[Uncle Skeleton]

Alright, so here's what happened. Someone asked me to explain why can't we just let the banks fall flat on their face and have the survivors pick up the slack. For example, Chase and BofA aren't going anywhere, and similarly there are thousands of smaller banks and credit unions across the country that aren't going to fail without a taxpayer bail-out. What's the reason not to simply let those guys pick the bones of the fallen? So I thought that's not a hard question, just give the party line, but when I opened my mouth, nothing came out. So somebody help me out, arguing this point that I don't believe. The only things I can come up with is:
1. If you can accept the "too big to fail" line, then the combination of banks that would fail are collectively "too big."
2. The failures would be fine if they weren't all happening at once, and 700B buys us a slower decline. (???)
3. The failing banks and the credit they have extended represent such a significant supply of the country's money that losing them would be de facto deflation, which is bad.
4. The failing banks would directly ruin so many people (employees, investors, customers, etc) that there would be revolution and carnage, physically.
5. No one will want to buy my house later if they can't get a mortgage, and if the banks are allowed to fail there will be no more mortgages given out. Therefore, the problem is for every home-owner in America. (???)

Problem is, I can't say any of those with a straight face. Are they even close? Someone please spell it out.

Thanks!

[ebuddy]

Originally Posted by Uncle Skeleton 

Alright, so here's what happened. Someone asked me to explain why can't we just let the banks fall flat on their face and have the survivors pick up the slack. For example, Chase and BofA aren't going anywhere, and similarly there are thousands of smaller banks and credit unions across the country that aren't going to fail without a taxpayer bail-out. What's the reason not to simply let those guys pick the bones of the fallen? So I thought that's not a hard question, just give the party line, but when I opened my mouth, nothing came out. So somebody help me out, arguing this point that I don't believe. The only things I can come up with is:
1. If you can accept the "too big to fail" line, then the combination of banks that would fail are collectively "too big."
2. The failures would be fine if they weren't all happening at once, and 700B buys us a slower decline. (???)
3. The failing banks and the credit they have extended represent such a significant supply of the country's money that losing them would be de facto deflation, which is bad.
4. The failing banks would directly ruin so many people (employees, investors, customers, etc) that there would be revolution and carnage, physically.
5. No one will want to buy my house later if they can't get a mortgage, and if the banks are allowed to fail there will be no more mortgages given out. Therefore, the problem is for every home-owner in America. (???)

Problem is, I can't say any of those with a straight face. Are they even close? Someone please spell it out.

Thanks!

I'm not going to be of much help I'm afraid. The issues you mention above are not that bad. One other notion I've heard elsewhere and never did the homework is that if we didn't bail these companies out, China would. I'm still generally opposed to them and think we could pull out of it in different ways, but I'm no expert. I need to read up some more.

[stumblinmike]

All I know is Lawrence Kudlow is for the bailout, and he is the smartest man in America!

[Uncle Skeleton]

Originally Posted by ebuddy 

One other notion I've heard elsewhere and never did the homework is that if we didn't bail these companies out, China would.

Is that supposed to be a bad outcome?

[ebuddy]

Originally Posted by Uncle Skeleton 

Is that supposed to be a bad outcome?

Seriously?

[Uncle Skeleton]

What happened to globalization and free trade?

[Chuckit]

I think this thread tells you everything you need to know about the bailout.

[TheMosco]

Can someone explain something to me about the bailout?

I am watching fox news and they are talking about all this "pork" that got added to the senate deal. The stuff about the arrows and tax breaks for the rum. They are talking about how congress doesn't get it and how these things shouldn't be added to the bill.

But earlier, I am pretty sure a republican from the senate was saying that the reason all that stuff was in there, is because the rules prevent from introducing the bailout on its on, and that they had to attach it to an already produced bill.

So which is it? Whats the deal?

[tie]

Originally Posted by TheMosco 

But earlier, I am pretty sure a republican from the senate was saying that the reason all that stuff was in there, is because the rules prevent from introducing the bailout on its on, and that they had to attach it to an already produced bill.

I think that tells you all you need to know. Republicans have their own rules that prevent them from voting for any bill that doesn't include pork.

(Seriously, the reason the bill has a funny title is because it was attached to another bill to get around procedural slowdowns. The reason the bill has all sorts of pork in it is to get Republicans to vote for it.)

[tie]

Originally Posted by Uncle Skeleton 

1. If you can accept the "too big to fail" line, then the combination of banks that would fail are collectively "too big."

This is the reason. The Fed tried letting Lehman Bros. go bankrupt, and the financial world unraveled. Things might not fall apart immediately, maybe it would take a year. There would be some survivors, yes. But in the mean time there in no lending going on because nobody knows whom to trust.

Even still, things aren't going to be fixed until the next president, since Bush is obviously incompetent. So the next four months will be bad, but maybe Paulson can get things rolling.

[Uncle Skeleton]

Originally Posted by tie 

The reason the bill has all sorts of pork in it is to get Republicans to vote for it.

