Financial bailout bill does not pass

[neesek]

Our school for the afternoon - watching the vote on C-Span. It looks like it has failed for now. 227-206.

[Renee in FL]

Oh my...

On one hand, I am GLAD that it didn't pass.

On the other, I am SICK that it didn't pass.

:001_huh:

[Wendi]

http://www.youtube.com/watch?v=GNz_Zb9-VsQ&feature=related

[hsmamainva]

Buckle your seatbelts, ladies and gentlemen! It's gonna be a wild ride!!!

The stock market is already down 600 points.

[Remudamom]

I don't want it to pass. Ducking and running.

[Marie in Oh]

Oh my...

On one hand, I am GLAD that it didn't pass.

On the other, I am SICK that it didn't pass.

:001_huh:

I don't want it, but I think the economy is going to realy tank without it. The NYSE is down over 500 points. I think it is all going to pot despite what the government does.

[laylamcb]

Woohoo! Democracy triumphs!

Now I'm :leaving: and joining Remudamom for drinks. :auto:

[Renee in FL]

I don't want it, but I think the economy is going to realy tank without it. The NYSE is down over 500 points. I think it is all going to pot despite what the government does.

I agree. We stand to lose our business if something doesn't change in the housing market, BUT I am not willing to save my business on the futures of my children!

[laylamcb]

I don't want it, but I think the economy is going to realy tank without it. The NYSE is down over 500 points. I think it is all going to pot despite what the government does.

There's a lot more to the economy than the stock market (and this is from someone with a hefty nest egg invested in stocks).

I agree completely with your second sentence, unfortunately. But at least we won't be throwing good money after bad if the bailout goes down in flames.

[Remudamom]

Woohoo! Democracy triumphs!

Now I'm :leaving: and joining Remudamom for drinks. :auto:

How do you feel about riding and rum? Not at the same time, of course!

[Dana in OR]

It may be a good thing that it didn't pass. I don't know. We may be in for a lot of "short term pain" for "long term gain" instead.

One thing is for sure though - both Democrats and Republicans did not want its passage to be pinned on themselves.

~Dana

[Ishki]

I feel relieved, nervous and scared all at the same time. Depending on who I listen to, I'm convinced we need a bailout package or convinced we don't. I wish I knew more or had a crystal ball. My first instinct is to say, "Good!"

Then I think about our retirement and feel like crying.

Janet

[Cadam]

How do you feel about riding and rum? Not at the same time, of course!

Can I join you? :D Yes the economy will tank but I think it will no matter what and the bail out would just delay the inevitable. Democracy in action. I am off to find out how my congressmen voted.

btw, there are controls in place so that the stock market gets shut down if it goes down too much in one day. I remember hitting that mark quite some years ago once.

[Dana in OR]

How do you feel about riding and rum? Not at the same time, of course!

Can I join you? :D

~Dana

[Jane in NC]

Then I think about our retirement and feel like crying.

Janet

And college savings accounts as well. CDs cannot outspace inflation, stocks are going down the toilet.

Glad we don't have a home equity loan (which should probably called a home inequity loan these days!)

No easy solutions.

Jane (watching it all from the sidelines)

[hsmamainva]

Then I think about our retirement and feel like crying.

Janet

I hear ya!!!

My hubby's like..."I always wondered what it would be like to work until I'm 80. Guess I'm going to find out..."

I'm worried about our oldest, who'll be going to college next year -- she's already filled out her applications -- wonder if there will be any financial aid for her??

Guess I should practice my line: "Would you like fries with that?" ;)

[Marie in Oh]

There's a lot more to the economy than the stock market (and this is from someone with a hefty nest egg invested in stocks).

I agree completely with your second sentence, unfortunately. But at least we won't be throwing good money after bad if the bailout goes down in flames.

I think the stock market has been inflated for years and was due for a correction-- though I think this is going to be more of a correction. The dollar is weak and the government's answer of printing more money when they run out makes it weaker. So does borrowing money from foreign sources.

However, the bailout would have "stablized the dollar" in the world's mind (not really, but that is what it would have appeared to have happened short term if it had passed) for a long enough period of time for us to make some serious changes in our portfolio. We were hoping for a quick upswing in the market so we could get our ducks in a row. We have alot invested and I think it will not correct in the near future. The only chance for an upswing we have now is from election results.

So, it was my hope for a reactionary upswing. I thought it was going to pass. I don't agree with it in theory at all. I don't agree in governments buying out the private sector. That's socialism.

[Mom to Aly]

I've been so upset and angry about this, and now I'm upset and frightened. There just doesn't seem to be a good way out of this, actually, not an easy way, and I keep hoping they'll find the best way--I don't know that they have done that.

Where is the Magic 8 ball when you need it?

[MelissaD]

Please forgive my ignorance, I've not looked into this much. Who was going to get the money? Where was the money going to come from (taxes, I assume, but maybe I'm wrong)?

[laylamcb]

I think the stock market has been inflated for years and was due for a correction-- though I think this is going to be more of a correction. The dollar is weak and the government's answer of printing more money when they run out makes it weaker. So does borrowing money from foreign sources.

However, the bailout would have "stablized the dollar" in the world's mind (not really, but that is what it would have appeared to have happened short term if it had passed) for a long enough period of time for us to make some serious changes in our portfolio. We were hoping for a quick upswing in the market so we could get our ducks in a row. We have alot invested and I think it will not correct in the near future. The only chance for an upswing we have now is from election results.

So, it was my hope for a reactionary upswing. I thought it was going to pass. I don't agree with it in theory at all. I don't agree in governments buying out the private sector. That's socialism.

Agree with you totally, Marie--which is why I don't think it would've worked at all. DH and I would've done the same thing, only by "ducks in a row" I would mean "pull all investments from stocks and convert to bonds." :D And everyone else would've done the same. And why? Because we all know that this doesn't solve a thing. It takes all that we have left and throws it right down the toilet with the worthless mortgage-backed securities.

We've lived so well for so long--and now comes the hangover that follows our drunken binge. And it's gonna hurt all of us. My DH is in his 25th year with the fire department--this was it! Out in August 2009!

Psych! Not so fast! Back to work he goes.

It does hurt, doesn't it? Ugh. Why don't you join us at Remudamom's for riding and rum?! ;)

[Soph the vet]

How do you feel about riding and rum? Not at the same time, of course!
I'm joining you! I don't like rum, I'll bring some wine. None for the horses though, not good for them:001_smile:.

It is an uncertain economic time but I am glad it did not pass. Like Culberson (R) from Texas said, "it's a choice between bankrupting our children or bankrupting some businesses on Wall St."

I think about our profit-sharing, our college investments. Thankfully, God is not uncertain and He will provide for what we need. I truly believe that. We never planned on retiring anyway...that would be boring.

[Pencil Pusher]

You know, we may be headed for something awful. In fact, I don't know how we can avoid it.

But I'm sure glad to be doing it in a democracy, & the plan they were voting on, had it passed, had lost that democratic feel, imo.

[Marie in Oh]

Agree with you totally, Marie--which is why I don't think it would've worked at all. DH and I would've done the same thing, only by "ducks in a row" I would mean "pull all investments from stocks and convert to bonds." :D And everyone else would've done the same. And why? Because we all know that this doesn't solve a thing. It takes all that we have left and throws it right down the toilet with the worthless mortgage-backed securities.

We've lived so well for so long--and now comes the hangover that follows our drunken binge. And it's gonna hurt all of us. My DH is in his 25th year with the fire department--this was it! Out in August 2009!

Psych! Not so fast! Back to work he goes.

It does hurt, doesn't it? Ugh. Why don't you join us at Remudamom's for riding and rum?! ;)

A little rum might dull the pain, although it might cause a little trouble for 36 week baby in utero. The riding though, that might make baby's arrival come a little sooner. :lol:

Yes, our ducks in a row would be to pull out investments (all but IRA's), open a foreign securities account (read the equivalent of a Swiss bank account but they have other currancies as well), and pay off half our mortgage. We were just hoping to recoup some of our losses before we did all that, but this is our plan.

[MelissaD]

You know, we may be headed for something awful. In fact, I don't know how we can avoid it.



What does that mean? Not being snarky, I'm just very ignorant about the economy beyond my own house.

[Pammy]

work in the financial services industry for a global bank that manages over two trillion dollars. Currently my days are spent researching and studying the ever expanding crisis we find ourselves in. Having read emails and listened to arguments against the $700 billion dollar rescue plan proposed by Secretary Paulson and supported by Federal Reserve Bank Chairman Bernanke, I thought I’d weigh in with some important facts regarding our banking system and credit:



While we may certainly oppose the actions of some Wall Street banks and their leadership, banking is the heart of our financial system. If the heart stops, the body dies. We all depend on credit either directly through mortgages, car loans, students, credit cards, etc., or indirectly through the companies we work for. The vast majority of businesses in the U.S. depend on readily available credit to finance their daily operations. The reason is quite simple. Businesses borrow at rates that are lower than what they can earn in their operations. For example, a company borrows $1 million dollars at an interest rate of 5% and uses the money to hire employees, buy machinery and advertise. As a result, the business generates revenues and makes 12% on the $1 million. The employees are paid, the business grows and our economy expands. While that is an oversimplified analogy, it is the process. If the business can’t borrow, it slowly ceases to function. Employees are then laid off. If the employees can’t find work elsewhere because other businesses are failing, he/she can’t pay the mortgage and finally defaults. With enough defaults and bank runs, the lending bank collapses. This is in part a description of what happened in the Great Depression. It is critical to remember that the financial system is built entirely on confidence. We deposit money into our local banks because we’re confident it will be there when we need it. The money does not sit in a vault; it is lent to the bank’s private and business consumers. If we don’t trust the bank, we’ll withdraw our money until the bank cannot lend and must close.



The entire banking system is in jeopardy because so many banks, large and small, have mortgage-backed assets on their balance sheets. These assets continue to decline in value as the housing market deteriorates. Because banks constantly lend to each other, a high level of confidence among them is crucial. As homeowners default on their loans, the assets lose additional value and threaten the security of the banks which hold them. As we’ve already seen, the banks are in trouble. In the last six months, Bear Sterns, Lehman Brothers, Merrill Lynch and now Washington Mutual have all either gone under or been purchased. We may not like Wall Street and the ridiculously large bonuses paid, but if it fails, our economy goes with it. The bailout of AIG and Freddie/Fannie was absolutely essential due to the billions of dollars in bonds sold by them to governments, businesses and individuals around the world. Had those three companies been allowed to fail, and their bonds defaulted, a financial meltdown would have ensued.



Think of it this way: Wall Street is like an enormous **** above a sprawling city. The dam regulates the flow of water (money) and holds back the flooding reservoir. As a result of five years of easy credit (home loans with no money down, and no ability to repay), the assumption that home prices would always rise (even though homes were being built at a breakneck pace and oversupplying the market), too much water went over the spillway. Now, the flow of water is in jeopardy because banks are hoarding cash, fearful of lending and not seeing the money again. In essence, the dam is cutting off the flow because it previously pumped into the system far more than the economy could realistically repay. The solution is to restore the flow by unclogging the dam and restoring confidence. What the Treasury proposes is just that: unclogging the works. It is not a bailout but rather a buyout of the mortgages held on the banks’ balance sheets so that they can resume normal lending, and keep the flow going. The U.S. government will buy the assets from the banks at a discount; say 65 cents on the dollar, and then hold them until the housing market stabilizes. At that point, the mortgages will be resold into a market that can absorb them. The U.S. Treasury is the only entity that has the cash and the time to buy and hold these assets; for which there is currently no market. We most definitely need the buyout to occur. The taxpayer will benefit from a normalized banking system, and the eventual resale of the mortgages at a profit.



I do agree that strict oversight must be in place, and that the banks that sell assets to the Treasury must abide by CEO compensation limitations. Please take the time to better understand the crisis we are in, and then call or write your Congressional representative with an informed opinion. This affects all of us.

[Ishki]

However, the bailout would have "stablized the dollar" in the world's mind (not really, but that is what it would have appeared to have happened short term if it had passed) for a long enough period of time for us to make some serious changes in our portfolio. We were hoping for a quick upswing in the market so we could get our ducks in a row. We have alot invested and I think it will not correct in the near future. The only chance for an upswing we have now is from election results.

This is the exact conversation dh and I had last night on our walk. Yeah, finances have been the topic of conversation during our evening strolls. We've been hoping for a couple of stocks to go up so we could sell. For us, it's a considerable sum. Now I'm starting to feel ill.



We've lived so well for so long--and now comes the hangover that follows our drunken binge. And it's gonna hurt all of us. My DH is in his 25th year with the fire department--this was it! Out in August 2009!

It does hurt, doesn't it? Ugh. Why don't you join us at Remudamom's for riding and rum?! ;)

And this is the part that just makes me angry. We have never been on a financial drunken binge. Our investments were earned by hard work, we never took on debt we couldn't afford, we pay our bills on time. We're financially responsible. We've scrimped and saved for our retirement. I want to scream, "It's not fair." Then I remember what I'm always telling my kids when they say that: "Life ain't fair." Boy, it sure isn't.

Janet

[Marie in Oh]

What does that mean? Not being snarky, I'm just very ignorant about the economy beyond my own house.

Let's see. The dollar is not worth what it is printed on, millions of people own houses that are worth less than what their mortgage is for, the stock market is tanking, the FDIC may not have the money to back our accounts, the government is in debt up to their earlobes, as well as most Americans. Foreign countries now have the upper hand because we own them money (including our not so loving ally, China), we are the laughing stock of the world market, and cost of goods and oil are sky rocketing. This is more than an economic downturn.

It is a good thing I believe in a Sovereign God who holds my future in His hands or I would be very despondant right now.

[Amy loves Bud]

I don't want it to pass. Ducking and running.

A lot of us didn't want it to. But most of us want rum. Can I sit and watch you ride? While I drink my rum?

[Pencil Pusher]

What does that mean? Not being snarky, I'm just very ignorant about the economy beyond my own house.

Well, I'm pretty ignorant, too, lol, so...you might want to ask someone else.

But here's what I see: foreclosures everywhere, houses won't sell, prices dropping. Now banks are closing, mortgage companies are in crisis. We're at war, & we're borrowing billions of dollars from China already. Food & gas prices have been up for a while now while wages have kind-of stagnated.

The unemployment immediately following 9/11 seems to have improved, but...that may just be for the people around me. And not all of them are as well-employed as they were before 9/11. Whatever the situation, though, I expect there will be more job losses as banks close & reorganize, etc. As credit becomes harder to get, people have more trouble buying, & there will be less need for retail employees as well as manufacturing employees. That would extend to shipping employees... it's like throwing a stone in a pond. The ripples reach far out across the water.

Or maybe it's like poisoning the pond? Anyway, not good.

But the gov't coming in & trying to help...well... historically, I don't think that's worked out so well for the countries that have tried it.

[Renee in FL]

We need to remember to that we all have a part in this, even the responsible ones!;)

Our economy has been continuing to grow based on nothing but credit - think of it as a bubble. We no longer have a manufacturing base and a huge amount of our regular spending goes out of country (for imported goods and oil.) The stock market is overvalued.

You can't just point a finger at any one place - there are so many different factors that came into play.

[shell in SC]

A lot of us didn't want it to. But most of us want rum. Can I sit and watch you ride? While I drink my rum?


I'm with Amy on this one. . .I don't know about drinking and riding (for myself that is). . .I'm afraid I'd fall (slide) out of the saddle, but I'd love to come watch those of you who wouldn't make fools of themselves!!!!

[Marie in Oh]

We need to remember to that we all have a part in this, even the responsible ones!;)

Our economy has been continuing to grow based on nothing but credit - think of it as a bubble. We no longer have a manufacturing base and a huge amount of our regular spending goes out of country (for imported goods and oil.) The stock market is overvalued.

You can't just point a finger at any one place - there are so many different factors that came into play.

This is so true. :iagree:

[Pencil Pusher]

A lot of us didn't want it to. But most of us want rum. Can I sit and watch you ride? While I drink my rum?

:iagree:

[Ria]

I still think that if we sit tight we'll be okay in the end. Yes, stocks are falling, but they'll come up again. They always do. If you hang onto your investments it will work out in time.

I am angry that my tax dollars might be spent bailing corporations that made poor choices. I also don't agree with bailing people out of foreclosure. I'm sorry if people made poor choices when getting mortgages, but they were big boys and girls. If someone gets a mortgage they can't afford, they lose. It's tough, but it's life. If I miss enough car payments someone will take my Honda away. I wouldn't look to the government to help me keep my car...personal responsibility fixes that.

Sigh. It's so easy to sit here and complain. I don't know what the solution is. I just know that I don't see why I have to help bail people out if they made the poor choices, not me. :confused:

Ria

[RoughCollie]

It sounds to me like the inmates were running the asylum and got caught in a preventable, reasonably foreseeable crisis which they caused.

The banking system caused the problem by allowing easy credit terms and by assuming home prices would always rise, if what you say is true.

I've been worried about this happening for years -- and I'm just a lowly accountant and attorney -- not a big shot.

Whoever let this happen got rich from it, mark my words. Otherwise it would not have occurred. I think the banking industry, as a whole, needs a lot more regulation and oversight than it has. People are getting screwed by the banks and not all of these people, indeed not the majority of them, have college educations and an I.Q. above average.

l

The entire banking system is in jeopardy because so many banks, large and small, have mortgage-backed assets on their balance sheets. These assets continue to decline in value as the housing market deteriorates. the world. Had those three companies been allowed to fail, and their bonds defaulted, a financial meltdown would have ensued.
...

Think of it this way: Wall Street is like an enormous **** above a sprawling city. The dam regulates the flow of water (money) and holds back the flooding reservoir. As a result of five years of easy credit (home loans with no money down, and no ability to repay), the assumption that home prices would always rise (even though homes were being built at a breakneck pace and oversupplying the market), too much water went over the spillway.

[Sara R]

Please forgive my ignorance, I've not looked into this much. Who was going to get the money? Where was the money going to come from (taxes, I assume, but maybe I'm wrong)?

The money is coming from the Treasury by increasing the national debt, which was already at nearly catastrophic levels before all of these bailouts started. That means that the money is going to come from future taxes (unlikely) or hyperinflation (likely).

It's going to banks. I'm not sure of the details, but I think it's to buy derivatives based on bad assets, not only mortgages, but derivatives based on credit card debt and student loans as well.

