mortgage program. Propping up housing values at artificially high levels should not be a government goal.

As another example of the need for transparency, take Bernanke's testimony that we should pay more than market prices for these mortgages. (He termed the market prices "fire sale" prices, and rough numbers batted around were that we should pay at least 50% higher.) This is crazy. If the government is giving money away, then at least it should do so as transparently as possible so we know who got the money, how much, and why. Mixing gifts in with purchases instead makes it opaque and ripe for corruption and favoritism.

This is a pretty risky bailout and it has the potential to end very badly. ebuddy, that was McCain's specific proposal, but from what he said---out of context: "we're going to have to stabilize home values"---it sounded like he planned to do much more. I wish McCain sounded like he understood it a bit better. Was this a policy statement, or was this just another of his frequent Sunni/Shiite mixups? I can't tell.

[finboy]

Originally Posted by ebuddy 

He's proposing using $300 billion of the already-established $800+ billion "rescue package" to buy up these sub-prime mortgages to allow those people to keep their homes at a lower cost. Yes, he's proposing the taxpayer simply eat this difference.

I hate the idea, but what's the alternative? The foreclosures move the sub-primers out and the home goes uninhabited awaiting sale at decreased value? Especially considering we kind of own the bad paper already? Someone explain. I apologize if someone already has and I've missed it.

He's essentially saying that we do close to the same thing that was done with RTC back in 89. I think a large part of the reasoning here is to keep folks from making money off of it, which isn't a minor consideration. If we bail people out, I certainly don't want the same slime who MADE the loans to profit from fees and stuff.

I don't know that there IS an alternative.

[ebuddy]

Originally Posted by tie 

This is a pretty risky bailout and it has the potential to end very badly.

I have the same feeling. For one thing, I don't get why banks wouldn't simply hold their assets at this point. They've gotten a butt-load of money and the first one to push loses right? I defer these questions to you and others because while it seems like it should be simple to me, it never is.

ebuddy, that was McCain's specific proposal, but from what he said---out of context: "we're going to have to stabilize home values"---it sounded like he planned to do much more. I wish McCain sounded like he understood it a bit better. Was this a policy statement, or was this just another of his frequent Sunni/Shiite mixups? I can't tell.

He's all over the friggin' place. He can't just simply take in and respond. I think I mentioned this earlier, but he came onto stage and the first thing he did was open his talking-point study guide. He didn't look up from it until after the first question was answered. Just friggin' speak man you've been doing this for almost 30 years. IMO, he needs to tell his advisors to take a hike. He's in a bad funk. He seems entirely fatigued (even for an old guy ) and is not looking "Presidential" at all.