Please don't side-track my thread with that partisan crap. Dems are just as beholden to pork.

[Uncle Skeleton]

Originally Posted by tie 

This is the reason. The Fed tried letting Lehman Bros. go bankrupt, and the financial world unraveled. Things might not fall apart immediately, maybe it would take a year. There would be some survivors, yes. But in the mean time there in no lending going on because nobody knows whom to trust.

Ok then, 2 questions. First, explain "too big to fail." Even if half the field is wiped out by this, why wouldn't the other half be able to grow to fill the gap? If the service they were supplying is a good one, then it will be insanely profitable for the surviving banks to provide. And if the service is not a good one, then why should we care if it doesn't get done?

Second, if we can grant the "too big to fail" crown to someone, doesn't that mean they own us, they've won at life at our expense? If they can get away with bilking us for 700B just because they're big enough that they can piss away all their money and cry uncle, what's to stop them from doing it again and again and again? How does paying them off make them any less likely to just wash rinse repeat on us? Actually, it makes that more likely, because now they know they can get away with it. If they're really too big to fail, then the solution is to replace them, not to feed them. In other words: imagine one year from now, they've taken the money, pissed it away (again), and are now in the exact same position, still too big to fail, still demanding a new bail-out, but the only difference is that now we all know that it's a sham (and we're already out 700B more than before). What happens then? Is there any option besides keep paying them no matter what? If there is another option, then why don't we do it now, and if there isn't another option, then we might as well just give up because perpetually taxing the masses just to funnel it all to the wealthy is a feudalistic nightmare, and people know better than to tolerate it.

[zerostar]

Well I guess its all passed now, we'll see what the outcome is...

[BRussell]

In typical congressional fashion, they made the bill worse and more people voted for it.

[tie]

Originally Posted by Uncle Skeleton 

Please don't side-track my thread with that partisan crap. Dems are just as beholden to pork.

Please don't give me this "my thread" crap when I make a joke. And you well know that in this case the added pork absolutely was to attract more Republican votes. Dems are not as beholden to pork, and you only have to look at the Republican VP candidate for proof.

[smacintush]

Originally Posted by tie 

And you well know that in this case the added pork absolutely was to attract more Republican votes. Dems are not as beholden to pork, and you only have to look at the Republican VP candidate for proof.

Sorry, no.

[tie]

Originally Posted by Uncle Skeleton 

Ok then, 2 questions. First, explain "too big to fail." Even if half the field is wiped out by this, why wouldn't the other half be able to grow to fill the gap? If the service they were supplying is a good one, then it will be insanely profitable for the surviving banks to provide. And if the service is not a good one, then why should we care if it doesn't get done?

Basically, we had reached the point where not just the bad apples were falling apart, but also the good ones. Goldman Sachs for example was under heavy pressure and having trouble raising capital despite having very little exposure to the subprime mess (they correctly bet that it would fall apart). And it would have gone well beyond financial institutions. We want to cut away the bad companies, but want to minimize the collateral damage. But this was difficult because the credit markets had frozen. Nobody knew who what bank was going to have to be bailed out next and so nobody wanted to lend. It spirals out of control. In the long run, you are right. But we don't want to have to wait ten years for the economy to recover, like Japan.

Second, if we can grant the "too big to fail" crown to someone, doesn't that mean they own us, they've won at life at our expense? If they can get away with bilking us for 700B just because they're big enough that they can piss away all their money and cry uncle, what's to stop them from doing it again and again and again? How does paying them off make them any less likely to just wash rinse repeat on us? Actually, it makes that more likely, because now they know they can get away with it. If they're really too big to fail, then the solution is to replace them, not to feed them. In other words: imagine one year from now, they've taken the money, pissed it away (again), and are now in the exact same position, still too big to fail, still demanding a new bail-out, but the only difference is that now we all know that it's a sham (and we're already out 700B more than before). What happens then? Is there any option besides keep paying them no matter what? If there is another option, then why don't we do it now, and if there isn't another option, then we might as well just give up because perpetually taxing the masses just to funnel it all to the wealthy is a feudalistic nightmare, and people know better than to tolerate it.

Absolutely. I think that we will have another crisis. The current bailout plan is just a stopgap and it will definitely have to be supplemented with substantially more legislation if we don't want everything to repeat itself. That will have to wait until next year, so it's an issue worth thinking about when you cast your vote. (Do you want Phil Gramm and the author of "Dow 36,000" deciding our country's economic policies? Or a president who proposed cutting the capital gains tax as an alternative to the bailout? [Hint: there aren't any capital gains.])

I am bit pessimistic, though, at our chances. Tighter regulation can help. But will it be enough? Once a company knows that it is too big to fail, its executives would have to be crazy not to take on more risk to advantage of that, and we can't regulate every single risk they take. Moreover, there is not the political will right now to fix things. Obama is saying more of the right things, and surrounding himself with more of the right people, than McCain. But both parties are too closely tied to the industry.