Paulson was looking for $700 billion for this. That's not $700 billion total, but $700 billion at any one time. In other words, if the gov't bought a certain number of mortgages with the $700 billion, and the houses were sold and they got a certain (smaller) amount of money from the sale of the houses, they could then lend out the money they had gotten from the sale of the houses to buy other bad debt.

In the wording of the bill there's a line that there can be no judicial review for this bill. Scary unconstitutional stuff.

[Spy Car]

To my mind this is very bad news.

The bailout is a bitter pill to swallow, but the alternative, I fear, will be catastrophic.

What a mess.

Bill

[Sara R]

This particular bailout doesn't bail out people in foreclosure. It bails out the banks who were stupid enough to make the bad loans in the first place. They really should have known better. You expect the general public to be stupid if you let them, but the people lending out the money should know better. Under this bailout, people still can get foreclosed on.

[Amy loves Bud]

You expect the general public to be stupid if you let them, but the people lending out the money should know better. Under this bailout, people still can get foreclosed on.

I absolutely do not expect the general public to be stupid. I am responsible for myself, and my children, and I fully expect others to be the same. Why would we expect grown adults, who grew up in a country with more opportunity than anywhere else in the world, to be stupid?

I don't want to bail out the corporations, they decided to play dirty and they lost. Let them be a lesson to the other corps. who are still standing. But why does that give the general population a pass? I don't get it.

[Marie in Oh]

This particular bailout doesn't bail out people in foreclosure. It bails out the banks who were stupid enough to make the bad loans in the first place. They really should have known better. You expect the general public to be stupid if you let them, but the people lending out the money should know better. Under this bailout, people still can get foreclosed on.

More rep worthy posting. :iagree:

[Renee in FL]

I don't want to bail out the corporations, they decided to play dirty and they lost. Let them be a lesson to the other corps. who are still standing. But why does that give the general population a pass? I don't get it.

In the short term, though, it is the little people that are going to feel the pain. This is much bigger than individuals losing their houses. Our economy has become nothing more than a credit clearing house where people are paid with credit, buy stuff with credit, and pay back credit. It always seemed to me like a great big Ponzi scheme!:D

[Spy Car]

With no credit to go around, more firms will fail, more jobs will be lost, more homes will go into foreclosure, with home-loans almost unavailable and a glut of foreclosed homes on the market home values will fall, securities and other investment instruments backed by mortgages will further collapse sending out more shock-waves, and failures, thereby initiating a downward spiral that could very well bring the whole economy down.

While it might (on some level) feel good to say "let's stick it to the banks", this is a very dangerous and naive position to take. We need an orderly and well executed intervention by the Federal government immediately.

My Congressperson Brad Sherman (D) vote against the bailout, and to say I;m unhappy about this is an understatement.

Bill (D)

[Marie in Oh]

I absolutely do not expect the general public to be stupid. I am responsible for myself, and my children, and I fully expect others to be the same. Why would we expect grown adults, who grew up in a country with more opportunity than anywhere else in the world, to be stupid?

I don't want to bail out the corporations, they decided to play dirty and they lost. Let them be a lesson to the other corps. who are still standing. But why does that give the general population a pass? I don't get it.

the general population is in debt up to their earlobes, maybe their eye sockets., just like the government. The general population doesn't make choices based on what is responsible. They want what they want- NOW! The majority of people getting a mortgage these days don't understand the terms of their loan, what an ARM is, what the ramifications of a no interest loan is. They just understand, "I can make those payments." I don't know. . . it all sounds pretty stupid to me.

[Jennifer in NH]

Woohoo! Democracy triumphs!

Now I'm :leaving: and joining Remudamom for drinks. :auto:
:iagree: me too! And I'll join you for drinks too! We had on C Span and I was thrilled...just not a good bill.

[JennifersLost]

You know what, Spy Car - this isn't just about "sticking it" to the big corporations - this is about EVERYONE learning the lesson that needs to be learned; you can't live on credit.

We are all responsible for our own actions. It is not the govt's, nor my responsibility to bail anyone else out for their own mistakes. If you are buying a house or running a business, you are a GROWN UP. If you lose your shirt, you start over!

We have become this nation of babies, thinking that things like homeownership, cars, education, and retirement are entitlements - they're NOT. They're things you get if you work really hard and make good choices.

You know what's going to happen if this bailout goes through? Inflation is going to go through the roof! You think things are expensive today....you ain't seen nothing yet. Anyone who has money put by for retirement....fugetaboutit! Inflation will outstrip interest so fast it will make your head spin.

The only way our children are ever going to afford houses is if prices drop to a reasonable level and the only way that's going to happen is if we step back and allow it to happen. If the amount of your mortgage becomes more than your house is worth, you have two choices. If you can keep making the payments and can stay there for 5 - 10 years, stick it out and your house may very well increase in value again. If you can't make those payments, walk the heck away from it and start over with a rental.

Life is tough. So many of us on this board know it. So many of us have gone through horrendous times and lived to tell the tale. Everyone involved in the current snafu will get through it, too, and they'll be a whole heck of a lot wiser afterwards.

How do I know this bail out is wrong? Because my government is telling me it has to pass TODAY without any real amount of time to think it over carefully. That's when my Bull**** meter starts ringing off the hook, ya know?

Five years ago dh and I were sitting in California predicting this very thing and neither one of us are financial experts. Don't tell me that thousands and thousands of those experts didn't know this day was coming and yet went ahead and made it happen anyway. God, I don't know who I'm more ashamed of; our government, our financial institutions or the people in this country.

[neesek]

Donald Trump is now saying that the "silver lining" is that he thinks that the price of oil will drop as a result of all of this. I don't quite understand all of it (I hated economics in college, even though I was an accounting major :001_smile:), but I am glad that the bill was defeated. I just don't think that the government should be intervening to this extent. The bill was flawed, it was pushed through too quickly, and I just don't think it was the right solution.

It's still scary though. :confused:

[H.S. Burrow]

work in the financial services industry for a global bank that manages over two trillion dollars. Currently my days are spent researching and studying the ever expanding crisis we find ourselves in. Having read emails and listened to arguments against the $700 billion dollar rescue plan proposed by Secretary Paulson and supported by Federal Reserve Bank Chairman Bernanke, I thought I’d weigh in with some important facts regarding our banking system and credit:



While we may certainly oppose the actions of some Wall Street banks and their leadership, banking is the heart of our financial system. If the heart stops, the body dies. We all depend on credit either directly through mortgages, car loans, students, credit cards, etc., or indirectly through the companies we work for. The vast majority of businesses in the U.S. depend on readily available credit to finance their daily operations. The reason is quite simple. Businesses borrow at rates that are lower than what they can earn in their operations. For example, a company borrows $1 million dollars at an interest rate of 5% and uses the money to hire employees, buy machinery and advertise. As a result, the business generates revenues and makes 12% on the $1 million. The employees are paid, the business grows and our economy expands. While that is an oversimplified analogy, it is the process. If the business can’t borrow, it slowly ceases to function. Employees are then laid off. If the employees can’t find work elsewhere because other businesses are failing, he/she can’t pay the mortgage and finally defaults. With enough defaults and bank runs, the lending bank collapses. This is in part a description of what happened in the Great Depression. It is critical to remember that the financial system is built entirely on confidence. We deposit money into our local banks because we’re confident it will be there when we need it. The money does not sit in a vault; it is lent to the bank’s private and business consumers. If we don’t trust the bank, we’ll withdraw our money until the bank cannot lend and must close.



The entire banking system is in jeopardy because so many banks, large and small, have mortgage-backed assets on their balance sheets. These assets continue to decline in value as the housing market deteriorates. Because banks constantly lend to each other, a high level of confidence among them is crucial. As homeowners default on their loans, the assets lose additional value and threaten the security of the banks which hold them. As we’ve already seen, the banks are in trouble. In the last six months, Bear Sterns, Lehman Brothers, Merrill Lynch and now Washington Mutual have all either gone under or been purchased. We may not like Wall Street and the ridiculously large bonuses paid, but if it fails, our economy goes with it. The bailout of AIG and Freddie/Fannie was absolutely essential due to the billions of dollars in bonds sold by them to governments, businesses and individuals around the world. Had those three companies been allowed to fail, and their bonds defaulted, a financial meltdown would have ensued.



Think of it this way: Wall Street is like an enormous **** above a sprawling city. The dam regulates the flow of water (money) and holds back the flooding reservoir. As a result of five years of easy credit (home loans with no money down, and no ability to repay), the assumption that home prices would always rise (even though homes were being built at a breakneck pace and oversupplying the market), too much water went over the spillway. Now, the flow of water is in jeopardy because banks are hoarding cash, fearful of lending and not seeing the money again. In essence, the dam is cutting off the flow because it previously pumped into the system far more than the economy could realistically repay. The solution is to restore the flow by unclogging the dam and restoring confidence. What the Treasury proposes is just that: unclogging the works. It is not a bailout but rather a buyout of the mortgages held on the banks’ balance sheets so that they can resume normal lending, and keep the flow going. The U.S. government will buy the assets from the banks at a discount; say 65 cents on the dollar, and then hold them until the housing market stabilizes. At that point, the mortgages will be resold into a market that can absorb them. The U.S. Treasury is the only entity that has the cash and the time to buy and hold these assets; for which there is currently no market. We most definitely need the buyout to occur. The taxpayer will benefit from a normalized banking system, and the eventual resale of the mortgages at a profit.



I do agree that strict oversight must be in place, and that the banks that sell assets to the Treasury must abide by CEO compensation limitations. Please take the time to better understand the crisis we are in, and then call or write your Congressional representative with an informed opinion. This affects all of us.

Thank you for this post. While I agree with others that the banks that made bad decisions need to pay for them, I think that alot of folks are not thinking about the other businesses that depend on credit (right or wrong) to operate.


The big lenders are not the ones paying for their mistakes. Other companies are paying for the mistakes the big lenders have made because the big lenders are not extending credit to companies that need it to operate. A lot of the large companies employ tens of thousands of people. If those companies have to start cutting back their number of employees, we are talking about unemployment skyrocketing. If companies start closing plants because they can't meet payroll, then not only do we have unemployment, but we have reduced goods - at a higher price.


I don't like the bill. But I think we are in for a really scary time because it didn't pass.

[Amy loves Bud]

You know what, Spy Car - this isn't just about "sticking it" to the big corporations - this is about EVERYONE learning the lesson that needs to be learned; you can't live on credit.

We are all responsible for our own actions. It is not the govt's, nor my responsibility to bail anyone else out for their own mistakes. If you are buying a house or running a business, you are a GROWN UP. If you lose your shirt, you start over!

We have become this nation of babies, thinking that things like homeownership, cars, education, and retirement are entitlements - they're NOT. They're things you get if you work really hard and make good choices.

You know what's going to happen if this bailout goes through? Inflation is going to go through the roof! You think things are expensive today....you ain't seen nothing yet. Anyone who has money put by for retirement....fugetaboutit! Inflation will outstrip interest so fast it will make your head spin.

The only way our children are ever going to afford houses is if prices drop to a reasonable level and the only way that's going to happen is if we step back and allow it to happen. If the amount of your mortgage becomes more than your house is worth, you have two choices. If you can keep making the payments and can stay there for 5 - 10 years, stick it out and your house may very well increase in value again. If you can't make those payments, walk the heck away from it and start over with a rental.

Life is tough. So many of us on this board know it. So many of us have gone through horrendous times and lived to tell the tale. Everyone involved in the current snafu will get through it, too, and they'll be a whole heck of a lot wiser afterwards.

How do I know this bail out is wrong? Because my government is telling me it has to pass TODAY without any real amount of time to think it over carefully. That's when my Bull**** meter starts ringing off the hook, ya know?

Five years ago dh and I were sitting in California predicting this very thing and neither one of us are financial experts. Don't tell me that thousands and thousands of those experts didn't know this day was coming and yet went ahead and made it happen anyway. God, I don't know who I'm more ashamed of; our government, our financial institutions or the people in this country.

Oh lordy, if I could hug you right now, I would. :grouphug::grouphug:

[Amy loves Bud]

[FONT=Georgia][SIZE=3][COLOR=navy]Thank you for this post. While I agree with others that the banks that made bad decisions need to pay for them, I think that alot of folks are not thinking about the other businesses that depend on credit (right or wrong) to operate.

We ARE thinking about it! We want it to change. If we keep artificially propping up an artificial system, it WILL fall, only harder. I think many of us who oppose the bailout oppose it because we are ready to face the consequences now rather than have our children and their children do it for us.

BTW, my husband's income, in great part, comes from businesses who rely on credit. This will hurt us. I'm not naive to that.

[CAMom]

Anyone have a link to how each member of Congress voted?

TIA,

[VaKim]

You know what, Spy Car - this isn't just about "sticking it" to the big corporations - this is about EVERYONE learning the lesson that needs to be learned; you can't live on credit.

We are all responsible for our own actions. It is not the govt's, nor my responsibility to bail anyone else out for their own mistakes. If you are buying a house or running a business, you are a GROWN UP. If you lose your shirt, you start over!

We have become this nation of babies, thinking that things like homeownership, cars, education, and retirement are entitlements - they're NOT. They're things you get if you work really hard and make good choices.

You know what's going to happen if this bailout goes through? Inflation is going to go through the roof! You think things are expensive today....you ain't seen nothing yet. Anyone who has money put by for retirement....fugetaboutit! Inflation will outstrip interest so fast it will make your head spin.

The only way our children are ever going to afford houses is if prices drop to a reasonable level and the only way that's going to happen is if we step back and allow it to happen. If the amount of your mortgage becomes more than your house is worth, you have two choices. If you can keep making the payments and can stay there for 5 - 10 years, stick it out and your house may very well increase in value again. If you can't make those payments, walk the heck away from it and start over with a rental.

Life is tough. So many of us on this board know it. So many of us have gone through horrendous times and lived to tell the tale. Everyone involved in the current snafu will get through it, too, and they'll be a whole heck of a lot wiser afterwards.

How do I know this bail out is wrong? Because my government is telling me it has to pass TODAY without any real amount of time to think it over carefully. That's when my Bull**** meter starts ringing off the hook, ya know?

Five years ago dh and I were sitting in California predicting this very thing and neither one of us are financial experts. Don't tell me that thousands and thousands of those experts didn't know this day was coming and yet went ahead and made it happen anyway. God, I don't know who I'm more ashamed of; our government, our financial institutions or the people in this country.

I wish we had smileys that made noise, because I'd put up one jumping up and down applauding loudly! Excellent post!!

[Spy Car]

You know what, Spy Car - this isn't just about "sticking it" to the big corporations - this is about EVERYONE learning the lesson that needs to be learned; you can't live on credit.

We are all responsible for our own actions. It is not the govt's, nor my responsibility to bail anyone else out for their own mistakes. If you are buying a house or running a business, you are a GROWN UP. If you lose your shirt, you start over!

We have become this nation of babies, thinking that things like homeownership, cars, education, and retirement are entitlements - they're NOT. They're things you get if you work really hard and make good choices.

You know what's going to happen if this bailout goes through? Inflation is going to go through the roof! You think things are expensive today....you ain't seen nothing yet. Anyone who has money put by for retirement....fugetaboutit! Inflation will outstrip interest so fast it will make your head spin.

The only way our children are ever going to afford houses is if prices drop to a reasonable level and the only way that's going to happen is if we step back and allow it to happen. If the amount of your mortgage becomes more than your house is worth, you have two choices. If you can keep making the payments and can stay there for 5 - 10 years, stick it out and your house may very well increase in value again. If you can't make those payments, walk the heck away from it and start over with a rental.

Life is tough. So many of us on this board know it. So many of us have gone through horrendous times and lived to tell the tale. Everyone involved in the current snafu will get through it, too, and they'll be a whole heck of a lot wiser afterwards.

How do I know this bail out is wrong? Because my government is telling me it has to pass TODAY without any real amount of time to think it over carefully. That's when my Bull**** meter starts ringing off the hook, ya know?

Five years ago dh and I were sitting in California predicting this very thing and neither one of us are financial experts. Don't tell me that thousands and thousands of those experts didn't know this day was coming and yet went ahead and made it happen anyway. God, I don't know who I'm more ashamed of; our government, our financial institutions or the people in this country.

I hear your anger, and in almost every measure I agree with it. The crazy loans and exceptions of ever-rising home values were (if not criminal) at least irresponsible and irrational. And you bet I agree that many (many) in the financial sector knew this was a bubble that would burst, and in their greed marched ahead to make short-term money.

We could spend a lot of time accessing blame, and venting our indignation, which I (as a very careful [dare I say "conservative"] person with finances) am liable to feel as angry about as anyone.

But still, we do need to look at the bigger picture. A total collapse of the economy is in no ones interest (with the exception of those who have a pile of cash and can sit on assets long-term).

My concern is "anger" (while more than understandable) is displacing "reason" in rallying large elements of the public against this measure. And that the consequences of failing to act are not well understood.

Bill

[amy g.]

I thought this was a good explanation.

http://www.timesrecordnews.com/news/2008/sep/29/thornberry-responds-bailout-defeat/

[Soph the vet]

You know what, Spy Car - this isn't just about "sticking it" to the big corporations - this is about EVERYONE learning the lesson that needs to be learned; you can't live on credit.

We are all responsible for our own actions. It is not the govt's, nor my responsibility to bail anyone else out for their own mistakes. If you are buying a house or running a business, you are a GROWN UP. If you lose your shirt, you start over!

We have become this nation of babies, thinking that things like homeownership, cars, education, and retirement are entitlements - they're NOT. They're things you get if you work really hard and make good choices.

You know what's going to happen if this bailout goes through? Inflation is going to go through the roof! You think things are expensive today....you ain't seen nothing yet. Anyone who has money put by for retirement....fugetaboutit! Inflation will outstrip interest so fast it will make your head spin.

The only way our children are ever going to afford houses is if prices drop to a reasonable level and the only way that's going to happen is if we step back and allow it to happen. If the amount of your mortgage becomes more than your house is worth, you have two choices. If you can keep making the payments and can stay there for 5 - 10 years, stick it out and your house may very well increase in value again. If you can't make those payments, walk the heck away from it and start over with a rental.

Life is tough. So many of us on this board know it. So many of us have gone through horrendous times and lived to tell the tale. Everyone involved in the current snafu will get through it, too, and they'll be a whole heck of a lot wiser afterwards.