One huge change would be to more closely regulate executive compensation. For example, heavily taxing all executive salaries over $1 million that were not of the form of ten-year deferred stock grants would certainly enforce a long-term perspective. That might also make them too risk averse, though.

My own feeling is that if we want to prevent this from happening again, regulation isn't enough, and we need to break up some of these large companies. If they are too big to fail, we need to make them smaller. Of course, the current crisis is only speeding consolidation, so this doesn't seem likely to happen. But, really, lots of small financial companies are prospering, so how much economic harm would be done by breaking up the big ones? I think the biggest advantage for a financial company of getting bigger is that they can socialize their risk away.

Edit: Arguably, I am being too pessimistic. A company being too big to fail does not mean that it is too big for its shareholders to lose everything. (E.g., Bear Stearns sold for $10 a share ultimately. AIG was bailed out only in exchange for substantial equity warrants and rights.) If pursuing a "too big to fail" strategy was really such a good option, you'd think more hedge funds would be after it.

[Uncle Skeleton]

Originally Posted by tie 

Basically, we had reached the point where not just the bad apples were falling apart, but also the good ones.

Ok, let me rephrase the question. Aunt Skeleton asked me "what good does the bailout do me? what am I getting for my $2000 (share of the 700B)?" So, premise: there are "good apples" that are suffering through no fault of their own. These "good apples" are still in the finance industry, right? They still reaped huge rewards over the years by being in a risky but lucrative line of work, and it's not the government's job to prevent "good apples" from going out of business. Example: "good apple" restaurants and vacuum salesmen fail routinely, through nothing more than dumb luck, and the government doesn't go around propping them up with bailouts. This is the way it's supposed to work. With no bailout, would all financials go up in smoke? A majority? If there's any left, I have a hard time explaining to Aunt Skeleton that we simply can't live without Goldman Sachs, or even that she or I are any worse off at all without them. Can you (please)?

We want to cut away the bad companies, but want to minimize the collateral damage.

Why? What collateral damage could there possibly be that balances out the 700B price tag? Is it anything that affects Aunt Skeleton?

But this was difficult because the credit markets had frozen. Nobody knew who what bank was going to have to be bailed out next and so nobody wanted to lend.

So, again, what does my $2000 buy me? How does this problem affect the average taxpayer? And for that matter, how does the bailout rectify it?

It spirals out of control.

When was it ever in control? I don't understand how it's supposed to be in control. If the marketplace is in such disrepair that it's not in a stable equilibrium, nothing short of a command economy is going to change that. The government doesn't "control" which companies survive and which don't based on how good of apples they're being, and it couldn't if it wanted to.

Once a company knows that it is too big to fail, its executives would have to be crazy not to take on more risk to advantage of that, and we can't regulate every single risk they take.

Yeah. But I'm still not clear on what makes them too big to fail. If they're too big, and they're failing, to me that problem is its own solution: let them fail and then they won't be too big anymore.

[olePigeon]

I'm glad to see there were special tax cuts and funding for wooden arrow play sets, dirt laying for horse race tracks, and film producers. We all know they're the backbone of our economy and that making sure wooden arrow play sets are properly funded will help the economy during this dire crisis.

I could have sworn McCain gave a huge speech about earmarks. Said he would vote against the bill if it included earmarks. I think the bribes- err, I mean lobby money got to him.

[ort888]

The problem is that the money these banks pass around to each other and to us in the form of credit is drying up. The more banks that go under, the bigger the credit problem. Without the bailout, the supply of credit in this country would dry up. Without credit, businesses would suffer. Stores would not be able to buy merchandise, payroll would not be able to be met, loans could not be taken out... the effects would suddenly be felt in almost every aspect of our lives. When business suffers, employees suffer. When people suffer, more people suffer. The economy breaks down.

This country is hooked on credit like heroin. People opposed to the bailout want us to go cold turkey... but the effects of that could be catastrophic. Then again, they could not be. No one really knows. That's the problem.

[tie]

It is worth remarking that the bailout is not the same as what was initially proposed. I'm not sure everyone realizes that. For example, unlike the original proposal, the passed plan includes a provision that the funds should be recovered. And many people think that there is a good chance we will make a profit in the end even without such a provision.

So, Uncle Skeleton, the correct simplified description of the bailout isn't that your aunt is giving $2,000 to these companies. Rather, the US government is borrowing $2,000 from China on her behalf, and someone else will pay it back.

Unfortunately, this is still far from ideal, and it sounds like there is some agreement that the funds will be recovered via transaction taxes. I think this is terrible because I don't want higher taxes. Hopefully the Republicans will hold firm on no new taxes, but they will probably just call them "fees" and go along with it. We don't want to spread costs around with new fees; instead we should concentrate the costs on the offenders, to help prevent the next crisis. The original proposal should have had this in it, but it seems like it was just prepared in a weekend.

[Uncle Skeleton]

Originally Posted by ort888 

The problem is that the money these banks pass around to each other and to us in the form of credit is drying up. The more banks that go under, the bigger the credit problem. Without the bailout, the supply of credit in this country would dry up. Without credit, businesses would suffer. Stores would not be able to buy merchandise, payroll would not be able to be met, loans could not be taken out... the effects would suddenly be felt in almost every aspect of our lives. When business suffers, employees suffer. When people suffer, more people suffer. The economy breaks down.

This country is hooked on credit like heroin. People opposed to the bailout want us to go cold turkey... but the effects of that could be catastrophic. Then again, they could not be. No one really knows. That's the problem.

And for those of us not on heroin? If a heroin junkie friend came to me with that story he might get a sympathetic ear and maybe even a few dollars if he sold me on getting clean (which I will point out the bailout does NOT include), but there's no way in hell I'd give him $2000. To those of us who aren't on the credit bandwagon, does this bailout amount to nothing more than getting robbed for heroin money by our sketchy neighbors? I don't look forward to giving that explanation to Aunt Skeleton when I get home.

[Uncle Skeleton]

Originally Posted by tie 

the passed plan includes a provision that the funds should be recovered.

Is that a mechanism, or just wishful thinking? I can force the heroin junkie in the last example to promise to pay me back, but neither of us would believe it for a second. Is what you're talking about any stronger than that?

[tie]

Originally Posted by Uncle Skeleton 

Ok, let me rephrase the question. Aunt Skeleton asked me "what good does the bailout do me? what am I getting for my $2000 (share of the 700B)?" So, premise: there are "good apples" that are suffering through no fault of their own. These "good apples" are still in the finance industry, right? They still reaped huge rewards over the years by being in a risky but lucrative line of work, and it's not the government's job to prevent "good apples" from going out of business. Example: "good apple" restaurants and vacuum salesmen fail routinely, through nothing more than dumb luck, and the government doesn't go around propping them up with bailouts. This is the way it's supposed to work. With no bailout, would all financials go up in smoke? A majority? If there's any left, I have a hard time explaining to Aunt Skeleton that we simply can't live without Goldman Sachs, or even that she or I are any worse off at all without them. Can you (please)?

I don't know if all financials would go up in smoke or not. Certainly a lot of them would. But the crisis is not that financial companies are failing. We've had a steady stream of failing companies all through this year, and we were able to handle them one at a time, often at no cost to the taxpayer. However, the failures were accelerating, and the crisis was that this ultimately caused the credit markets to freeze up. Interest rates skyrocketed for any risk at all (i.e., on everything except treasury securities). The cost of credit is what trickles down to the rest of the country. For example, Massachusetts and California have both been unable to raise the funds they need.

So, again, what does my $2000 buy me? How does this problem affect the average taxpayer? And for that matter, how does the bailout rectify it?

We are already in a recession, but if it prevents a depression than $2,000 will be cheap.

When was it ever in control? I don't understand how it's supposed to be in control. If the marketplace is in such disrepair that it's not in a stable equilibrium, nothing short of a command economy is going to change that. The government doesn't "control" which companies survive and which don't based on how good of apples they're being, and it couldn't if it wanted to.

Sorry, I didn't mean "control" in the sense of command and control. But you do have to admit that the government has a huge amount of control over the economy through the Fed, by setting base interest rates. It isn't at all black and white like you portray it.

[tie]

Originally Posted by Uncle Skeleton 

Is that a mechanism, or just wishful thinking? I can force the heroin junkie in the last example to promise to pay me back, but neither of us would believe it for a second. Is what you're talking about any stronger than that?

Sorry, I haven't looked at the bills that just passed. The last time I saw, the provision read something like, the Treasury is directed to devise methods to recover the funds. Extremely vague, yes, but the bills would never have passed without that directive, so something will certainly happen. I don't really understand the heroin junkie metaphor. The government can take whatever money it wants, it doesn't have to ask for IOUs.

[ort888]

Credit is tied into a lot more things then you think. It doesn't have to do with your level of outstanding debt. Almost all retail stores purchase their merchandise on a type of short term credit. Grocery stores, car dealers, restaurants, etc... Most companies pay their payroll through payroll companies and it's all based on credit. The pay you and then two week later pay the payroll company. It's a type of credit. Don't forget about student loans, car loans, mortgages, small business loans... when the money is gone, the whole system breaks down. Your company can't pay you, your grocery store can't pay for food to put on the shelves, your neighbor can't buy a car, your kid can't get a student loan... the whole system breaks down.

[Uncle Skeleton]

Originally Posted by tie 

I don't know if all financials would go up in smoke or not. Certainly a lot of them would. But the crisis is not that financial companies are failing. We've had a steady stream of failing companies all through this year, and we were able to handle them one at a time, often at no cost to the taxpayer. However, the failures were accelerating, and the crisis was that this ultimately caused the credit markets to freeze up. Interest rates skyrocketed for any risk at all (i.e., on everything except treasury securities). The cost of credit is what trickles down to the rest of the country. For example, Massachusetts and California have both been unable to raise the funds they need.

So you're saying that governments would have to stop relying on deficit spending? That sounds horrible...

We are already in a recession, but if it prevents a depression than $2,000 will be cheap.