How do I know this bail out is wrong? Because my government is telling me it has to pass TODAY without any real amount of time to think it over carefully. That's when my Bull**** meter starts ringing off the hook, ya know?

Five years ago dh and I were sitting in California predicting this very thing and neither one of us are financial experts. Don't tell me that thousands and thousands of those experts didn't know this day was coming and yet went ahead and made it happen anyway. God, I don't know who I'm more ashamed of; our government, our financial institutions or the people in this country.
Wish we still had the rep system, I'd give you lots for this.

A few posts mentioned the banks making bad decisions, true, but also I think the government under Carter started pressuring them to give out loans to less than qualified people even back then and Clinton continued it. So the government is certainly not off the hook here.

[Bev in B'ville]

Yes, our ducks in a row would be to pull out investments (all but IRA's), open a foreign securities account (read the equivalent of a Swiss bank account but they have other currancies as well), and pay off half our mortgage. We were just hoping to recoup some of our losses before we did all that, but this is our plan.


We pulled out of the market back when it hit a high of ~14,000. Alan Greenspan said this "correction in the market" was coming and we heeded his advice. Now we're just waiting for it to hit the bottom so we can stick the money back in.

The market will self-correct. It always does. I'd rather not have the bail out than have the government owning shares in anything and managing my share payouts.

[GreenKitty]

You know what, Spy Car - this isn't just about "sticking it" to the big corporations - this is about EVERYONE learning the lesson that needs to be learned; you can't live on credit.

We are all responsible for our own actions. It is not the govt's, nor my responsibility to bail anyone else out for their own mistakes. If you are buying a house or running a business, you are a GROWN UP. If you lose your shirt, you start over!

We have become this nation of babies, thinking that things like homeownership, cars, education, and retirement are entitlements - they're NOT. They're things you get if you work really hard and make good choices.

You know what's going to happen if this bailout goes through? Inflation is going to go through the roof! You think things are expensive today....you ain't seen nothing yet. Anyone who has money put by for retirement....fugetaboutit! Inflation will outstrip interest so fast it will make your head spin.

The only way our children are ever going to afford houses is if prices drop to a reasonable level and the only way that's going to happen is if we step back and allow it to happen. If the amount of your mortgage becomes more than your house is worth, you have two choices. If you can keep making the payments and can stay there for 5 - 10 years, stick it out and your house may very well increase in value again. If you can't make those payments, walk the heck away from it and start over with a rental.

Life is tough. So many of us on this board know it. So many of us have gone through horrendous times and lived to tell the tale. Everyone involved in the current snafu will get through it, too, and they'll be a whole heck of a lot wiser afterwards.

How do I know this bail out is wrong? Because my government is telling me it has to pass TODAY without any real amount of time to think it over carefully. That's when my Bull**** meter starts ringing off the hook, ya know?

Five years ago dh and I were sitting in California predicting this very thing and neither one of us are financial experts. Don't tell me that thousands and thousands of those experts didn't know this day was coming and yet went ahead and made it happen anyway. God, I don't know who I'm more ashamed of; our government, our financial institutions or the people in this country.

Your words are my thoughts. Thanks for posting.

[Momto4kids]

You know what, Spy Car - this isn't just about "sticking it" to the big corporations - this is about EVERYONE learning the lesson that needs to be learned; you can't live on credit.

We are all responsible for our own actions. It is not the govt's, nor my responsibility to bail anyone else out for their own mistakes. If you are buying a house or running a business, you are a GROWN UP. If you lose your shirt, you start over!

We have become this nation of babies, thinking that things like homeownership, cars, education, and retirement are entitlements - they're NOT. They're things you get if you work really hard and make good choices.

You know what's going to happen if this bailout goes through? Inflation is going to go through the roof! You think things are expensive today....you ain't seen nothing yet. Anyone who has money put by for retirement....fugetaboutit! Inflation will outstrip interest so fast it will make your head spin.

ETA: I am not sure how I feel about them not passing it. On one hand I'm sooo glad! It's about time we all (the whole country) took responsibility for ourselves. On the other I am scared for what could happen.

The only way our children are ever going to afford houses is if prices drop to a reasonable level and the only way that's going to happen is if we step back and allow it to happen. If the amount of your mortgage becomes more than your house is worth, you have two choices. If you can keep making the payments and can stay there for 5 - 10 years, stick it out and your house may very well increase in value again. If you can't make those payments, walk the heck away from it and start over with a rental.

Life is tough. So many of us on this board know it. So many of us have gone through horrendous times and lived to tell the tale. Everyone involved in the current snafu will get through it, too, and they'll be a whole heck of a lot wiser afterwards.

How do I know this bail out is wrong? Because my government is telling me it has to pass TODAY without any real amount of time to think it over carefully. That's when my Bull**** meter starts ringing off the hook, ya know?

Five years ago dh and I were sitting in California predicting this very thing and neither one of us are financial experts. Don't tell me that thousands and thousands of those experts didn't know this day was coming and yet went ahead and made it happen anyway. God, I don't know who I'm more ashamed of; our government, our financial institutions or the people in this country.

I am really confused about something too. I read on www.foxnews.com (http://www.foxnews.com) the article about this, so if you want you can go there and read all of the article I am talking about. Here is a snipet:

The crisis we are facing remains," said White House Deputy Spokesman Tony Fratto, who added, "We're obviously disappointed."
Fratto said that he thinks many Americans were mistaken by believing that the bill was a "bailout of Wall Street." Instead, he said the bill was to prevent a large economic crisis.
"Nobody wants to bail out Wall Street, and we understand Americans might be opposed to bailing out Wall Street ... This is not a bailout," he said. "We hope Americans don't need to see real evidence of a break down in order to prevent a break down."

Ok, I can understand this part. BUT is there anywhere we can read line by line the bail out package that was presented and turned down. If WE the PEOPLE are PAYING for this through taxes and whatnot why can't we see it??

ETA: On one hand I am THRILLED this did not get passed, on the other hand I am nervous about it too.

[neesek]

I have a young niece who bought her first new car just a few months ago. She told me that the bank told her how much they would lend her, and that was how she picked out the car, based on what they told her she could afford, not the other way around. I know her income, there is no way she should have bought that car.

I know that every time we have looked at cars and asked about prices, the first question asked is not how much do you want to spend, but how much of a payment do you want. Look at the car ads. Many don't tell the price- just what the payment amount is, but if you look at the fine print, they are basing the payment on something like a 6 year loan on a 5-6 year old car or something crazy like that. The __________ consumer bites (you fill in your own word here - gullible? irresponsible?) , the salesman gets his sale, everybody is happy until the buyer can't make the payment.

The same thing happened to us when we bought our house. What the bank said we could afford was much more that we had decided we could afford. Fortunately for us, we stuck with our numbers and our mortgage is manageable.

Then we have the whole credit card thing. How many offers for credit cards do we throw away every month? The blame lies all around. The companies, banks, mortgage companies have marketed easy credit, get it now scenarios. Many of us don't bite, others do. Yes, they shouldn't make it so easy, but on the other hand, we don't have to bite.

[Martha]

You know what, Spy Car - this isn't just about "sticking it" to the big corporations - this is about EVERYONE learning the lesson that needs to be learned; you can't live on credit.

We are all responsible for our own actions. It is not the govt's, nor my responsibility to bail anyone else out for their own mistakes. If you are buying a house or running a business, you are a GROWN UP. If you lose your shirt, you start over!

We have become this nation of babies, thinking that things like homeownership, cars, education, and retirement are entitlements - they're NOT. They're things you get if you work really hard and make good choices.

You know what's going to happen if this bailout goes through? Inflation is going to go through the roof! You think things are expensive today....you ain't seen nothing yet. Anyone who has money put by for retirement....fugetaboutit! Inflation will outstrip interest so fast it will make your head spin.

The only way our children are ever going to afford houses is if prices drop to a reasonable level and the only way that's going to happen is if we step back and allow it to happen. If the amount of your mortgage becomes more than your house is worth, you have two choices. If you can keep making the payments and can stay there for 5 - 10 years, stick it out and your house may very well increase in value again. If you can't make those payments, walk the heck away from it and start over with a rental.

Life is tough. So many of us on this board know it. So many of us have gone through horrendous times and lived to tell the tale. Everyone involved in the current snafu will get through it, too, and they'll be a whole heck of a lot wiser afterwards.

How do I know this bail out is wrong? Because my government is telling me it has to pass TODAY without any real amount of time to think it over carefully. That's when my Bull**** meter starts ringing off the hook, ya know?

Five years ago dh and I were sitting in California predicting this very thing and neither one of us are financial experts. Don't tell me that thousands and thousands of those experts didn't know this day was coming and yet went ahead and made it happen anyway. God, I don't know who I'm more ashamed of; our government, our financial institutions or the people in this country.

Oh lordy, if I could hug you right now, I would. :grouphug::grouphug:

:iagree::cheers2:

We ARE thinking about it! We want it to change. If we keep artificially propping up an artificial system, it WILL fall, only harder. I think many of us who oppose the bailout oppose it because we are ready to face the consequences now rather than have our children and their children do it for us.

BTW, my husband's income, in great part, comes from businesses who rely on credit. This will hurt us. I'm not naive to that.

Yep. Us too. We are already very tight. Our simple goal for the next 5 years is to keep our house and food on the table in it. That's it.

An economic system based on credit is BAD.

If you can pay cash for your bills you do not need credit.

A business that is running on credit is not a solid business.
After the first 5 years, a business should have some profit and assets. Any credit they might be using should never be more than the sum of their profit/asset values.

The problem is, far too many people treat credit like income. And it isn't.

Our finances are VERY tight. Seriously considering foodstamps kind of tight.

But you know what? It's NOT because we have a ton of credit. It's because our grocery and fuel expenses are nearly 4 times what they were just a year ago despite our cutting back as much as possible. And my dh's income has not gone up at all. (he's salary) And our health benefits are more expensive and cover far less.

Not everyone who is having hard times is having them because they were getting stupid drunk on credit and living the high life on low incomes.

I know we're in for hard times. Frankly, I've yet to hear a single argument for the bailout that would change that. When I do, I might change my mind about it.

[Amy loves Bud]

My concern is "anger" (while more than understandable) is displacing "reason" in rallying large elements of the public against this measure. And that the consequences of failing to act are not well understood.

Bill

Bill, it is quite possible to be angry AND reasonable at the same time. As I believe Jennifer is and most of us who oppose the bailout are. We understand the consequences of a bailout or no bailout (as well as anyone can at this point) and we know where we stand. Just because our conclusion as to the best way to move forward is different from yours does not mean we've allowed anger to displace our reason. Quite the opposite. Our anger has prompted us to think, study, pray, talk and this is where we find ourselves. ;)

I enjoy reading your posts, but would appreciate it if you would stick to the pros and cons of the situation before us rather than patting those of us who disagree with you on the head and giving us a "there, there, calm down and think straight."

[Pammy]

http://clerk.house.gov/evs/2008/roll674.xml

[laylamcb]

I hear your anger, and in almost every measure I agree with it. The crazy loans and exceptions of ever-rising home values were (if not criminal) at least irresponsible and irrational. And you bet I agree that many (many) in the financial sector knew this was a bubble that would burst, and in their greed marched ahead to make short-term money.

We could spend a lot of time accessing blame, and venting our indignation, which I (as a very careful [dare I say "conservative"] person with finances) am liable to feel as angry about as anyone.

But still, we do need to look at the bigger picture. A total collapse of the economy is in no ones interest (with the exception of those who have a pile of cash and can sit on assets long-term).

My concern is "anger" (while more than understandable) is displacing "reason" in rallying large elements of the public against this measure. And that the consequences of failing to act are not well understood.

Bill

Totally, totally hear you here, Bill. We are also very careful with our money and have no debt other than a mortgage. And yes, I'm as mad as blankety-blank-blank-blank, and I called my congressman (or rather, he called ME, if you can believe it!!) and said HECK NO to the bailout.

But the thing is that there hasn't ever been any guarantee that this would work anyway. I mean, even Paulson couldn't promise that it would work (not that his word means much anyway). In fact, to my way of thinking, it just continues the charade. And what good is that, really? Marie and I were just discussing this above: We both acknowledged that if the bailout HAD passed and the stock market had responded favorably, both of us would have quickly assessed our position and our holdings. And I think we all know what that means: We'd have sold like our shares were on fire.

So I agree with you completely that we can't let anger triumph over reason, and I also agree with you that this will hurt ALL of us. But from one conservative to another (speaking in terms of personal finance, of course :D), didn't we all know deep down that the Great American Party was going to end eventually, whether we were the ones pulling the slots and shopping 'til we dropped or not? Believe me, we're going to need that $600B to pay for unemployment benefits.... :glare:

[Donna T.]

What does that mean? Not being snarky, I'm just very ignorant about the economy beyond my own house.

Let's see. The dollar is not worth what it is printed on, millions of people own houses that are worth less than what their mortgage is for, the stock market is tanking, the FDIC may not have the money to back our accounts, the government is in debt up to their earlobes, as well as most Americans. Foreign countries now have the upper hand because we own them money (including our not so loving ally, China), we are the laughing stock of the world market, and cost of goods and oil are sky rocketing. This is more than an economic downturn.

It is a good thing I believe in a Sovereign God who holds my future in His hands or I would be very despondant right now.

Yeah. What she said. :iagree:

[Spy Car]

The market will self-correct. It always does.

With small bumps the market can (and does) self-correct.

But markets don't self-correct when there is a massive collapse of liquidly.

Today we are facing a situation very similar to 1929, when it was margin calls on stocks rather than widespread mortgage failures that triggered the Great Depression.

In terms of the economy seizing for lack of spending power and ability to borrow the situation the situations are highly analogous. In 1929 it was decided to let the market "self-correct" and we had an economic depression that really didn't pass until World War II got the economy moving again.

We are supposed to learn from our mistakes.

Bill

[Bev in B'ville]

Anyone have a link to how each member of Congress voted?

TIA,

You can find it here (http://evs/2008/roll674.xml).

For what it's worth, I agree with JennifersLost.

By the way there was a hysterical video on youtube the other day entitled "rescue me," set to the song of the same name. It was funny, but don't eat or drink while watching if you find it; you're likely to choke.

[Martha]

I have a young niece who bought her first new car just a few months ago. She told me that the bank told her how much they would lend her, and that was how she picked out the car, based on what they told her she could afford, not the other way around. I know her income, there is no way she should have bought that car.

I know that every time we have looked at cars and asked about prices, the first question asked is not how much do you want to spend, but how much of a payment do you want. Look at the car ads. Many don't tell the price- just what the payment amount is, but if you look at the fine print, they are basing the payment on something like a 6 year loan on a 5-6 year old car or something crazy like that. The __________ consumer bites (you fill in your own word here - gullible? irresponsible?) , the salesman gets his sale, everybody is happy until the buyer can't make the payment.

The same thing happened to us when we bought our house. What the bank said we could afford was much more that we had decided we could afford. Fortunately for us, we stuck with our numbers and our mortgage is manageable.

Then we have the whole credit card thing. How many offers for credit cards do we throw away every month? The blame lies all around. The companies, banks, mortgage companies have marketed easy credit, get it now scenarios. Many of us don't bite, others do. Yes, they shouldn't make it so easy, but on the other hand, we don't have to bite.

ARGH!!!!!!! Where were her parents? ANYONE to tell her about basic money management and bargaining?! Poor thing. She's up creek already.

People do NOT know how to budget, much less how to buy.

my dh who made 45K when we moved over a year ago was told we could afford a 275K mortgage! um. not if we wanted to ever drink milk or use toilet paper we couldn't!

NO. People you HAVE to have a budget of income and expenses.
You HAVE to know what you can afford, and go cheaper than that.

And you NEVER let the people you are buying from be in charge of how much you are paying. EVER. They will never ever care about your financial state. No, they won't. They couldn't care less if you never buy another roll of tp or slice of meat for the next 5 years.

If you need a car loan, you get that first via the best lender you've shopped for and for the amount that you are comfortable paying from what's left in your budget for a loan payment. THEN you go shopping for what you have already decided you NEED and tell them what you are willing to pay. And you walk away if they won't deal. You can bet someone else down the road will want your money and will deal for it.

[Sis]

http://clerk.house.gov/evs/2008/roll674.xml

I think that is the wrong bill

[laylamcb]

I have a young niece who bought her first new car just a few months ago. She told me that the bank told her how much they would lend her, and that was how she picked out the car, based on what they told her she could afford, not the other way around. I know her income, there is no way she should have bought that car.


Hmmmm. Can we take part of the $600B we've just saved and mandate personal finance courses for everyone?? :001_huh:

Just a thought.

But seriously, folks, keep in mind that the fact that THIS bill failed doesn't mean that Congress is going to throw up its collective hands and say, "Oh well. Bring on the Second Great Depression." Instead, they're going to have to go back to the table and discuss this more. Which is all I'm asking for. (Not that I don't completely believe my president when he tells me that we must act immediately on something or dire consequences will ensue.... :glare:)

I'm hoping that this legislative failure means that now the starting point won't be the Paulson plan at all. Blank slate, and the inclusion of a wide range of economists in the talks. Please.

[Spy Car]

Bill, it is quite possible to be angry AND reasonable at the same time. As I believe Jennifer is and most of us who oppose the bailout are. We understand the consequences of a bailout or no bailout (as well as anyone can at this point) and we know where we stand. Just because our conclusion as to the best way to move forward is different from yours does not mean we've allowed anger to displace our reason. Quite the opposite. Our anger has prompted us to think, study, pray, talk and this is where we find ourselves. ;)

I enjoy reading your posts, but would appreciate it if you would stick to the pros and cons of the situation before us rather than patting those of us who disagree with you on the head and giving us a "there, there, calm down and think straight."

I'm sorry if you felt I was being condescending Amy, it is not my intention. I spoke of "large elements of the public", not of members of this forum, and certainly welcome the opinions of those whose analysis of this differs from my own.

I do fear the interconnectedness of our economy is underestimated by many. And that the absence of "cash" in the economy will cost people their jobs and their homes.

Bill

[laylamcb]

I think that is the wrong bill

No, that's it. But why they described it this way is beyond me:

BILL TITLE: To amend the Internal Revenue Code of 1986 to provide earnings assistance and tax relief to members of the uniformed services, volunteer firefighters, and Peace Corps volunteers, and for other purposes

:001_huh:

Um, wherever you fall on this issue, I think we can all agree that these things it certainly would NOT do.

[CAMom]

http://clerk.house.gov/evs/2008/roll674.xml

Thank you, Pammy!!:)

[neesek]

I think that is the wrong bill

It looks like the right one to me. My congressman, a republican, voted no on it.

[Parabola]

Does anyone think this needs to fail, the economy needs to crash, we need to hit bottom, consequences be d***ed? Our economic system is messed up, its not going to be fixed with bandaids and bailouts.
I understand how potentially bad this can be, but I think bailing out the big guys, leaving the rest of us to struggle is the worse solution. I think to keep basing our economy on credit is the worse solution. And to not pass the right kind of regulation to keep it from happening again (because you know thats what would happen once the crisis is over) is unacceptable.

Maybe I'm out in left field, but I really think this may need to happen.

[neesek]

No, that's it. But why they described it this way is beyond me:

BILL TITLE: To amend the Internal Revenue Code of 1986 to provide earnings assistance and tax relief to members of the uniformed services, volunteer firefighters, and Peace Corps volunteers, and for other purposes

:001_huh:

Um, wherever you fall on this issue, I think we can all agree that these things it certainly would NOT do.

:lol::lol::lol:

[Martha]

Hmmmm. Can we take part of the $600B we've just saved and mandate personal finance courses for everyone?? :001_huh:

ahem. all the "personal finance" courses I've seen pushed are sponsored by banks and other lenders and really are just credit pushers. The most responsible thing a person can do is avoid credit like the plague and they aren't likely to offer much encouragement for that, now are they?

otherwise, I'd completely agree with you.

But seriously, folks, keep in mind that the fact that THIS bill failed doesn't mean that Congress is going to throw up its collective hands and say, "Oh well. Bring on the Second Great Depression." Instead, they're going to have to go back to the table and discuss this more. Which is all I'm asking for. (Not that I don't completely believe my president when he tells me that we must act immediately on something or dire consequences will ensue.... :glare:)

I'm hoping that this legislative failure means that now the starting point won't be the Paulson plan at all. Blank slate, and the inclusion of a wide range of economists in the talks. Please.

:iagree:I don't think they are just going to toss their hands int eh air either.
But the main reason I'm not for the bailout is that I don't think it's worth it. If they come up with a better plan that has a more solid outcome prediction, then I might change my mind.

yes, we have to learn from the Great Depression mistakes. BUT, it's might hard to say any of it was mistake or success. It's highly likely that the same type of bailout back then wouldn't have netted a better result.

Trust me, if we can avoid a depression, great or otherwise, I'm interested in that. But if we can't, I want to minimize the damage. As other said, if it's comming and can't be avoided - those billions can go to far better uses than a bailout.

[Spy Car]

Believe me, we're going to need that $600B to pay for unemployment benefits.... :glare:

This, I really believe, is the alternative Leila. We can either try to rescue the economy or we can start paying out unemployment benefits in numbers unknown in our history.

Bill

[laylamcb]

Does anyone think this needs to fail, the economy needs to crash, we need to hit bottom, consequences be d***ed? Our economic system is messed up, its not going to be fixed with bandaids and bailouts.
I understand how potentially bad this can be, but I think bailing out the big guys, leaving the rest of us to struggle is the worse solution. I think to keep basing our economy on credit is the worse solution. And to not pass the right kind of regulation to keep it from happening again (because you know thats what would happen once the crisis is over) is unacceptable.

Maybe I'm out in left field, but I really think this may need to happen.

In general, Parabola, I think you're right on. And I think that's what most of us are saying. We know that this doesn't "stick it to the fatcats"--it sticks it to all of us. But the fact is that we're already STUCK. Let's just take the medicine now. Heck, we've put off taking the medicine for at least five years (http://query.nytimes.com/gst/fullpage.html?res=9E06E3D6123BF932A2575AC0A9659C8B 63&sec=&spon=&pagewanted=1). Take it NOW.

I'm right there in center field beside you. ;)

[Mama Lynx]

Woohoo! Democracy triumphs!

Now I'm :leaving: and joining Remudamom for drinks. :auto:

Woohoo!! Can I join you? I'm glad it didn't pass, and I do want the rum!

I've got to call my Rep's office tomorrow to find out how he voted.

[Pam "SFSOM" in TN]

In general, Parabola, I think you're right on. And I think that's what most of us are saying. We know that this doesn't "stick it to the fatcats"--it sticks it to all of us. But the fact is that we're already STUCK. Let's just take the medicine now. Heck, we've put off taking the medicine for at least five years (http://query.nytimes.com/gst/fullpage.html?res=9E06E3D6123BF932A2575AC0A9659C8B 63&sec=&spon=&pagewanted=1). Take it NOW.

I'm right there in center field beside you. ;)

Or we could just call this what it is without the sugar coat and just officially nationalize the banks.

[Spy Car]

Does anyone think this needs to fail, the economy needs to crash, we need to hit bottom, consequences be d***ed? Our economic system is messed up, its not going to be fixed with bandaids and bailouts.
I understand how potentially bad this can be, but I think bailing out the big guys, leaving the rest of us to struggle is the worse solution. I think to keep basing our economy on credit is the worse solution. And to not pass the right kind of regulation to keep it from happening again (because you know thats what would happen once the crisis is over) is unacceptable.

Maybe I'm out in left field, but I really think this may need to happen.

I grew up with two parents who were raised during the Great Depression.

While they were both lived in homes that were relatively well off, the stories they have shared with me of those times and the hopelessness and misery experienced by friends and neighbors convinces me the option of a complete crash is a very bad one. But is a very real possibility.

Bill

[Amy loves Bud]

I'm sorry if you felt I was being condescending Amy, it is not my intention. I spoke of "large elements of the public", not of members of this forum, and certainly welcome the opinions of those whose analysis of this differs from my own.

I do fear the interconnectedness of our economy is underestimated by many. And that the absence of "cash" in the economy will cost people their jobs and their homes.

Bill

No worries. I'm admittedly a little :sneaky2: about this whole issue.

Most of the people I know who oppose the bailout are very aware of what we may be facing. They feel that it is a)postponing the inevitable to proceed with a bailout, and b) time to deal with our screwed up system now before it destroys the economy of generations to come rather than just our own.

It's frightening, I'm with you on that.

[laylamcb]

I grew up with two parents who were raised during the Great Depression.

While they were both lived in homes that were relatively well off, the stories they have shared with me of those times and the hopelessness and misery experienced by friends and neighbors convinces me the option of a complete crash is a very bad one. But is a very real possibility.

Bill

But Bill, you must know that none of us want that, and that we too understand that it is a very real possibility. Many of us just disagree that this particular bailout would have prevented what we see as inevitable. We're all in this together. :grouphug:

[GretaLynne]

My congressman, a republican, voted no on it.

Funny, just the opposite for me. My rep, who is also a Republican, voted yes. She always votes the exact opposite of what I want her to. I had mixed feelings about this, but the fact that she supported it reassures me that it was not a good idea and that it's fine that it failed. :D

[Spy Car]

No worries. I'm admittedly a little :sneaky2: about this whole issue.

Most of the people I know who oppose the bailout are very aware of what we may be facing. They feel that it is a)postponing the inevitable to proceed with a bailout, and b) time to deal with our screwed up system now before it destroys the economy of generations to come rather than just our own.

It's frightening, I'm with you on that.

But Bill, you must know that none of us want that, and that we too understand that it is a very real possibility. Many of us just disagree that this particular bailout would have prevented what we see as inevitable. We're all in this together. :grouphug:

I'm totally with you two that we are in this together :grouphug:

Bill

[Parabola]

I grew up with two parents who were raised during the Great Depression.

While they were both lived in homes that were relatively well off, the stories they have shared with me of those times and the hopelessness and misery experienced by friends and neighbors convinces me the option of a complete crash is a very bad one. But is a very real possibility.

Bill

I understand, but its getting bad already. My grandparents lived through the Great Depression as well, and they didn't have luxory of being well off. And I understand your point, I've listened to the ways the bailout would save the economy. Or rather, could save the economy. For now. Maybe.
Its all props though, and I'd rather face the hardship now then later, or have my kids face it as adults.
And actually, I'm quite encouraged by how so many people in the country are saying NO to the bailout, even with the consequences it could bring. Kinda restores my faith a little bit in people. But I'm d*** mad that the vast majority of representatives are doing what THEY want instead of turning to their representees and asking them what they want. This is why representative government is a crock.

[Amy loves Bud]

I'm totally with you two that we are in this together :grouphug:

Bill

Anyone want to sing Kumbayah with me?

[Mama Lynx]

My congressman voted for it.

Guess what? That clears up that race for me, come November.

[Mrs Mungo]

But I'm d*** mad that the vast majority of representatives are doing what THEY want instead of turning to their representees and asking them what they want. This is why representative government is a crock.

It doesn't look like that's what's happening. Checking the roll call it looks split between those who are not up for relection and those who are.

[Shari]

We are all responsible for our own actions. It is not the govt's, nor my responsibility to bail anyone else out for their own mistakes. If you are buying a house or running a business, you are a GROWN UP. If you lose your shirt, you start over!

We have become this nation of babies, thinking that things like home ownership, cars, education, and retirement are entitlements - they're NOT. They're things you get if you work really hard and make good choices.

How do I know this bail out is wrong? Because my government is telling me it has to pass TODAY without any real amount of time to think it over carefully. That's when my Bull**** meter starts ringing off the hook, ya know?


OMG! I wish I could have written this. I totally agree :iagree:

[neesek]

It doesn't look like that's what's happening. Checking the roll call it looks split between those who are not up for relection and those who are.

Aren't they all up for reelection? At least in the House?

[Parabola]

Anyone want to sing Kumbayah with me?
Its nice to see hugs in with the disagreements. :)
It doesn't look like that's what's happening. Checking the roll call it looks split between those who are not up for relection and those who are.

Does the roll call indicate how the representees feel, along with how the representative voted, for comparison?

[Bev in B'ville]

It looks like the right one to me. My congressman, a republican, voted no on it.


Mine, too. He sent out this email.

Lynn today voted against the $700 billion bailout plan, but pledged his support for returning to work on the issue later in the week. The vote in the House failed 205-228.

Lynn issued the following statement after today's vote:
“As the financial crisis has unfolded over the past year, we’ve slowly watched the dominos drop one after another and we’ve seen one bailout after another,” Westmoreland said. “Each time we were told: ‘This bailout is going to fix the problem.’ We’ve already spent hundreds of billions of dollars that our government does not have and yet the problems continue to deepen. I’ve read all the documents and listened to the experts and no one can say – not even with nearly $1 trillion on the line – that this will work.

“Undoubtedly, this is one of the toughest votes that I’ve taken in Congress. When faced with a tough decision, I rely on my principles – that smaller government is better and that markets work better bureaucratic decisions. While this bailout may work in the short term, I’m concerned greatly about the long-term consequences. When government willingly steps in to rescue people from risky behavior, government creates an incentive for future risky behavior. When businesses accept greater regulation in order to receive a bailout, we enlarge government, distort markets and render capitalism less efficient.

“I do believe that our nation faces great financial challenges right now, and I believe that Congress should act. But the House should not appropriate up to $700 billion for a bill that didn’t exist until a few days ago and that never went through one committee hearing. This legislation costs way too much to pass through Congress with so little scrutiny. If the process is broken, the product is flawed. Combined with war costs, other bailouts and the stimulus packages, we can’t afford to be wrong with a price tag this high.

“I have supported an alternative plan that would lower taxes and regulations to create an incentive for private money, foreign and domestic, to flow back into the credit markets. Unfortunately, alternative versions were shut out of this closed process.”

Lynn has received hundreds, if not thousands, of emails and calls from constituents in Georgia's 3rd Congressional District. More than 90 percent of those messages urged a "no" vote.

[Amy in NY]

I feel relieved, nervous and scared all at the same time. Depending on who I listen to, I'm convinced we need a bailout package or convinced we don't. I wish I knew more or had a crystal ball. My first instinct is to say, "Good!"

Then I think about our retirement and feel like crying.

Janet

Retirement? What is that?

:tongue_smilie:

[Spy Car]

I'd rather face the hardship now then later, or have my kids face it as adults.

I hope you are thinking this through. If (and I grant you it is a BIG if), the bail-out is handled well, the government will take over assets, stabilize the markets and will at a future date be able to sell those assets. And even potentially turn a profit.

When the S&Ls were failing the government had a similar takeover of assets by the Federal "Resolution Trust Corporation", and it was able to prevent a crash while eventually breaking even (or perhaps turning a slight profit).

We need "reform" (I'm totally with you there) but I don't think a Depression now will help our children's future one bit.

Bill

[Laura R (FL)]

I'm going to watch some news and catch up now. I got online and saw the Dow had dropped over 700 points. WOW!!!

I share the same opinions as others...I don't want the bailout because of the principles involved. then again, my retirement and life insurance is through AIG. sigh. :confused:

[Spy Car]

Does the roll call indicate how the representees feel, along with how the representative voted, for comparison?

Mine (a Democrat) voted against. His office has received a call from me expressing my displeasure with that vote.

[Kathleen in VA]

I just received this email from my congressman - the one who had the virtual town hall meeting on Saturday to ask his constituents what they wanted him to do:

The past several days have been historic ones for Congress and for the families and people of this great nation. We face significant challenges in our financial markets and I do not underestimate the serious nature of the decisions we face in dealing with the credit crisis. I realize that the current credit crisis could create problems for every American should the financial markets freeze and remain frozen. Throughout this debate it has been clear that action is necessary but the recovery bill considered in the House of Representatives today should not have been the only option.

In reviewing the plan and doing some deep soul searching I believe that it had significant problems. First is the government purchase and ownership of troubled private assets on a massive scale. The impact of this action would be a fundamental change in the role of government in the American free enterprise system. The obligations to offset Wall Street losses would have been placed on future generations. To authorize the Paulson plan would be to lessen the consequences of risky behavior and could lead to riskier behavior in the future. Furthermore it did not go far enough in holding accountable those at fault for the current crisis by failing to establish penalties for their past bad business practices.

There are free market mechanisms that should have been and still can be implemented to help ease the current crisis. While the recovery bill would have allowed community banks to write off losses on their holdings of Fannie Mae and Freddie Mac stock, it did not provide backing to assist banks in raising private capital. By providing incentives for private capital, the government could help troubled banks offset losses that keep them from lending while limiting government intervention and taxpayer risk.

I also have serious concerns with government overseeing the purchase and sale of these troubled private assets. I feared that the purchase and sale of the assets would not have been executed in the most efficient way possible under this proposal and taxpayers could lose. The potential existed for the government to pay too much and sell for too little.

In addition I had considerable reservations about increasing the national debt by 6.6% to $11.3 trillion dollars to finance the bailout. This equates to an additional $3,000 of debt for every man, woman and child in the U.S. on top of the $34,000 already owed by each American toward the national debt. We cannot continue to borrow and spend at this rate and expect a healthy future for our country.

In my deliberations, I sought to make a decision in the best interest of the taxpayers. Over the past week I've had calls, emails, letters and visits from over 2000 constituents of the First District with an overwhelming majority voicing opposition to this recovery plan. Many of you expressed a need for Congress to act, but felt that this plan was not the right course of action. With that in mind I have offered that Congress should not adjourn and should stay in Washington to get the right plan for economic recovery.

My two main priorities for any plan are to most wisely protect you as a taxpayer and to protect the value of your retirement, your home and your savings. There is no doubt that this crisis and resulting legislation would have had significant impact on our future. However, I believe that the proposed plan for recovery had substantial and avoidable flaws. The plan that was before us put $700 billion in taxpayer funding on the line to bail out Wall Street financial firms, would fundamentally alter free market decision making, let bad actors off the hook and create a massive new bureaucracy with no guarantee of success. For these reasons I could not vote in favor of this plan. The House of Representatives failed to pass H.R. 3997, the Emergency Economic Stabilization Act of 2008, today by a vote of 205-228.

Sounds like he wants to just keep working towards a plan that has fewer flaws, although I'm not sure what that means exactly.

[hsmamainva]

My Representative, a Republican, voted "No"

And he's up for re-election. :D

:makes mental note not to vote for him ... oh, that's right...didn't vote for him last time either:

From what I understand, it was the Republicans who voted down the measure -- but then, it didn't help that Nancy Pelosi rubbed salt in the wound right before the final vote, bringing up the fact that Bush entered office with a two trillion dollar surplus and now we're in debt up to our eyeballs.

Couldn't she have made that speech AFTER the vote? :glare:

And the final tally for the stock exchange was -777 points

[Pam "SFSOM" in TN]

Sounds like he wants to just keep working towards a plan that has fewer flaws, although I'm not sure what that means exactly.

This is So hard. I think the plan was RUSHED, but when speed is of essence? What to do?

Can they suspend trading on Wall Street for a couple of days?

Oh my.

I'm so glad you have such a responsive congressperson.

[hsmamainva]

This is So hard. I think the plan was RUSHED, but when speed is of essence? What to do?

That was my husband's main gripe....and he repeated it again today.

He said that the last time President Bush said, "This is a crisis! We have to act now! We can't wait! Hurry! Hurry!" -- we ended up invading Iraq, searching for those weapons of mass destruction.

And that not many folks (voters and legislators alike) are going to rush to do anything quickly when Bush says "NOW!!"

[Mrs Mungo]

(CNN) -- Sen. Barack Obama blasted Congress for not passing a financial rescue package Monday, while Sen. John McCain's campaign accused Obama and Democrats of putting "politics ahead of country."

Sen. Barack Obama said inaction in Congress and partisanship have made people lose faith in Washington.




The House of Representatives rejected a $700 billion plan to bail out the financial system, putting a roadblock in front of the largest government intervention in the market since the Great Depression.




The bill failed by a vote of 205 to 228, with 140 Democrats and 65 Republicans voting in favor and 95 Democrats joining 133 Republicans against.

So, McCain and Bush put together a bill, stick it in Congress, it fails because the Republicans vote against it 2 to 1 and it's the Democrats fault.


:glare:

[hsmamainva]

So, McCain and Bush put together a bill, stick it in Congress, it fails because the Republicans vote against it 2 to 1 and it's the Democrats fault.


:glare:

I'm STILL trying to figure THAT one out!!!!

It makes NO sense to me either!!!!