That presupposes both that there is a depression on the way and that the bailout will do anything to stop it.

Sorry, I didn't mean "control" in the sense of command and control. But you do have to admit that the government has a huge amount of control over the economy through the Fed, by setting base interest rates. It isn't at all black and white like you portray it.

So that's another question: if the problem was no faith in lending, why wouldn't they just borrow from the Fed? Was it afraid to lend out too?

[Uncle Skeleton]

Originally Posted by tie 

Sorry, I haven't looked at the bills that just passed. The last time I saw, the provision read something like, the Treasury is directed to devise methods to recover the funds.

The bailout recipients are already in the hole for $700B, that's why they need the bailout. Where are they going to get $700B from for the Treasury to even attempt to recover?

[Uncle Skeleton]

Originally Posted by ort888 

Credit is tied into a lot more things then you think. It doesn't have to do with your level of outstanding debt. Almost all retail stores purchase their merchandise on a type of short term credit. Grocery stores, car deals, restaurants, etc... Most companies pay their payroll through payroll companies and it's all based on credit. The pay you and then two week later pay the payroll company. It's a type of credit. Don't forget about student loans, car loans, mortgages, small business loans... when the money is gone, the whole system breaks down. Your company can't pay you, your grocery store can't pay for food to put on the shelves, your neighbor can't buy a car, your kid can't get a student loan... the whole system breaks down.

So all those examples boil down to the equivalent of me using a credit card instead of cash. I do this for convenience, security, or frequent flyer miles. But if I wouldn't be able to afford something without floating it on a credit card, I probably shouldn't be buying it at that time anyway. So I still don't see a crisis here.

[ebuddy]

Originally Posted by Uncle Skeleton 

What happened to globalization and free trade?

You have free speech too, but I wouldn't recommend yelling "fuxx off!" to a cop.

[BRussell]

Originally Posted by Uncle Skeleton 

The bailout recipients are already in the hole for $700B, that's why they need the bailout. Where are they going to get $700B from for the Treasury to even attempt to recover?

Aren't they basically buying into these companies when they're low, and if things turn around, they can sell high? I'm sure they'll lose some money too, but I don't think they're expected to lose it all.

[ebuddy]

Can someone tell me what it would have cost had all these companies went through the proper and/or standard bankruptcy channels?

[Eug]

Originally Posted by Uncle Skeleton 

So all those examples boil down to the equivalent of me using a credit card instead of cash. I do this for convenience, security, or frequent flyer miles. But if I wouldn't be able to afford something without floating it on a credit card, I probably shouldn't be buying it at that time anyway. So I still don't see a crisis here.

You're completely missing the point.

Having cash on hand is good. (AAPL has $20 billion cash or cash equivalents on hand for example.) However, much of the western world functions on credit, despite what you yourself happen to do. It's ingrained into the system. If that credit dries up, the whole system breaks down.

Now you can argue that things aren't as bad as some are making it out to be, but just arguing that companies SHOULD be able to function without credit is simply ignoring the reality of the situation.

[Uncle Skeleton]

Originally Posted by Eug 

Having cash on hand is good. (AAPL has $20 billion cash or cash equivalents on hand for example.) However, much of the western world functions on credit, despite what you yourself happen to do. It's ingrained into the system. If that credit dries up, the whole system breaks down.

That explanation is worth $700M tops. You're going to have to do a lot better than that for 1000x that much.

Think about it. Your argument boils down to "a lot of people will have to start operating like Apple and Uncle Skeleton unless you cough up $700B." So?

[Eug]

Originally Posted by Uncle Skeleton 

That explanation is worth $700M tops. You're going to have to do a lot better than that for 1000x that much.

Think about it. Your argument boils down to "a lot of people will have to start operating like Apple and Uncle Skeleton unless you cough up $700B." So?

I'm not claiming that $700 billion is a magic number. I'm not claiming that even $350 billion or 1.4 trillion is a magic number either. Cuz quite frankly I don't know what that number is.

I'm just saying that your desire to reduce it to being equivalent to a personal credit card purchase is a bit odd. And your choice of $700 million is also strange. $700 million is a drop in the bucket, even by Canadian terms. For example our central bank just said they're injecting $20 billion into the banks to keep liquidity. And this is with a economy that's 1/10th the size of the US's, and one that doesn't have ANY failing banks. If one were to extrapolate that to a US sized economy, that'd be $200 billion right there (or $180-190 billion after the exchange rate), with a banking system that was already much more stable than what exists now in the US, even before the cash infusion.

BTW, I don't think Apple could function very well without credit at this point. Why? Even if Apple decided to drain all their cash accounts for purchases (at the expense of their stock price) their suppliers wouldn't be able to get stuff done without the credit they need. Meanwhile their stock price (along with everyone else's) would continue to drop, and people's personal nest eggs would go along for the ride.

[turtle777]

Most people that (pretend) to have a clue about the economy say that some sort of bailout will prevent even worse development.