:confused:

[Momto4kids]

I just received this email from my congressman - the one who had the virtual town hall meeting on Saturday to ask his constituents what they wanted him to do:

The past several days have been historic ones for Congress and for the families and people of this great nation. We face significant challenges in our financial markets and I do not underestimate the serious nature of the decisions we face in dealing with the credit crisis. I realize that the current credit crisis could create problems for every American should the financial markets freeze and remain frozen. Throughout this debate it has been clear that action is necessary but the recovery bill considered in the House of Representatives today should not have been the only option.

In reviewing the plan and doing some deep soul searching I believe that it had significant problems. First is the government purchase and ownership of troubled private assets on a massive scale. The impact of this action would be a fundamental change in the role of government in the American free enterprise system. The obligations to offset Wall Street losses would have been placed on future generations. To authorize the Paulson plan would be to lessen the consequences of risky behavior and could lead to riskier behavior in the future. Furthermore it did not go far enough in holding accountable those at fault for the current crisis by failing to establish penalties for their past bad business practices.

There are free market mechanisms that should have been and still can be implemented to help ease the current crisis. While the recovery bill would have allowed community banks to write off losses on their holdings of Fannie Mae and Freddie Mac stock, it did not provide backing to assist banks in raising private capital. By providing incentives for private capital, the government could help troubled banks offset losses that keep them from lending while limiting government intervention and taxpayer risk.

I also have serious concerns with government overseeing the purchase and sale of these troubled private assets. I feared that the purchase and sale of the assets would not have been executed in the most efficient way possible under this proposal and taxpayers could lose. The potential existed for the government to pay too much and sell for too little.

In addition I had considerable reservations about increasing the national debt by 6.6% to $11.3 trillion dollars to finance the bailout. This equates to an additional $3,000 of debt for every man, woman and child in the U.S. on top of the $34,000 already owed by each American toward the national debt. We cannot continue to borrow and spend at this rate and expect a healthy future for our country.

In my deliberations, I sought to make a decision in the best interest of the taxpayers. Over the past week I've had calls, emails, letters and visits from over 2000 constituents of the First District with an overwhelming majority voicing opposition to this recovery plan. Many of you expressed a need for Congress to act, but felt that this plan was not the right course of action. With that in mind I have offered that Congress should not adjourn and should stay in Washington to get the right plan for economic recovery.

My two main priorities for any plan are to most wisely protect you as a taxpayer and to protect the value of your retirement, your home and your savings. There is no doubt that this crisis and resulting legislation would have had significant impact on our future. However, I believe that the proposed plan for recovery had substantial and avoidable flaws. The plan that was before us put $700 billion in taxpayer funding on the line to bail out Wall Street financial firms, would fundamentally alter free market decision making, let bad actors off the hook and create a massive new bureaucracy with no guarantee of success. For these reasons I could not vote in favor of this plan. The House of Representatives failed to pass H.R. 3997, the Emergency Economic Stabilization Act of 2008, today by a vote of 205-228.

Sounds like he wants to just keep working towards a plan that has fewer flaws, although I'm not sure what that means exactly.

Thanks for sharing this! This really gives a lot of information and explanations.

[hsmamainva]

Kathleen in VA -- we have the same Representative!

Wittman, right?

(I voted for Forgit, but he lost -- maybe if he changed his last name...)

[chiguirre]

Can they suspend trading on Wall Street for a couple of days?


Normally, Rosh Hashana would mean light trading days for Wall St., but I don't think that's going to hold this year. OTOH, there is nothing that makes traders more nervous than not being able to trade and that nervousness can move markets even more than the fundamentals justify. Even if Wall St. closes, it's not feasible to shut European and Asian markets, too.

[Aggie]

This particular bailout doesn't bail out people in foreclosure. It bails out the banks who were stupid enough to make the bad loans in the first place. They really should have known better. You expect the general public to be stupid if you let them, but the people lending out the money should know better. Under this bailout, people still can get foreclosed on.

Banks were pressured by the government into lending money. Some banks were sued because they didn't make enough loans to low-income families who couldn't afford the mortgages.

[Robin in Tx]

The money is coming from the Treasury by increasing the national debt, which was already at nearly catastrophic levels before all of these bailouts started. That means that the money is going to come from future taxes (unlikely) or hyperinflation (likely).

The funds were supposed to go to buy subprime loans off banks' balance sheets. Those assets will prevent banks from being able to lend more money in the future. Y'all might think that's a good thing but it's not. Companies who rely on lines of credit for operating expenses will have to lay off workers. This has the potential of a great depression. And remember, last time it went on for an entire decade and it took a World War to get us out of it.

If the govt purchased the assets, then they would have the assets on their books. They would make all the interest off the loans that perform, and they would have marketable assets to liquidate on the loans that didn't perform. One Journal report calculated that the govt could end up profiting as much as 3 Trillion off this deal over the next 20-30 years. Worse case scenario is that they would maybe break even, or lose a little bit (certainly not the whole amount).

Y'all do realize that they weren't just handing money over and charging the tax payers, right? That they were buying assets and that it would be paid back by returns on the assets. The govt. can weather the decades it will take for these assets to perform.

The executives have all pretty much been fired. It's the shareholders and legitimate borrowers who are in trouble. We wouldn't be bailing out anyone but ourselves.

Like someone said, there was fear in the eyes of Bernake and Paulson. They know a LOT more than we do and they are scared. The effects are world wide and this is likely the end of our being the world's financial center. Oil dropped $10 today which normally I would consider a good thing, but the reason why it dropped like that is not good - that was nearly a one day 10% drop, spurred by fears of a substantial world wide recession.

Interesting times. My economist professor friend just told me that the best investments rigiht now are farmland and handguns. Kinda funny... kinda not...

[Melissa in FL]

My congressman voted for it.

Guess what? That clears up that race for me, come November.

Mine voted no. She's a Democrat, and I called her office and told her she just won my vote in November by her vote (I'm a Republican). I really think her no vote was because she is up for reelection, but I'm sure she was under pressure from her party to vote yes and she stood up to that.

I do think we need some sort of a bailout to prevent a depression, and I don't want a total crash. But, I don't think this was it. I think now they will come up with something better.
Melissa

[K&Rs Mom]

So, McCain and Bush put together a bill, stick it in Congress, it fails because the Republicans vote against it 2 to 1 and it's the Democrats fault.

I don't care whose fault it was - I'm just glad this thing is dead! Both sides are going to blame each other and say mean things, nothing new there.

[Kathleen in VA]

Kathleen in VA -- we have the same Representative!

Wittman, right?

(I voted for Forgit, but he lost -- maybe if he changed his last name...)

Yes, mine is Rob Wittman. I'm really encouraged by his response to this whole thing - asking for our views and acting on what folks said.

Poor Forgit :) - that's an unfornunate name! I don't remember him being on the ballot:lol::lol::lol:.

I once had an ob/gyn named Dr. Kil. I told him he might want to think about adding "dare" to the end of his name. He thought I was kidding.

[hsmamainva]

Yes, mine is Rob Wittman. I'm really encouraged by his response to this whole thing - asking for our views and acting on what folks said.

Poor Forgit :) - that's an unfornunate name! I don't remember him being on the ballot:lol::lol::lol:.

I once had an ob/gyn named Dr. Kil. I told him he might want to think about adding "dare" to the end of his name. He thought I was kidding.

LOL!!!! *snort*

Poor Forgit is right!!! I haven't seen his signs up anywhere, so maybe he's lost interest in seeking political office!

I've seen Wittman's though.

That's cool that we're "neighbors" :)

[Luann in ID]

The funds were supposed to go to buy subprime loans off banks' balance sheets. Those assets will prevent banks from being able to lend more money in the future. Y'all might think that's a good thing but it's not. Companies who rely on lines of credit for operating expenses will have to lay off workers. This has the potential of a great depression. And remember, last time it went on for an entire decade and it took a World War to get us out of it.

If the govt purchased the assets, then they would have the assets on their books. They would make all the interest off the loans that perform, and they would have marketable assets to liquidate on the loans that didn't perform. One Journal report calculated that the govt could end up profiting as much as 3 Trillion off this deal over the next 20-30 years. Worse case scenario is that they would maybe break even, or lose a little bit (certainly not the whole amount).

Y'all do realize that they weren't just handing money over and charging the tax payers, right? That they were buying assets and that it would be paid back by returns on the assets. The govt. can weather the decades it will take for these assets to perform.

The executives have all pretty much been fired. It's the shareholders and legitimate borrowers who are in trouble. We wouldn't be bailing out anyone but ourselves.

Like someone said, there was fear in the eyes of Bernake and Paulson. They know a LOT more than we do and they are scared. The effects are world wide and this is likely the end of our being the world's financial center. Oil dropped $10 today which normally I would consider a good thing, but the reason why it dropped like that is not good - that was nearly a one day 10% drop, spurred by fears of a substantial world wide recession.

Interesting times. My economist professor friend just told me that the best investments rigiht now are farmland and handguns. Kinda funny... kinda not...

That's a very clear explanation. Thanks, Robin.

Got my farmland. Now I'm off to buy my handgun. jk :glare:

[Robin in Tx]

That's a very clear explanation. Thanks, Robin.

Got my farmland. Now I'm off to buy my handgun. jk :glare:

I'm gonna come live with you. Even if it means I have to eat bear! LOL

[Luann in ID]

I'm gonna come live with you. Even if it means I have to eat bear! LOL

LOL. Well, you'd be welcome, Robin, but I don't know that we'd have any bear. Two weeks ago 3 of the dc chased one up into a tree. It wasn't bear season, so we just shot him with a camera. Now, it's bear season, and he's mighty elusive. Those bears are smarter than they look.

[Amy loves Bud]

This has the potential of a great depression. And remember, last time it went on for an entire decade and it took a World War to get us out of it.

Yes, a war, not all of FDR's interventions.


If the govt purchased the assets, then they would have the assets on their books. They would make all the interest off the loans that perform, and they would have marketable assets to liquidate on the loans that didn't perform. One Journal report calculated that the govt could end up profiting as much as 3 Trillion off this deal over the next 20-30 years. Worse case scenario is that they would maybe break even, or lose a little bit (certainly not the whole amount).

Constitutionality of the federal government engaging in such a business? I'm not sure. I'm certainly not a lawyer, and I'm thinking about how it compares to issuing government bonds. I dunno but I'm leaning toward less constitutional than more.

And my economist friend is buying stock right now.:D

[Spy Car]

Yes, a war, not all of FDR's interventions.


It was the war that finally got the economy fully rolling again. FDRs measures helped, but let's not forget the stockmarket crashed in October of 1929, FDR did not become President until March of 1933 (nearly 3 years after the beginning of the Depression).

It is "common wisdom" (which doesn't guarantee it is correct) among economists that had the Federal government had mechanisms in place and acted in 1929 the Great Depression could have been avoided (or at least greatly mitigated in scope).

Almost nothing was done in 1929 to preserve liquidity, do we really want to repeat history?

Bill

[Aggie]

And my economist friend is buying stock right now.:D

This is my thought, too! Apple dropped to about $100 today.;)

[Martha]

The funds were supposed to go to buy subprime loans off banks' balance sheets. Those assets will prevent banks from being able to lend more money in the future. Y'all might think that's a good thing but it's not. Companies who rely on lines of credit for operating expenses will have to lay off workers.

ANY company that "relies" on credit is not a company that's going to stay in business for long. Recession or not. Credit for operating expenses is a clear sign of a company that isn't even making enough profit to cover their basic overhead costs.

A business using credit for operating expenses is no different than the average joe using credit to pay his mortgage or buy groceries. If he has the income to pay for it - he should use that income. NOT credit.

If he doesn't have the income, then how the heck is he going to pay the creidt when it comes due? AND IT WILL COME DUE.


This has the potential of a great depression. And remember, last time it went on for an entire decade and it took a World War to get us out of it.

yep. I know. Hope we can avoid it. Or at least avoid one as bad and long. But I didn't see anything in that bailout that would do that. Best case is it would have put it off for a few months and then not only would the companies still be bust, so would the gov't. My greatest concerns are:

1 - fools rushing in
2 - finding this is s stop gap at best and then the gov't not having that 700b to help the majority of citzens with things far more important than credit. Things like food lines.

Y'all do realize that they weren't just handing money over and charging the tax payers, right? That they were buying assets and that it would be paid back by returns on the assets. The govt. can weather the decades it will take for these assets to perform.

Yes, I get that.
1 - there may not be a return on those assets.
2 - the "gov't" is US
3 - if the gov't takes on all these "assets" (they aren't even assets - they are bad debts that they are praying will miraculously be paid on, knowing that many if not most of them won't be) - then the gov't is in the same sinking boat they just bought off the companies?

The executives have all pretty much been fired.
"pretty much" isn't good enough

We wouldn't be bailing out anyone but ourselves.

Really? Didn't see a thing in that bailout that would have made my mortgage payment easier to pay or produce any cheaper to buy.:001_huh:

Like someone said, there was fear in the eyes of Bernake and Paulson. They know a LOT more than we do and they are scared.

Not denying that.
Question is: Does that mean they are doing the best thing for the majority of citizens or the best thing to save their own backside? Just because they are scared, just because they know more, does NOT mean they give one red cent about you and me losing our jobs or homes. It does NOT mean this bailout plan was a good idea.

Interesting times. My economist professor friend just told me that the best investments rigiht now are farmland and handguns. Kinda funny... kinda not...

:iagree: Don't have farmland, but the kids probably won't have a backyard to play in come spring - we hope we'll be planting a garden of some size. (This year stunk for planting, nothign but flooding rain and hail!) Off to get the guns. Oh and bow and arrow. Handguns have a great use as protection, but I also have a feeling we'll be hunting meat this time next year. Frankly, we'd be doing it now if we could afford gun/amo and hunting fees.

[sdWTMer]

Good time to buy Apple stock, eh?

[ma23peas]

Many of you posting here are politically savvy and economically curious..here is a great video (LOOOOONG) but explains the current crisis and how it came about...

http://www.youtube.com/watch?v=NU6fuFrdCJY

I need to sell a home (been on this market 16 months, may lose our teeth in this one!!

Tara

[Robin in Tx]

It was the war that finally got the economy fully rolling again. FDRs measures helped, but let's not forget the stockmarket crashed in October of 1929, FDR did not become President until March of 1933 (nearly 3 years after the beginning of the Depression).

It is "common wisdom" (which doesn't guarantee it is correct) among economists that had the Federal government had mechanisms in place and acted in 1929 the Great Depression could have been avoided (or at least greatly mitigated in scope).

Almost nothing was done in 1929 to preserve liquidity, do we really want to repeat history?

Bill

It is also commonly held by some economists that FDR's interventions did more to prolong the depression than get us out of it.

Herbert Hoover was pres when the market crashed. Look close at his protectionist policies and remember that those policies, especially as they relate to trade, are DEVASTATING both to our country and to the world. Keep that in mind when choosing a candidate to vote for.

People who have money to invest now will get rich because they are buying at depressed bargain prices. Just another example of the rich getting richer, while the working man is left to worry about where his family's next meal is coming from.

[hsmamainva]

I thought Hoover wanted the market to correct itself, so he sat by and did nothing to stop it??

(Feel free to correct me if I'm misinformed!)

[Momto4kids]

This is my thought, too! Apple dropped to about $100 today.;)

Do you know what they were when they were doing fine/good?

[Spy Car]

I thought Hoover wanted the market to correct itself, so he sat by and did nothing to stop it??

(Feel free to correct me if I'm misinformed!)

That is exactly correct. Hoover (who was an intelligent and descent person) let "free-market" ideology (which in the main I favor myself) blind him and his administration that intervention was necessary.

I'm afraid ideologues (on both the right and the left) are again ready to stand by and watch a collapse happen. It is sheer madness!

Bill

[Robin in Tx]

Martha, most businesses operate on credit of some kind. For example, one of my husband's customers (who buys industrial parts from my husband) gets an order from someone like Frito Lay to manufacture a packaging machine. The company dips into their line of credit to purchase the materials they need to build the machine. Once they have built it, they sell it to Frito Lay, and use the funds to pay off the line of credit and pay all their other expenses. And hopefully enough left over for profit to perhaps expand their manufacturing plant.

That is how it works. All the time. It is the small business owner who relies on this type of interim financing who will be hurt the most.

There may not have been anything explicit in the bill that said that Marth's mortgage is going to be easier to pay, but I guarantee you it will be a lot HARDER to pay if your husband can't find work. So yeah... it has the potential to effect your and my ability to pay our mortgages in the near future and for a long time.

The loans may be bad, but they will be spun off at 25% of the collateral's value or so. The govt. has the potential to make a LOT of money off this deal, but if we slump into a depresseion the banks won't be able to sell off the foreclosed homes and realize the same potential.

[Spy Car]

Martha, most businesses operate on credit of some kind. For example, one of my husband's customers (who buys industrial parts from my husband) gets an order from someone like Frito Lay to manufacture a packaging machine. The company dips into their line of credit to purchase the materials they need to build the machine. Once they have built it, they sell it to Frito Lay, and use the funds to pay off the line of credit and pay all their other expenses. And hopefully enough left over for profit to perhaps expand their manufacturing plant.

That is how it works. All the time. It is the small business owner who relies on this type of interim financing who will be hurt the most.

There may not have been anything explicit in the bill that said that Marth's mortgage is going to be easier to pay, but I guarantee you it will be a lot HARDER to pay if your husband can't find work. So yeah... it has the potential to effect your and my ability to pay our mortgages in the near future and for a long time.

The loans may be bad, but they will be spun off at 25% of the collateral's value or so. The govt. has the potential to make a LOT of money off this deal, but if we slump into a depresseion the banks won't be able to sell off the foreclosed homes and realize the same potential.

:iagree: All sorts of businesses need to raise capital through borrowing to finance investment. Dry up the "money supply" and be prepared for massive job losses and business failures.

[Caroline]

:iagree: All sorts of businesses need to raise capital through borrowing to finance investment. Dry up the "money supply" and be prepared for massive job losses and business failures.

This question has been on my mind, will major and minor corporations be able to make payroll this month? Will we start seeing job losses next week or month?

[Soph the vet]

So, McCain and Bush put together a bill, stick it in Congress, it fails because the Republicans vote against it 2 to 1 and it's the Democrats fault.


:glare:

I was under the impression that the original Bush/Paulson plan had been quickly revamped by Chris Dodd and Leahy (D) - Vt. I wasn't aware that McCain had actually authored any part of the bill? Did that happen after he met with the House Republicans?

[Martha]

Martha, most businesses operate on credit of some kind. For example, one of my husband's customers (who buys industrial parts from my husband) gets an order from someone like Frito Lay to manufacture a packaging machine. The company dips into their line of credit to purchase the materials they need to build the machine. Once they have built it, they sell it to Frito Lay, and use the funds to pay off the line of credit and pay all their other expenses. And hopefully enough left over for profit to perhaps expand their manufacturing plant.

I'm aware that most companies use credit to some extent.
That's a far different thing from not being able to run the daily operating needs of the business without credit.
They might dip some into a credit to build the machine, but if they are smart they insist on 25-50% of the cost up front. They are not running their entire business on credit. And they should be expecting enough in their fees to not only cover the debt and growth, but to set aside some for those occassions when a contract doesn't come through, a buyer fails to pay, or when they want to have a product premade ready to ship or advertise. Because THAT is also how it works.

Again a company running their entire overhead on credit is not a company that is solvent.

Also, a company that is in good standing isn't really going to be hurt that much. They are a sure bet. It's the new ones that are risky or don't have an excellent record that are up creek. They are still going to be up creek with a bailout. The bailout is NOT going to convince a bank to become risker with lending during these times.

There may not have been anything explicit in the bill that said that Marth's mortgage is going to be easier to pay, but I guarantee you it will be a lot HARDER to pay if your husband can't find work.

Yep. Thing is, I'm not seeing anything in it that would make it easier for my dh to find work either?

Because the SMART thing that every company should be doing is taking a hard look at their expenses and cutting back to use less credit and keep their business afloat. Bailout or not, they aren't going to keep spending and doing business as usual. No one is. Heck, already no one CAN. They are going to cut back and lay off. They are not going to take risks in lending.

:D Now if we really want to spur economics, I say divide the 700b amoung the american citizens. They will be buying homes (ha! paying off those cruddy mortgages!) buying cars (probably more fuel efficent!) and you know what? If those companies really need/want that money - let them convince us to invest some of that in their busienss.

[Saille]

I have a young niece who bought her first new car just a few months ago. She told me that the bank told her how much they would lend her, and that was how she picked out the car, based on what they told her she could afford, not the other way around. I know her income, there is no way she should have bought that car.

I know that every time we have looked at cars and asked about prices, the first question asked is not how much do you want to spend, but how much of a payment do you want. Look at the car ads. Many don't tell the price- just what the payment amount is, but if you look at the fine print, they are basing the payment on something like a 6 year loan on a 5-6 year old car or something crazy like that. The __________ consumer bites (you fill in your own word here - gullible? irresponsible?) , the salesman gets his sale, everybody is happy until the buyer can't make the payment.

The same thing happened to us when we bought our house. What the bank said we could afford was much more that we had decided we could afford. Fortunately for us, we stuck with our numbers and our mortgage is manageable.

Then we have the whole credit card thing. How many offers for credit cards do we throw away every month? The blame lies all around. The companies, banks, mortgage companies have marketed easy credit, get it now scenarios. Many of us don't bite, others do. Yes, they shouldn't make it so easy, but on the other hand, we don't have to bite.

We've had this exact same experience, both with our house, and the car we recently bought. It was surreal to look people in the eye and refuse to take the credit they were offering, while they insisted we could manage it.

[hsmamainva]

I was under the impression that the original Bush/Paulson plan had been quickly revamped by Chris Dodd and Leahy (D) - Vt. I wasn't aware that McCain had actually authored any part of the bill? Did that happen after he met with the House Republicans?

From what I understand, the Democrats and Republicans were working together very nicely until McCain flew into town, marched into the meeting, and said "We're not signing anything. If I have to go it alone, I'll do it." And most of the Republicans walked out.

(That was according to an article in our local paper...the Washington Post)

http://voices.washingtonpost.com/the-trail/2008/09/26/questions_linger_over_mccains.html

[Robin in Tx]

Business credit is not the cause of this problem, but businesses will pay the price for it. And if you think your husband has trouble finding work now, just wait.

[Mrs Mungo]

I was under the impression that the original Bush/Paulson plan had been quickly revamped by Chris Dodd and Leahy (D) - Vt. I wasn't aware that McCain had actually authored any part of the bill? Did that happen after he met with the House Republicans?

I should have said he took credit for it. Mitt Romney said this morning that it wouldn't have happened without John McCain...but of course, that was before it failed.

[Saille]

I was under the impression that the original Bush/Paulson plan had been quickly revamped by Chris Dodd and Leahy (D) - Vt. I wasn't aware that McCain had actually authored any part of the bill? Did that happen after he met with the House Republicans?

I doubt it. They were pretty much begging him to get the heck off Capitol Hill and take the Straight Talk Express with him.

[Robin in Tx]

I was talking about the tarriffs he imposed, and how it made the depression worse (protectionist policies as they related to trade).

[hsmamainva]

Here's the article I was looking for.

I'll cut and paste the first few paragraphs and then link to the full article:

How McCain Stirred A Simmering Pot

When Sen. John McCain made his way to the Capitol office of House Minority Leader John A. Boehner (R-Ohio) just past noon on Thursday, he intended to "just touch gloves" with House Republican leaders, according to one congressional aide, and get ready for the afternoon bailout summit at the White House.

Instead, Rep. Paul D. Ryan (Wis.), the ranking Republican on the House Budget Committee, was waiting to give him an earful. The $700 billion Wall Street rescue, as laid out by Treasury Secretary Henry M. Paulson Jr., was never going to fly with House Republicans, Ryan said. The plan had to be fundamentally reworked, relying instead on a new program of mortgage insurance paid not by the taxpayers but by the banking industry.

McCain listened, then, with Sen. Lindsey O. Graham (S.C.), he burst into the Senate Republican policy luncheon. Over a Tex-Mex buffet, Sens. Robert F. Bennett (Utah) and Judd Gregg (N.H.) had been explaining the contours of a deal just reached. House Republicans were not buying it. Then McCain spoke.

"I appreciate what you've done here, but I'm not going to sign on to a deal just to sign the deal," McCain told the gathering, according to Graham and confirmed by multiple Senate GOP aides. "Just like Iraq, I'm not afraid to go it alone if I need to."

For a moment, as Graham described it, "you could hear a pin drop. It was just unbelievable." Then pandemonium. By the time the meeting broke up, the agreement touted just hours before -- one that Sen. Lamar Alexander (Tenn.), the No. 3 GOP leader, estimated would be supported by more than 40 Senate Republicans -- was in shambles.

An incendiary mix of presidential politics, delicate dealmaking and market instability played out Thursday in a tableau of high drama, with $700 billion and the U.S. economy possibly in the balance. McCain's presence was only one of the complicating factors. Sen. Barack Obama played his part, with a hectoring performance behind closed doors at the White House. And a brewing House Republican leadership fight helped scramble allegiances in the GOP.


http://www.washingtonpost.com/wp-dyn/content/article/2008/09/26/AR2008092603957.html

[ticklbee]

I read this a little while ago on Dave Ramsey's site...throwing it out here for your consideration (it's long):

Remember Enron, WorldCom, Adelphia, and other companies had artificially put assets on the books? They'd say something was worth $10M when they bought it, but eventually it decreased in value, and they never updated the value in the books. That was part of the fraud. Under current laws at that time, they were all convicted and put in jail for fraud.

http://www.daveramsey.com/media/image/general/us_treasury_check.jpg (http://banking.senate.gov/public/index.cfm?FuseAction=Contact.Form) Then we got all mad and made all these new laws that are coming out the wazoo called Sarbanes-Oxley. It's a huge, massive law but the idea is that we were going to mandate ethics to corporate America because apparently they didn't have any, according to the Enron failure. It's now a total pain in the butt to execute it in a publicly traded company.
It didn't work because you can't cause ethics to happen. However, it does make each company each day restate what their assets are worth if sold on the market. This accounting procedure is mark to market accounting--you need to remember that. It's a good concept and keeps companies from having loaded balance sheets.
How This Affects Us Today

However, it's part of what's caused this in the news now. Merrill Lynch was sitting with $30 billion tied up in sub-prime loans with houses. Stupid! They get what they deserve for doing that, and I'm with you on that. Those houses didn't become worthless all of a sudden because those people couldn't sell their bonds. Since they couldn't sell them, they basically gave them away for 22 cents on the dollar. Now do you think all those houses lost 80% of their value underneath that deal? No, they didn't, so they gave them away for 22 cents on the dollar (about $6 billion total) because there was no market for them. Nobody wants to buy sub-prime bonds because they suck. They're junk bonds. But at 22 cents on the dollar, it's a bargain because even if you foreclosed on every one of the houses in there, you'd probably get $20 billion back out of $30 billion, and so the company that bought those for $6 billion got a deal! But there's no market for them. That's where these companies are stuck. They can't sell this stuff, but accounting-wise, they've had to mark it down to market and it's frozen the marketplace.
Economist Wesbury is saying that if we change that one rule and don't force them to mark down to market value and just let them hold on to all the stuff, and say just on sub-primes for this period of time you can change that rule -- a temporary change -- that'll free the market up. It's seized right now; it's frozen. This will thaw it out and get it going again. He says that'll solve 60% of the problem ... and I think he's right.
That one accounting rule is what made Merrill Lynch sell out. That one accounting rule is what's driving other ones into the dirt. Would you rather let them change their accounting rule or loan them $700 billion for us to buyout their bad paper?
I'd rather them work their own crap out than have us bail them out with $700 billion of our tax dollars.
I don't like giving them any money or any help with my tax dollars. But I'd rather see that than see the whole thing turn completely upside down in a fruit basket turnover than have a whole meltdown or something and freak out here in the middle of the election season. Why don't we just take the FHA insurance program and extend it across these sub-primes? What that means is that you and I are guaranteeing the lender that they're not going to lose as much or any money on those mortgages. Now I don't like guaranteeing them, but I like it better than buying them. In other words, instead of $700 billion in tax-payer debt going out there to bail out these companies, just extend the insurance out. You could probably do that for less than $40 billion. It's like a 95% savings!
If the government insured those mortgages, they would then be marketable. And could sell them. And the companies would stay afloat. And we, the people, don't have to get into the mortgage business. Now we're going to get in there a little bit because of the insurance on those getting foreclosed on. But foreclosures aren't causing this. This is being caused because these companies are frozen and seized up. We've got to let some of the steam come off and put some oil in there to get this thing moving again. We can do that without going into debt $700 billion.
Here's Your Plan

Call your Congressman. Call your Senator. Tell them to change the mark-to-market accounting law and to extend insurance but extend no loans. If they extend loans - if they borrow the money on the national debt in order for us to all go into the mortgage business a trillion dollars - you're going to fire their butts and send them home.
I've talked with several people today, and it's on the tables in Washington, but it's not something you're going to see on TV. If you'll let your Congressmen know you know about this and that you'll vote against them if they don't vote to change the mark-to-market law and you'll contribute your money to make sure they never serve in office again. That's what you need to tell them early and often (http://banking.senate.gov/public/index.cfm?FuseAction=Contact.Form).
If you're pissed, this is the time to step up and do something about it, America! You can stop this! It's being railroaded down your throat, but you can stop them if you call them in mass starting now. READY ... SET ... GO!

Contact:


Your representative (https://forms.house.gov/wyr/welcome.shtml)
Your senators (http://www.senate.gov/general/contact_information/senators_cfm.cfm)
Senate committee (http://banking.senate.gov/public/index.cfm?FuseAction=Contact.Form)

[Saille]

From what I understand, the Democrats and Republicans were working together very nicely until McCain flew into town, marched into the meeting, and said "We're not signing anything. If I have to go it alone, I'll do it." And most of the Republicans walked out.

(That was according to an article in our local paper...the Washington Post)

http://voices.washingtonpost.com/the-trail/2008/09/26/questions_linger_over_mccains.html

Weird. The way I read it, he had no clue the Republicans were going to break away from the plan until they did it, in the meeting.

[Sara R]

It is "common wisdom" (which doesn't guarantee it is correct) among economists that had the Federal government had mechanisms in place and acted in 1929 the Great Depression could have been avoided (or at least greatly mitigated in scope).


A hyperinflationary depression would be worse than the Great Depression. At least in the Great Depression, if your bank didn't fail (I know, big if) you still had savings. In a hyperinflationary scenario, the purchasing power of everyone's savings is eroded.

I've read that you should translate "liquidity" as "inflation" when listening to these guys talk. The problem with the financials isn't liquidity, it's solvency. The government really doesn't have the money to bail these guys out. We already didn't have money before this crisis began. The baby boomers are starting to retire this year and Medicare gets more expensive every year. No one is talking about raising taxes enough to pay for these bailouts. So that means that we'll print money, which means inflation. Every holder and earner of dollars (both in our country and abroad)--not just taxpayers--is going to pay for this through inflation. Savers are going to suffer the most.

The problem was going into too much debt for consumption. There's no easy answer from here on out. We can either stop and dig ourselves out now, or we can postpone the day of reckoning and keep digging.

[Sara R]

I absolutely do not expect the general public to be stupid. I am responsible for myself, and my children, and I fully expect others to be the same. Why would we expect grown adults, who grew up in a country with more opportunity than anywhere else in the world, to be stupid?

I don't want to bail out the corporations, they decided to play dirty and they lost. Let them be a lesson to the other corps. who are still standing. But why does that give the general population a pass? I don't get it.

I'm not saying that we should bail out the general population. I'm just saying that they have more of an excuse to be stupid than the banks do. The banks historically (pre-1995 or so) haven't given money to anyone with a pulse. I think it's reasonable for someone young and naive to trust the opinion of a banker of how much house they could afford. This would have been a safe assumption before about 1995.

What excuse do the banks have? They just wanted to get more money. They knew the risks, or should have known, anyway. They make it their business to study that kind of thing.

The individual shouldn't get bailed out, because bailouts only encourage more stupidity. That's the "moral hazard" everyone keeps going on about. That goes for the banks and financials too, times about 100, because it was their business to know better.

[Robin in Tx]

Thank you for quoting that, because that is what I have been led to understand - the mark to market law is the problem here and all they really need to do is get rid of it.

I didn't mention this because I didn't think I could explain it very well and I doubted very many here knew what it was. Yes, this is the crux of the issue. But as long as we have mark to market, we've got frozen balance sheets and crippled businesses.

Thanks again.

[hsmamainva]

A hyperinflationary depression would be worse than the Great Depression. At least in the Great Depression, if your bank didn't fail (I know, big if) you still had savings. In a hyperinflationary scenario, the purchasing power of everyone's savings is eroded.

I've read that you should translate "liquidity" as "inflation" when listening to these guys talk. The problem with the financials isn't liquidity, it's solvency. The government really doesn't have the money to bail these guys out. We already didn't have money before this crisis began. The baby boomers are starting to retire this year and Medicare gets more expensive every year. No one is talking about raising taxes enough to pay for these bailouts. So that means that we'll print money, which means inflation. Every holder and earner of dollars (both in our country and abroad)--not just taxpayers--is going to pay for this through inflation. Savers are going to suffer the most.

The problem was going into too much debt for consumption. There's no easy answer from here on out. We can either stop and dig ourselves out now, or we can postpone the day of reckoning and keep digging.

Impressive post!!! :iagree:

[Robin in Tx]

What makes you think we are going to have to print money? Are you assuming the assets will not perform?

[Sara R]

What makes you think we are going to have to print money? Are you assuming the assets will not perform?

If the assets were performing, then why would the government have to step in? If these are such great assets, the private sector would have bought them.

[Momto4kids]

I read this a little while ago on Dave Ramsey's site...throwing it out here for your consideration (it's long):

Remember Enron, WorldCom, Adelphia, and other companies had artificially put assets on the books? They'd say something was worth $10M when they bought it, but eventually it decreased in value, and they never updated the value in the books. That was part of the fraud. Under current laws at that time, they were all convicted and put in jail for fraud.

http://www.daveramsey.com/media/image/general/us_treasury_check.jpg (http://banking.senate.gov/public/index.cfm?FuseAction=Contact.Form) Then we got all mad and made all these new laws that are coming out the wazoo called Sarbanes-Oxley. It's a huge, massive law but the idea is that we were going to mandate ethics to corporate America because apparently they didn't have any, according to the Enron failure. It's now a total pain in the butt to execute it in a publicly traded company.
It didn't work because you can't cause ethics to happen. However, it does make each company each day restate what their assets are worth if sold on the market. This accounting procedure is mark to market accounting--you need to remember that. It's a good concept and keeps companies from having loaded balance sheets.
How This Affects Us Today

However, it's part of what's caused this in the news now. Merrill Lynch was sitting with $30 billion tied up in sub-prime loans with houses. Stupid! They get what they deserve for doing that, and I'm with you on that. Those houses didn't become worthless all of a sudden because those people couldn't sell their bonds. Since they couldn't sell them, they basically gave them away for 22 cents on the dollar. Now do you think all those houses lost 80% of their value underneath that deal? No, they didn't, so they gave them away for 22 cents on the dollar (about $6 billion total) because there was no market for them. Nobody wants to buy sub-prime bonds because they suck. They're junk bonds. But at 22 cents on the dollar, it's a bargain because even if you foreclosed on every one of the houses in there, you'd probably get $20 billion back out of $30 billion, and so the company that bought those for $6 billion got a deal! But there's no market for them. That's where these companies are stuck. They can't sell this stuff, but accounting-wise, they've had to mark it down to market and it's frozen the marketplace.
Economist Wesbury is saying that if we change that one rule and don't force them to mark down to market value and just let them hold on to all the stuff, and say just on sub-primes for this period of time you can change that rule -- a temporary change -- that'll free the market up. It's seized right now; it's frozen. This will thaw it out and get it going again. He says that'll solve 60% of the problem ... and I think he's right.
That one accounting rule is what made Merrill Lynch sell out. That one accounting rule is what's driving other ones into the dirt. Would you rather let them change their accounting rule or loan them $700 billion for us to buyout their bad paper?
I'd rather them work their own crap out than have us bail them out with $700 billion of our tax dollars.
I don't like giving them any money or any help with my tax dollars. But I'd rather see that than see the whole thing turn completely upside down in a fruit basket turnover than have a whole meltdown or something and freak out here in the middle of the election season. Why don't we just take the FHA insurance program and extend it across these sub-primes? What that means is that you and I are guaranteeing the lender that they're not going to lose as much or any money on those mortgages. Now I don't like guaranteeing them, but I like it better than buying them. In other words, instead of $700 billion in tax-payer debt going out there to bail out these companies, just extend the insurance out. You could probably do that for less than $40 billion. It's like a 95% savings!
If the government insured those mortgages, they would then be marketable. And could sell them. And the companies would stay afloat. And we, the people, don't have to get into the mortgage business. Now we're going to get in there a little bit because of the insurance on those getting foreclosed on. But foreclosures aren't causing this. This is being caused because these companies are frozen and seized up. We've got to let some of the steam come off and put some oil in there to get this thing moving again. We can do that without going into debt $700 billion.
Here's Your Plan

Call your Congressman. Call your Senator. Tell them to change the mark-to-market accounting law and to extend insurance but extend no loans. If they extend loans - if they borrow the money on the national debt in order for us to all go into the mortgage business a trillion dollars - you're going to fire their butts and send them home.
I've talked with several people today, and it's on the tables in Washington, but it's not something you're going to see on TV. If you'll let your Congressmen know you know about this and that you'll vote against them if they don't vote to change the mark-to-market law and you'll contribute your money to make sure they never serve in office again. That's what you need to tell them early and often (http://banking.senate.gov/public/index.cfm?FuseAction=Contact.Form).
If you're pissed, this is the time to step up and do something about it, America! You can stop this! It's being railroaded down your throat, but you can stop them if you call them in mass starting now. READY ... SET ... GO!