Of course, they must be all wrong, and joe-dumbass on the street knows it soooooo much better.
That's why joe-dumbass is also so deep in financial trouble, owing eleventy billion dollars on second and third mortgages, having never saved a dime in his life.

I say, listen to joe-dumbass, because his personal finance history should not be used to judge his judgment about the bailout.



-t

[ort888]

The truth is that no one really knows. Not even the biggest experts in the country can't seem to agree. All we can do is listen to both sides of the argument and hope for the best. Anyone who claims to know exactly what to do with all of this mess is lying. None of us really know. The system is way to complicated.

[turtle777]

Originally Posted by ort888 

The truth is that no one really knows. Not even the biggest experts in the country can't seem to agree. All we can do is listen to both sides of the argument and hope for the best. Anyone who claims to know exactly what to do with all of this mess is lying. None of us really know. The system is way to complicated.

My point exactly.

We might as well stick with the experts. Everything else is just gambling for sure.

-t

[ebuddy]

Originally Posted by turtle777 

My point exactly.

We might as well stick with the experts. Everything else is just gambling for sure.

-t

I think the point was that there are no experts on this issue. There is no one person to listen to. The actual problem hasn't been resolved. Nothing in this bailout is actually addressing the problem. Joe dumbass (which I entirely agree with btw) is showing us that if you give him $15.00 because he's down on his luck, he'll try it at the casino... and lose.

Two questions now;
- What happens if this doesn't work? What happens if the money gets funneled back into the market, but the recipient knows this is temporal at best and the underlying problem still exists, holding his assets?

- Had these companies gone through the standard bankruptcy route, what would that have cost our economy? What would it have cost us?

[Eug]

Ironically, we've been talking about this for years just on this very board. Some of the "experts" said this was coming, but nobody listened... unless you happen to live outside the US.

The US's rules about various stuff such as the banking industry and real estate have simply been too lax, and have to be fixed. The US electorate has been very scared about government oversight, but sometimes it's necessary. This is what happens when you let greed regulate the market.

In contrast, the rules in other countries have been historically much more fiscally conservative. Or even if they haven't always been, some of the governments have moved to tighten things up when early warning signs appear. So far the US hasn't been doing much of that. The US has been in crisis mode, and rightly so, but the fundamental concepts of a fiscally responsible financial market still seems to elude the US.

---

P.S. Just as some background for this thread in general - Some examples of a tightened credit market:

California Governor Arnold Schwarzenegger, the former tough-guy actor, sounded like a frightened man as he begged U.S. Treasury Secretary Henry Paulson this week for a $7-billion (U.S.) emergency loan.

“Absent a clear resolution to this financial crisis, California and other states may be unable to obtain the necessary level of financing to maintain government operations and may be forced to turn to the federal treasury for short-term financing,” the Governor wrote to Mr. Paulson. “California is so large that our short cash-flow needs exceed the entire budget of some states.”

Some U.S. companies are now looking in unconventional places to avoid the less palatable alternatives in the dysfunctional credit market.

Without explanation, Xerox Corp. said Friday it would tap into excess cash available in its Canadian subsidiary, Xerox Canada, to secure a $300-million (Canadian) loan.

[Uncle Skeleton]

Originally Posted by Eug 

I'm just saying that your desire to reduce it to being equivalent to a personal credit card purchase is a bit odd.

Don't forget, it's the finance industry that is coming to the taxpayer asking for a donation. They're the plaintiff, not us. If anyone is implementing some desire to frame or re-frame the situation, it's them. I have no problems taking their world-view at face value, so long as it works. But when they come asking us for so much money they don't even know how much to ask for besides "a really big number" (In their words!), I think taxpayers like myself are entitled to ask for a better explanation from their side, even if we're not experts on the subject.

even by Canadian terms...

Where TF does this come from? Even if there was any precedent for the US taking Canada's lead, it's still nothing more than an appeal to authority (any reason Canada should be an authority on finance or tax policy?).

[Uncle Skeleton]

Originally Posted by turtle777 

Most people that (pretend) to have a clue about the economy say that some sort of bailout will prevent even worse development.

Of course, they must be all wrong, and joe-dumbass on the street knows it soooooo much better.
That's why joe-dumbass is also so deep in financial trouble, owing eleventy billion dollars on second and third mortgages, having never saved a dime in his life.

I say, listen to joe-dumbass, because his personal finance history should not be used to judge his judgment about the bailout.



-t

You've got some nerve extolling the acumen and insight of the supposed experts when it's they who are asking joe-dumbass to save their sorry asses after they screwed the biggest pooch in the history of pooch-screwing. If you expect the taxpayers to donate their money, they deserve for you to respect their opinions.

But more importantly if you want to talk about track records, I'm not in financial trouble, I do have savings, and you're suggesting that I should pay to prop up the guys who just pissed away $700B. Because their track record is so stellar? That makes zero sense. I started this thread to ask people why that makes sense. Your post is definitely pushing me in the opposite direction.