Contact:


Your representative (https://forms.house.gov/wyr/welcome.shtml)
Your senators (http://www.senate.gov/general/contact_information/senators_cfm.cfm)
Senate committee (http://banking.senate.gov/public/index.cfm?FuseAction=Contact.Form)





Could you link this please? Thanks!

[Robin in Tx]

I tell you what, the prices on those assets are such great bargains I *wish* I had the money to buy some of them myself.

The assets will either perform or get foreclosed on. It takes time to do that and mark to market forces the banks to write down these assets which reduces their lending power. It really is about liquidity. The govt stands to make a lot of money off those assets.

[Confuzzled]

Could you link this please? Thanks!

I'm not the original poster of the article but I just read it myself it still have it in my browser.

http://www.daveramsey.com/etc/fed_bailout/economic_cleanup_10887.htmlc

[Sara R]

That was the first part of the problem, that started in the late 1990s. The problem got worse with the artificially low interest rates Greenspan put in after 9/11, to prevent that recession from being as bad as it should have been. That led to blowing up of the housing bubble. We are paying the price now for avoiding that recession then.

Low interest rates from Greenspan led to banks making assumptions that housing prices wouldn't go down. Little by little banks reduced lending standards, and--surprise--they still made money because if someone couldn't make a mortgage payment, they could just sell the house for the higher, appreciated value. This led to banks assuming that subprime wasn't all that bad because they were getting higher interest rates and default rates weren't very high (because prices were going up--but they didn't realize that was why). When one bank started "creative financing" the other banks felt like they had to start offering the same thing, or else the other banks would take their market share.

[TaraTheLiberator]

What is the number of this bill? I have been looking online for 20 minutes and I can't find the number.

Tara

[Virginia Dawn]

Our representative (D) voted no. He is up for re-election but that is misleading. He has not had anyone run against him in at least 10 years and has no one running against him now.

He sent out a letter stating his position and the fact that his constituents were overwhelmingly against the plan.

Dh and I just got through watching a video interview with Ron Paul after the vote on campaignforliberty.com

What got me is that he says the Federal Reserve has already been pumping billions of dollars into Wall Street in the last few days. Not only that but that there were already ways to do what congress is being asked to approve without all the hoopla. That is confusing to me.

What is also confusing is that plenty of very smart people, a great many of them well respected economists, are saying this whole package isn't even necessary. There are cheaper and easier ways to handle this crisis. I'm with those that smell a skunk even if we can't see it. Sooner or later it should come to light.

Personally, I think the handwriting is on the wall. We're going down, and there is not much we can do to stop it.
It's happened plenty of times to other nations as well, collapse and then rebuilding on the ashes.

I wonder what our country will be like 10 years from now. Things are not really that bad now, comparatively speaking. Maybe it won't get as bad as the depression. Our standard of living is so high now that even if it fell dramatically, we may still be better off than people were in the 30's. Goodness, our family now has much more than either dh or I had when we were growing up in the 60's and 70's.

[Spy Car]

Over a trillion dollars in (paper) value were lost on Wall St today.

In one day :001_huh:

[Paula in MS]

I feel like this was a good decision. You can only manipulate the economy for so long. Our economy is cyclical; it has its ups and downs. It can't grow indefinitely without a downturn of some type. The economy will suffer and then recover much stronger and with many lessons learned along the way. It will be tough for those individuals who are affected in a big way, but voting against the bailout was the right thing to do.

Paula

[LizzyBee]

What makes you think we are going to have to print money? Are you assuming the assets will not perform?

FWIW, in a tax update I received at work today, the assets were described as "virtually worthless."

[Mama Lynx]

My congressman voted for it.

Guess what? That clears up that race for me, come November.

Ugh, ugh, ugh. No one is running against him. :glare:

[Spy Car]

What is also confusing is that plenty of very smart people, a great many of them well respected economists, are saying this whole package isn't even necessary. There are cheaper and easier ways to handle this crisis.

Can you point to one single mainstream respected economist who feels this bailout isn't necessary?

I don't know of any, and I do know the overwhelming consensus of respected economists is strongly in favor of the bailout.


Personally, I think the handwriting is on the wall. We're going down, and there is not much we can do to stop it.
It's happened plenty of times to other nations as well, collapse and then rebuilding on the ashes.

It does not have to be that way. We don't need to have a total crash. If we act wisely the worst can be avoided.


I wonder what our country will be like 10 years from now. Things are not really that bad now, comparatively speaking. Maybe it won't get as bad as the depression. Our standard of living is so high now that even if it fell dramatically, we may still be better off than people were in the 30's. Goodness, our family now has much more than either dh or I had when we were growing up in the 60's and 70's.

The question is could you (or any of us) is how long can we hold on to our homes and feed our families if we have no work, or our businesses fail, if the value of our investments evaporate.

Being homeless, hungry and desperate in the 21st Century would be just as devastating now as it was in the 1930's if we have a systemic failure. This is not a condition to be viewed "romantically" nor one to be underestimated.

Bill

[Audrey]

I don't agree in governments buying out the private sector. That's socialism.


Some socialists wouldn't agree with govt. bailing out private sector businesses either. They might say let the capitalist pigs sink on their own. ;)

[Spy Car]

I feel like this was a good decision. You can only manipulate the economy for so long. Our economy is cyclical; it has its ups and downs. It can't grow indefinitely without a downturn of some type. The economy will suffer and then recover much stronger and with many lessons learned along the way. It will be tough for those individuals who are affected in a big way, but voting against the bailout was the right thing to do.

Paula

With all due respect there is a big difference between an economic "cycle" and an economic "meltdown". The former can be allowed to self-correct, the latter has such devastating consequence that the market (without intervention) is incapable of self-correction. This is not a simple "downturn" and we will all be affected in a huge way if something isn't done.

[kokotg]

Can you point to one single mainstream respected economist who feels this bailout isn't necessary?

I don't know of any, and I do know the overwhelming consensus of respected economists is strongly in favor of the bailout.



I don't know of any who are saying nothing should be done at all, but it looks to me like plenty of economists are not fans of the bailout as proposed and think an alternative plan would work better. Really, the only argument I've seen FOR this particular plan is that it's already there, so it's faster to go with this one than to come up with an alternative and try to get support for it (this seems to be Krugman's take on it: http://krugman.blogs.nytimes.com/2008/09/29/bailout-questions-answered/). But now, maybe not so much.

[Amy loves Bud]

"Bold action" yes, "the bailout", not necessarily (http://faculty.chicagogsb.edu/john.cochrane/research/Papers/mortgage_protest.htm)

I know that this is a few days old and based on an earlier draft of the plan, but I think it demonstrates that many mainstream economists are not okay with even the most current plan, based on the three objections they stated.

[Sara R]

This is not a simple "downturn" and we will all be affected in a huge way if something isn't done.

You're right--it's a big problem. But government can't solve this. If the government had piles of spare cash lying around, then maybe they could solve it. Where is the money coming from? As far as I understand, it comes from inflation. I'd rather relive the Great Depression than become Zimbabwe or the Weimar Republic.

The time to prevent the problem should have been 7 years ago, when the housing bubble was inflating. We've gone through a 7-year supposedly prosperous time that was actually financed by debt. You don't fix for that by going into more debt.

[Kathleen in VA]

I was listening to a press conference (or something like it) of the House Republicans earlier this evening and one of them (sorry, can't remember who) said that Chris Cox, chairman of the SEC, could change the rule about "mark to market value" with the "stroke of a pen" and this whole bailout thing being called for wouldn't be needed. He then went on to challenge Mr. Cox to carry out the deed immediately. Then, later on, Greta Susteren interviewed Steve Forbes and he said the exact same thing. Why doesn't Mr. Cox do this if it is that simple??? Seems like it would save a lot of people a whole lot of trouble.

[Parrothead]

There are cheaper and easier ways to handle this crisis. I'm with those that smell a skunk even if we can't see it. Sooner or later it should come to light.
I've been wondering for the last few days which politicians pushing this stand to loose the most if the bailout doesn't pass or possibly gain the most if it does pass.

I'm glad the current bill didn't pass. I'm looking forward to seeing what they come up with next.

[Laura in VA]

I've been wondering for the last few days which politicians pushing this stand to loose the most if the bailout doesn't pass or possibly gain the most if it does pass.

I'm glad the current bill didn't pass. I'm looking forward to seeing what they come up with next.

Does anyone know when they will go back to work? It bothers me that they've left with things the way they are. I know it's due to the Rosh Hashanah holiday, but I wish they would have stayed to work on some alternatives. And, before anyone asks, I would feel that way if it was Christmas or Easter. ;)

[Sara R]

change the rule about "mark to market value" with the "stroke of a pen" and this whole bailout thing being called for wouldn't be needed.

Again, I hope someone who knows more will fill in the details--

The "mark to market" rule means that if asset prices fall, the way house prices have, the banks' balance sheet has to reflect the new price. This way they can't pretend that they have a healthy balance sheet because they list an inflated house value. If they changed the mark to market rule, then they could keep pretending that there isn't a problem, which would postpone the bailout for a little while, but couldn't really solve the problem. Unless you believe that house prices are going to magically go up very soon--but I don't see any logical reason that would happen.

[Parrothead]

Does anyone know when they will go back to work? It bothers me that they've left with things the way they are. I know it's due to the Rosh Hashanah holiday, but I wish they would have stayed to work on some alternatives. And, before anyone asks, I would feel that way if it was Christmas or Easter. ;)

I read the earliest that any thing new could pass was Thursday. So they should be back to work soon,

[Spy Car]

"Bold action" yes, "the bailout", not necessarily (http://faculty.chicagogsb.edu/john.cochrane/research/Papers/mortgage_protest.htm)

I know that this is a few days old and based on an earlier draft of the plan, but I think it demonstrates that many mainstream economists are not okay with even the most current plan, based on the three objections they stated.

These economists were (are) asking for clarifications and modifications to the original Paulson plan (which I would agree with) and many of which were incorporated in today's compromise plan.

But these same economists did add:

"We are well aware of the difficulty of the current financial situation and we agree with the need for bold action to ensure that the financial system continues to function."

If the economic system is allowed to collapse by, for example, treating this as a "typical" downturn, we will all suffer.

[Aggie]

I've been wondering for the last few days which politicians pushing this stand to loose the most if the bailout doesn't pass or possibly gain the most if it does pass.

This is what I wish the media would research and report. Not that I don't trust those life-long politicians.:glare:

And I may have missed it, but why haven't the major news channels outlined how this has all come to be and how we can prevent it 'next time'? (We don't have cable and I don't get to watch the news every night, so I may have missed it, really.)

Aggie

[Alana in Canada]

I have been reading this thread off and on all day and I just wanted to say thank you. I've learned a great deal about this issue and I'm overwhelmingly impressed with the civility of the discussion.

I am terribly afraid that in ten years we may not be sitting at our computers discussing anything with each other.

We found out today we need to buy a new furnace. Fortunately, there are such things still available.

But with a massive loss such as this in the money supply, there may very well not be too many available in the future. (Already, there are only two retailers which carry "energystar rated" furnaces in our city of 3/4 million. One of them was recently bought out by an American retail company).

I don't have an opinion about the "bailout" --(I don't know enough about it and as a Canadian I have no say) but we, too, will be affected by this.

[Spy Car]

You're right--it's a big problem. But government can't solve this. If the government had piles of spare cash lying around, then maybe they could solve it. Where is the money coming from? As far as I understand, it comes from inflation. I'd rather relive the Great Depression than become Zimbabwe or the Weimar Republic.

Except remember the Weimar Republic (pre-Nazi Germany in the period between the World Wars) suffered from both the world-wide Great Depression and hyper-inflation. While the US didn't suffer hyper-inflation during our Depression the economic maladies are not mutually exclusive.

I'm not without inflation fears. Especially as I'm well aware that the easiest way (in short term thinking) to pay off foreign debts (read China) is to inflate currency and pay-off with "cheap" money. Inflation fears are warranted.


The time to prevent the problem should have been 7 years ago, when the housing bubble was inflating. We've gone through a 7-year supposedly prosperous time that was actually financed by debt. You don't fix for that by going into more debt.

I agree this should have been fixed years ago. That things have gotten to this point is a scandal. But we are where we are, and making sure the system doesn't seize is imperative.

[Amy loves Bud]

These economists were (are) asking for clarifications and modifications to the original Paulson plan (which I would agree with) and many of which were incorporated in today's compromise plan.

But these same economists did add:

"We are well aware of the difficulty of the current financial situation and we agree with the need for bold action to ensure that the financial system continues to function."

If the economic system is allowed to collapse by, for example, treating this as a "typical" downturn, we will all suffer.

That's why I labeled it "bold action" yes, "this bailout," no. You asked for one economist who opposed "this bailout." There are lots of ways to take bold action without a 700 billion dollar bailout.

For example, The Marginal Revolution (http://www.marginalrevolution.com/)throws out a few ideas that are bold, but much smaller in magnitude than the hunormous bailout we've been discussing.

I'm going to bed. Thanks for making me think, Bill and everyone. I'm learning a lot and having to dig in, which is good, even if it is stressing me out in this case! Have a good night!

[Jane in NC]

I was listening to a press conference (or something like it) of the House Republicans earlier this evening and one of them (sorry, can't remember who) said that Chris Cox, chairman of the SEC, could change the rule about "mark to market value" with the "stroke of a pen" and this whole bailout thing being called for wouldn't be needed. He then went on to challenge Mr. Cox to carry out the deed immediately. Then, later on, Greta Susteren interviewed Steve Forbes and he said the exact same thing. Why doesn't Mr. Cox do this if it is that simple??? Seems like it would save a lot of people a whole lot of trouble.

How does an accounting maneuver circumvent potential economic meltdown? Could someone please educate me? :confused:

Jane (who is wondering if such a simple solution exists why was this not discussed by the Fed last week)

[Virginia Dawn]

Google "economists against bailout"

I don't have time to research each of this sites and individual economists. Just skimming the first page it will be obvious that there are thousands of economists, some described as well respected, who do not want this particular plan.

Whether or not they are "mainstream" I don't know. Right now I would question whether we really want the opinion of a mainstream economist.

I have no "romantic" views of the depression. I was just musing about how bad it may or may not get, in relation to circumstances now, considering my husband used to eat cold oatmeal or baked beans when he got home from school as a child. That was in the 70's.

[Robin in Tx]

Right now that's what they're being marked down as... but in a stabilized economy there will be value. When they are written down to practically nothing, they have nowhere to go but up.

[Sara R]

Right now that's what they're being marked down as... but in a stabilized economy there will be value. When they are written down to practically nothing, they have nowhere to go but up.

Homes aren't marked down to "practically nothing" yet. They are only down to 2003 or 2004 price levels. This bubble inflated much higher than previous bubbles, so it has a lot farther to fall to get to 1998 levels. And usually these kinds of bubbles overshoot the bottom, and go a little below.

In order for prices to rise again, you have to have a lot of people be in good economic circumstances who can afford the prices with traditional loan standards (20% down, amortizing loan). We have to clear the inventory. There are a lot of people renting homes out because they can't sell them. The option payment ARMs don't reset till 2009-2011, which will likely lead to another wave of foreclosures. We have a long way until we reach bottom.

[Robin in Tx]

Homes aren't marked down to "practically nothing" yet.

No, but the value of sub-prime *loans* are marked down to practically nothing. That's where the bargain is - buy the loan for pennies on the dollar.

[Paula in MS]

With all due respect there is a big difference between an economic "cycle" and an economic "meltdown". The former can be allowed to self-correct, the latter has such devastating consequence that the market (without intervention) is incapable of self-correction. This is not a simple "downturn" and we will all be affected in a huge way if something isn't done.


But isn't it possible that at least some of this crisis is due to the fact that we continue to manipulate the market to avoid downturns. The downturns are catching up with us. We have kept interest rates fairly low for many years, why not allow them to rise? People will borrow less; bad loans will be written off. Some things will be cleaned up, and the economy will stabilize again. ( I know that this is too little, too late at this point.)

I'm not saying that there won't be devastating consequences, but I just feel like this bailout won't solve the problem. I feel like the bailout will bring its own set of economic problems that may be just as bad. We are trading one problem for another. There has got to be a better way.

I was an economic major in college. I sure wish I had kept my books. :D

Paula

[Bev in B'ville]

I posted this earlier on it's own thread, but that thread has fallen by the wayside.

I am really interested in feedback on this alternative plan. Take a look, it's only 1-1/2 pages (the summary) here (http://www.house.gov/hensarling/rsc/doc/rsc_version_economic_rescue_alternative_9-29-08.pdf).

And, if you're so inclined and agree in principle with what is laid out in this plan, perhaps you could contact your representative?

[Kathleen in VA]

I posted this earlier on it's own thread, but that thread has fallen by the wayside.

I am really interested in feedback on this alternative plan. Take a look, it's only 1-1/2 pages (the summary) here (http://www.house.gov/hensarling/rsc/doc/rsc_version_economic_rescue_alternative_9-29-08.pdf).