[Eug]

Originally Posted by Uncle Skeleton 

Don't forget, it's the finance industry that is coming to the taxpayer asking for a donation. They're the plaintiff, not us. If anyone is implementing some desire to frame or re-frame the situation, it's them. I have no problems taking their world-view at face value, so long as it works. But when they come asking us for so much money they don't even know how much to ask for besides "a really big number" (In their words!), I think taxpayers like myself are entitled to ask for a better explanation from their side, even if we're not experts on the subject.

Actually, there have been many explanations. Whether you choose to believe them is a different story. And I understand your skepticism, because I have some of my own as well. However, statements like "Meh. That's good enough for only $700 million" simply seems like hiding your head in the sand. $700 million might be enough backup for a single city, not the entirety of the US. Note that California alone was asking to borrow (not a handout, but borrow) $7 billion.

Where TF does this come from? Even if there was any precedent for the US taking Canada's lead, it's still nothing more than an appeal to authority (any reason Canada should be an authority on finance or tax policy?).

I was just using Canada's $20 billion shore up as an example of the scope of this. Even though there is no meltdown here, they felt it necessary to invest that much, and Canada has 1/10th of the population of the US.

But since you asked about "authority": There is no banking meltdown in Canada, specifically because of tighter rules in the banking industry. Furthermore, when cracks were appearing from spillover from exposure to US paper, the government specifically told the banks to straighten up their books, and they complied.

In fact, some US finance types have been calling upon Canadian/foreign banks to come in and buy up US banks to help shore up the industry.

So far the Canadian banks are resisting this for the most part, because the ones people what them to buy are in such a mess. However, some purchases are happening, like this one.

Canada's TD Buys Commerce Bank

The former chairman and chief executive of New Jersey-based Commerce Bancorp (nyse: CBH - news - people ) watches today as his bank sells itself to Canada's TD Bank Financial Group for $8.5 billion. The deal is valued at a healthy three times book value, but the price is lower than Hill might have commanded just six months ago.

TD Bank is paying cash and stock that add up to $42 per Commerce share, a 7% premium over the stock's Monday close but below the $45 to $50 per share analysts had predicted. Certainly Hill, who over 34 years built the bank from a sleepy backwater into an East Coast consumer banking phenomenon, would have looked for far more.

Anyways, I'm not saying the US should take Canada's lead per se. I'm saying the US should use this as an opportunity to tell the US banking industry that their freewheeling days are over. The US needs to reign in industry, with common sense rules and regulations.

[ebuddy]

Originally Posted by Uncle Skeleton 

You've got some nerve extolling the acumen and insight of the supposed experts when it's they who are asking joe-dumbass to save their sorry asses after they screwed the biggest pooch in the history of pooch-screwing. If you expect the taxpayers to donate their money, they deserve for you to respect their opinions.

But more importantly if you want to talk about track records, I'm not in financial trouble, I do have savings, and you're suggesting that I should pay to prop up the guys who just pissed away $700B. Because their track record is so stellar? That makes zero sense. I started this thread to ask people why that makes sense. Your post is definitely pushing me in the opposite direction.

I sense some frustration and you're expressing it well. Experts my a$$! You're pushing me right along with you. The only thing I take issue with is that while I also do not fit the "joe dumbass" tag, you can't deny they're out there. Many of us complain about a host of things while perpetuating it.

What I'm afraid of (and I'm not getting an answer) is what if this doesn't work? What if we taxpayers incur this huge monkey on our backs and the problem just resurfaces next month??? This could in no way be connected to "joe dumbass" at that point because "joe dumbass" is no longer getting any loans.

[Uncle Skeleton]

Originally Posted by Eug 

Actually, there have been many explanations. Whether you choose to believe them is a different story.

What are they? You're not doing any of us any favors by appealing to personal authority and (other) insults.
Edit: just a reminder, the reason I am asking is so I can take something home to Aunt Skeleton to make her feel like the bailout she's financing is more than just a money grab. You may feel comfortable arguing the "just believe me you wouldn't understand" position, but if I try that bullshit I'll be sleeping on the couch.

$700 might be enough backup for a single city, not the entirety of the US. Note that California alone was asking to borrow (not a handout, but borrow) $7 billion.

It doesn't matter how much they ask for, if they want to get it they're going to need a better explanation than what you're providing. That's all I'm asking for.

There is no banking meltdown in Canada

Our "experts" were saying the same thing about the US less than a week before the fallout. I didn't take their word for it either.

I'm saying the US should use this as an opportunity to tell the US banking industry that their freewheeling days are over. The US needs to reign in industry, with common sense rules and regulations.

I'm all for regulation, but what I'm asking about is bailouts.

[Eug]

If this doesn't work (and there's no guarantee that it will), you're screwed. I guess the justification for it though is that there's probably be a higher chance you'd be screwed without it.

I'll pull some numbers out of my assets

No bailout: Screwed probability factor 72.53%
Bailout: Screwed probability factor 48.96%

Our "experts" were saying the same thing about the US less than a week before the fallout. I didn't take their word for it either.

Uh no. My recollection is that they said certain banks were at risk, but they hoped to be able to weather the storm. They didn't. Lehman Brothers and Goldman Sachs were both on the iffy list well before the fallout.

The difference is that the majority of the Canadian banks have negligible amounts of bad paper. The ones that did had gotten rid of a lot of it ages ago. It's fundamentally a different situation. Does that mean Canadian banks can't fail? Of course not. Canada is getting hit hard from the US fallout, because the country is so dependent upon the US economy. However, the bottom line is that regulation, oversight, and even just the culture in banking is much more conservative here.

If real estate is to crash here, yes we could see major problems for Canadian banks. However, there too, the regulation and oversight much tighter. Credit investigation seems to be much more stringent, and "sub-prime" mortgages represent less than 5% of the market (and even then things are tightening up), whereas in the US last year it represented 20%. 20%! Seriously WTF?!?

[ebuddy]

Originally Posted by Eug 

If this doesn't work (and there's no guarantee that it will), you're screwed. I guess the justification for it though is that there's probably be a higher chance you'd be screwed without it.

I'll pull some numbers out of my assets

No bailout: Screwed probability factor 72.53%
Bailout: Screwed probability factor 48.96%

Do I need to borrow and lend for survival as much as banks do? Look, I realize these are simpleton questions, but I get the impression that there's a man behind the curtain here selling me a line of bull.

No bailout: screwed probability factor of 72.53% *for those whose livelihoods were entirely contingent upon it. State of economy if fails- 50%.

Bailout: Screwed probability factor of 48.96% *for all of us. State of economy if fails- 10%.

[Uncle Skeleton]

Originally Posted by ebuddy 

The only thing I take issue with is that while I also do not fit the "joe dumbass" tag, you can't deny they're out there. Many of us complain about a host of things while perpetuating it.

Well, 2 things. First, if you insist on ignoring all people that botched their finances, then you rule out both the "experts" and the "joe dumbasses" and all you're left with is people like you and me. I'm complaining even without perpetuating. Second, the bailout has a power imbalance even if you think both sides are guilty (of whatever), because one side is asking for (or rather demanding) charity from the other side. That gives the latter side the right to answers and not just blindly open their wallets (despite the fact that that's exactly what they did, because they are after all mostly dumbasses. But I'm saying that's not what rightfully should have happened).

What I'm afraid of (and I'm not getting an answer) is what if this doesn't work? What if we taxpayers incur this huge monkey on our backs and the problem just resurfaces next month??? This could in no way be connected to "joe dumbass" at that point because "joe dumbass" is no longer getting any loans.

I agree, and in fact I think that's what I said already: "imagine one year from now, they've taken the money, pissed it away (again), and are now in the exact same position, still too big to fail, still demanding a new bail-out, but the only difference is that now we all know that it's a sham (and we're already out 700B more than before). What happens then?"

[Eug]

Originally Posted by ebuddy

No bailout: screwed probability factor of 72.53% *for those whose livelihoods were entirely contingent upon it. State of economy if fails- 50%.

Bailout: Screwed probability factor of 48.96% *for all of us. State of economy if fails- 10%.

The sad truth of it is that if the banking industry in the US is screwed, then the entire economy is screwed, including J6P.

If you live on skid row, having a better banking industry isn't going to help you. However, if you're average J6P with a car loan and mortgage, a better banking industry is beneficial.

Originally Posted by Uncle Skeleton 

I agree, and in fact I think that's what I said already: "imagine one year from now, they've taken the money, pissed it away (again), and are now in the exact same position, still too big to fail, still demanding a new bail-out, but the only difference is that now we all know that it's a sham (and we're already out 700B more than before). What happens then?"

That's a very good question. We have no guarantee it will work. However, by doing nothing, IMO there's a higher chance of a screwed economy.

P.S. The bailout isn't "charity" in the usual sense. The intent is to recover the money. That may never happen, but that still is the intent. In the very least however, a portion should be recovered.

BTW, the passed bailout package does include a token limit on severance payments for the fat cats, but I don't actually know the details.

[Uncle Skeleton]

Originally Posted by Eug 

The sad truth of it is that if the banking industry in the US is screwed, then the entire economy is screwed, including J6P.

If you live on skid row, having a better banking industry isn't going to help you. However, if you're average J6P with a car loan and mortgage, a better banking industry is beneficial.

Why? Or did you mean to say if he wants to get a car loan and a mortgage? I have a mortgage and the banking industry wasn't helping me at all with it, even when they were flying high. The only effect I can think of for a crash on people who have mortgages is that sometimes if the banks are in trouble they re-negotiate better terms for borrowers who are in trouble. They aren't as likely to do that after they get bailed out, are they?

Edit: actually this is a very good question from my perspective, because I was having a hard time answering Mrs. S. on the very same thing, how does she benefit from a healthy finance industry? She doesn't use credit, doesn't have investments, and is not planning to in the foreseeable future. My only argument to her is that she should want to use those things, because they can make you rich(er). Can you do any better than I did?