And, if you're so inclined and agree in principle with what is laid out in this plan, perhaps you could contact your representative?

It looks good and includes that "mark to market value" thingy I heard about and posted about earlier. That seems hopeful. I am trying to get through on my Congressman's website but it is slow going - I'm guessing I'm not the only one.:) Thanks for posting (and reposting) this link.

[Sis]

I was listening to a press conference (or something like it) of the House Republicans earlier this evening and one of them (sorry, can't remember who) said that Chris Cox, chairman of the SEC, could change the rule about "mark to market value" with the "stroke of a pen" and this whole bailout thing being called for wouldn't be needed. He then went on to challenge Mr. Cox to carry out the deed immediately. Then, later on, Greta Susteren interviewed Steve Forbes and he said the exact same thing. Why doesn't Mr. Cox do this if it is that simple??? Seems like it would save a lot of people a whole lot of trouble.


Mark to market is what resulted in ENRON. Just because it results in a lot of fast trading doesn't mean it would be a good idea.

The rule helps prevent accounting fraud.


I am not a economist though so I don't understand all the details.

[Demal]

I am really interested in feedback on this alternative plan.

My feedback: this plan is insane.

The Financial Times on the insurance component:


There are some serious drawbacks. To be self-financing it would require massive transfers of capital across the financial sector – otherwise the taxpayer would end up picking up the bill.

The goal – to restore troubled mortgage-backed securities to their full par value – is far more ambitious than the Paulson plan. It implies offsetting the full financial effect of the biggest US housing crash in history. But someone would still have to pay for the cash losses. This would be the better-managed financial institutions with less exposure to these assets than the others.

The plan would create enormous moral hazard. It would arguably constitute more intrusive intervention than the Paulson plan.

It would also imply the liquidity constrained sector – the banks – at first transferring liquidity to the only sector that is not liquidity constrained – the government. That could initially worsen rather than ease liquidity conditions in the market.


http://www.ft.com/cms/s/0/7dd752a6-8c1e-11dd-8a4c-0000779fd18c,dwp_uuid=11f94e6e-7e94-11dd-b1af-000077b07658.html?nclick_check=1 (bolding mine)

New York Times summary: http://economix.blogs.nytimes.com/2008/09/28/the-house-republicans-alternative-rescue-plan/

[Robin in Tx]

How does an accounting maneuver circumvent potential economic meltdown? Could someone please educate me? :confused:

Jane (who is wondering if such a simple solution exists why was this not discussed by the Fed last week)

A company usually puts assets on their books at book value. Mark to market requires that they adjust the value of the asset to reflect current market value.

Banks are required to maintain a certain margin of liquidity in order to protect their depositors. The amount of money that a bank owes its investors and depositors has to be offset by assets with enough value that they can be liquidated and satisfy those obligations. This is often referred to as their reserve.

Right now, because of the real estate problem, mortgage backed securities have a market value of about 10% of their original book value. No one wants to touch them. And, despite what is being said elsewhere in this thread, the value of the homes/collateral is NOT what appears on the bank's balance sheet. The homes are NOT the asset - the LOANS are the asset. Right now, the market value of the LOANS (you've heard of financial institutions selling loans to investors, etc.), is *less* than the value of the homes that are collateral. We're talking the market value of the actual loan (how much a bank or investor will pay to buy that loan from the bank). We're not talking about the loan balance or the value of the collateral.

Mark to market accounting laws force the banks to report the market value of those assets (the loans) - many have been written down to basically nothing. All of the sudden, banks don't have the assets that they once had. All of the sudden, total assets are way down in relationship to their liabilities. Cash and the other assets that the bank holds are now frozen because they are earmarked for required liquidity margins. And some banks don't have enough other assets to cover the required market mark down of their real estate portfolio - these are the banks that fail. The end result is that these banks can no longer make loans because they can't free up other assets to make funds available to borrowers - those assets have been moved to their reserve because asset depreciation depleted their reserves. That's what they mean by their balance sheet being frozen.

If mark to market were relaxed, the banks would be able to carry their real estate portfolios on their balance sheet at something closer to book value. The good thing about mark to market is it can and does prevent fraud (you can't overstate the value of your assets). The bad thing is that in times like this (liquidity crisis, and instability due to panic - yes, panic), it tends to exaggerate the bad news. Everyone knows that the value of these mortgage backed securities is much more than 10% of their original value. Only 20% of homes are in foreclosure, and each of them are collateralized by real estate that is worth a lot more than 10% of the loan balance. The devaluation of these mortgages is exaggerated and temporary.

Robin

P.S. Many don't want to get rid of mark to market completely because they believe it prevents fraud. So there is a legitimate argument there. The package that was voted against yesterday gave the SEC the authority to suspend mark to market when immediately necessary.

[Jane in NC]

A company usually puts assets on their books at book value. Mark to market requires that they adjust the value of the asset to reflect current market value.


(wonderful explanation snipped)


So...According to Kathleen in VA's post, this rule change would completely eliminate the need for a bailout (at least according to Steve Forbes). I do see how this could free up some liquidity--but does it solve the problem?

Those weird credit default swaps and other derivatives continue to haunt me. How would this accounting change have altered the picture for AIG?

Thanks to Robin for being my financial guru.

Jane

[kokotg]

A company usually puts assets on their books at book value. Mark to market requires that they adjust the value of the asset to reflect current market value.



Okay. And that IS exactly what happened with Enron, yes?

[Renee in FL]

So...According to Kathleen in VA's post, this rule change would completely eliminate the need for a bailout (at least according to Steve Forbes). I do see how this could free up some liquidity--but does it solve the problem?

Those weird credit default swaps and other derivatives continue to haunt me. How would this accounting change have altered the picture for AIG?

Thanks to Robin for being my financial guru.

Jane

I don't think it will end all of the problems, but it would possibly cause a much lower need. There needs to be some markdown, though, because many of these mortgages *will* be defaulted on.

[Robin in Tx]

If I understand correctly, the only reason for a bail out is to free up the credit market. If the current problems were not effecting the availability of credit, the govt wouldn't be trying to come up with a rescue plan.

It doesn't solve the problems and causes of the sub prime fall out, but it keeps the fall out from destroying the availability of credit. So, in a way, it's not aimed at solving the problem, but containing the damage.

P.S. How would it have helped AIG? I don't know that it would have... don't know as much about AIG except that the reason why the govt stepped in and gave them a two year loan is because they couldn't get financing from any banks, and the govt did this to avoid their going into bankruptcy.

[Robin in Tx]

Okay. And that IS exactly what happened with Enron, yes?

Yes. Since there is no definitive way of quoting or valuing long term commodities such as gas, Enron used unprecedented methods for calculating market value of their assets which were, in their case, fraudulently overstated.

For the most part, though, mark to market is considered a protection from fraud.

It seems that most economists think it should be eliminated. Some are not so sure. The bill yesterday would have relaxed the law, or at least given the SEC some flexibility.

[Kathleen in VA]

Yes. Since there is no definitive way of quoting or valuing long term commodities such as gas, Enron used unprecedented methods for calculating market value of their assets which were, in their case, fraudulently overstated.

For the most part, though, mark to market is considered a protection from fraud.

It seems that most economists think it should be eliminated. Some are not so sure. The bill yesterday would have relaxed the law, or at least given the SEC some flexibility.

Thanks, Robin, for all this great info - I'm reading this all out loud to Dd15 (she's the only one old enough to understand who is home right now) and we are both learning a lot.

So, my question is, does Chris Cox, Chairman of the SEC, have the authority to relax those mark to market rules himself without the approval of Congress? If he can, should he? Could he do it as a temporary measure until things settle down?

[Robin in Tx]

Thanks, Robin, for all this great info - I'm reading this all out loud to Dd15 (she's the only one old enough to understand who is home right now) and we are both learning a lot.

So, my question is, does Chris Cox, Chairman of the SEC, have the authority to relax those mark to market rules himself without the approval of Congress? If he can, should he? Could he do it as a temporary measure until things settle down?

First, something that hasn't been mentioned here is that mark to market post Enron is different than pre Enron. Mark to market may not be new, but the way it has been enacted since Enron is. As a matter of fact, I think that specifically what we are talking about here is only a year old or less. We're just now feeling the fall out.

Actually, I don't understand why Cox can't just suspend the accounting practice. It's not law, I don't think... it's just an SEC audit rule. Can Congress make him do it? I don't know. That's a good question. I really don't have a clue. I get the sense that he is not comfortable with the idea, and you know... there are plenty out there who don't believe this will help, and may even hurt. The problem with it is it is so new, less than a year old.

I wonder if anyone has any quotes from Cox on this topic? I read somewhere that he evaded this question from Congress...

[MgoBlue]

I don't know how congress voted, but if I dig deep in the gray matter...isn't there a congressional record somewhere...and something else for the house?
You could probably google it but it's lots of wading thru stuff...have to be a good google person.

My dh found this link that was interesting..I'm for no bailout myself here..in the minority I'm sure. And it probably will happen.

http://www.cnn.com/2008/POLITICS/09/29/miron.bailout/index.html

[K&Rs Mom]

If I understand correctly, the only reason for a bail out is to free up the credit market. If the current problems were not effecting the availability of credit, the govt wouldn't be trying to come up with a rescue plan.

It doesn't solve the problems and causes of the sub prime fall out, but it keeps the fall out from destroying the availability of credit. So, in a way, it's not aimed at solving the problem, but containing the damage.


Here's an unruly thought - so what if credit is not easily available? People would have to live within their incomes? Doesn't seem like a catastrophe. What am I missing?

[Spy Car]

I don't know how congress voted, but if I dig deep in the gray matter...isn't there a congressional record somewhere...and something else for the house?
You could probably google it but it's lots of wading thru stuff...have to be a good google person.

My dh found this link that was interesting..I'm for no bailout myself here..in the minority I'm sure. And it probably will happen.

http://www.cnn.com/2008/POLITICS/09/29/miron.bailout/index.html

Here is a list of how all the House members voted.

http://www.slate.com/blogs/blogs/trailhead/archive/2008/09/29/the-house-vote-roll-call.aspx

[fractalgal]

Our school for the afternoon - watching the vote on C-Span. It looks like it has failed for now. 227-206.

It is good that it did not pass. You will notice Congress living up to it's 10% approval rating by the fact that it was seriously considered in the first place.

Here is a letter from several economists pertaining to the failed bill:

http://faculty.chicagogsb.edu/john.cochrane/research/Papers/mortgage_protest.htm

[Spy Car]

It is good that it did not pass. You will notice Congress living up to it's 10% approval rating by the fact that it was seriously considered in the first place.

Here is a letter from several economists pertaining to the failed bill:

http://faculty.chicagogsb.edu/john.cochrane/research/Papers/mortgage_protest.htm

This petition does not pertain to the failed bill. It pertains to the original Paulson plan, which they asked to be reviewed and revised to meet their concerns (which they enumerate). They also make the following point (which was already addressed earlier in this thread):

"We are well aware of the difficulty of the current financial situation and we agree with the need for bold action to ensure that the financial system continues to function".

[Amy loves Bud]

This petition does not pertain to the failed bill. It pertains to the original Paulson plan, which they asked to be reviewed and revised to meet their concerns (which they enumerate). They also make the following point (which was already addressed earlier in this thread):

"We are well aware of the difficulty of the current financial situation and we agree with the need for bold action to ensure that the financial system continues to function".


Bill,

I'm curious if you think those three concerns were addressed.

Also, I note that the original date was 9/24, but he signatories were updated 9/27, the night before the vote. I'm not sure exactly what that means, but to my way of thinking the signatories were standing by their objections as of Sunday night.

As I mentioned in my previous post, I don't see how "bold" is limited to a 700 billion dollar bailout. Isn't there anything on the continuum between "nothing" and "$700billion bailout" that qualifies as bold?

[Parrothead]

Here's an unruly thought - so what if credit is not easily available? People would have to live within their incomes? Doesn't seem like a catastrophe. What am I missing?

It isn't people in general that this is about. It is about banks not being able to lend money. I don't understand it all but I think it boils down like this:

mortgages default
banks loose money
many more mortgages default
banks loose lots of money
banks can't lend money to other banks
banks can't lend money to companies that use lines of credit to make payroll
payroll isn't made people are out of a job.
more people out of jobs the more mortgages that are defaulted on
Repeat cycle

[Sara R]

I just found these quotes (http://calculatedrisk.blogspot.com/2008/09/mark-to-market-quotes.html) about the Mark-to-Market rule:

"Suspending mark-to-market accounting, in essence, suspends reality."
Beth Brooke, global vice chair at Ernst & Young LLP, WSJ, Sept 30, 2008

"Blaming fair-value accounting for the credit crisis is a lot like going to a doctor for a diagnosis and then blaming him for telling you that you are sick."
analyst Dane Mott, JPMorgan Chase & Co., Bloomberg

"Suspending the mark-to-market prices is the most irresponsible thing to do. Accounting does not make corporate earnings or balance sheets more volatile. Accounting just increases the transparency of volatility in earnings."
Diane Garnick, Invesco Ltd., Bloomberg

[Sara R]

Here's an unruly thought - so what if credit is not easily available? People would have to live within their incomes? Doesn't seem like a catastrophe. What am I missing?

Also, businesses use credit to put in inventory. I was reading that the credit crunch was one reason why gasoline inventories were low before the hurricanes hit, leading to the shortages in the South. Because of the higher price of gas, that makes the inventory more expensive, and they use credit to pay for the inventory until people pay for it at the pump.

[fractalgal]

Bill,

I'm curious if you think those three concerns were addressed.

Also, I note that the original date was 9/24, but he signatories were updated 9/27, the night before the vote. I'm not sure exactly what that means, but to my way of thinking the signatories were standing by their objections as of Sunday night.

As I mentioned in my previous post, I don't see how "bold" is limited to a 700 billion dollar bailout. Isn't there anything on the continuum between "nothing" and "$700billion bailout" that qualifies as bold?

You are correct, they did not address the three concerns in a satisfactory way.

[Robin in Tx]

With time and google, I can find just as many quotes, or more, that say the opposite.

Let's take a subprime loan that originated at $90,000. At the time, the house was worth $95,000 and the borrower put down $5,000. Let's assume that the market has reduced the value of the home by 15%, down to about $80,000. Let's also assume that the borrower is not in default (the majoritiy of subprime loans are NOT in default, but they are packaged together with the ones that are, so they are caught up in the same securities market). This is a borrower who wants to stay in the house and is willing to ride it out until home values come back up.

Forcing a bank to write down a $90,000 loan that is not delinquent to a value of only $15,00 when, again, it is not delinquent and the collateral for the loan is worth $75-80,000 on the market is plain ridiculous. This is an instance where mark to market accounting exaggerates reality. Saying that that loan is should be valued at $15,000 is NOT reality.

Even if the borrower was in default, writing the value of the loan below $50-60,000 is not realistic.

This is the problem - the subprime securities are worthless on the financial market right now, but that doesn't mean that they are really as worthless as the current securities market treats them (which is panic driven).

[fractalgal]

This is the problem - the subprime securities are worthless on the financial market right now, but that doesn't mean that they are really as worthless as the current securities market treats them (which is panic driven).

Then let private companies or individual Americans buy them and when the market rebounds (which it will) Americans will profit, not the Government.

[lovemyboys]

I've been wondering for the last few days which politicians pushing this stand to loose the most if the bailout doesn't pass or possibly gain the most if it does pass.

I'm glad the current bill didn't pass. I'm looking forward to seeing what they come up with next.

Last night, one of the incumbent Democrats was on CNN (?) and said that they (Dems) had to bring 120 votes (I think) and the Rep. had to bring xx number. Dh and I realized that those numbers (at least for his party) were the members who are in "safe" seats for the upcoming elections. They can vote on the bailout and not worry about a backlash during the reelection if their constituents don't agree with it.

So, they don't want to involve anyone in a risky district in the bailout vote. So much for putting the country and our kids' future first.:glare:

[fractalgal]

Last night, one of the incumbent Democrats was on CNN (?) and said that they (Dems) had to bring 120 votes (I think) and the Rep. had to bring xx number. Dh and I realized that those numbers (at least for his party) were the members who are in "safe" seats for the upcoming elections. They can vote on the bailout and not worry about a backlash during the reelection if their constituents don't agree with it.

So, they don't want to involve anyone in a risky district in the bailout vote. So much for putting the country and our kids' future first.:glare:

I don't think the American people will forget this decision any time soon. I doubt these people will be "safe" in several years.

I found this interesting article:

http://www.cnn.com/2008/POLITICS/10/01/paul.qanda/index.html

This man makes sense to me. He also doesn't change his views based on the latest poll.

[Renee in FL]

With time and google, I can find just as many quotes, or more, that say the opposite.

Let's take a subprime loan that originated at $90,000. At the time, the house was worth $95,000 and the borrower put down $5,000. Let's assume that the market has reduced the value of the home by 15%, down to about $80,000. Let's also assume that the borrower is not in default (the majoritiy of subprime loans are NOT in default, but they are packaged together with the ones that are, so they are caught up in the same securities market). This is a borrower who wants to stay in the house and is willing to ride it out until home values come back up.

Forcing a bank to write down a $90,000 loan that is not delinquent to a value of only $15,00 when, again, it is not delinquent and the collateral for the loan is worth $75-80,000 on the market is plain ridiculous. This is an instance where mark to market accounting exaggerates reality. Saying that that loan is should be valued at $15,000 is NOT reality.

Even if the borrower was in default, writing the value of the loan below $50-60,000 is not realistic.

This is the problem - the subprime securities are worthless on the financial market right now, but that doesn't mean that they are really as worthless as the current securities market treats them (which is panic driven).

To me it makes more sense to mark them down with one other factor - what % are likely to default (let's say 15% - I don't know what it is.) So, in your example:

The bank would mark down the loan to $75,000 (the value of the security) and then another 15% to $63,750. If they did that with *all* their loans (with different default percentages for prime and sub-prime) wouldn't that give an accurate picture?

The mortgage-backed security may not have much worth in the market, but the loan itself is worth more. Am I understanding you correctly?

[Renee in FL]

Then let private companies or individual Americans buy them and when the market rebounds (which it will) Americans will profit, not the Government.

I think the problem is that Americans *don't* want to buy them - either privately or through the government. The bailout bill will force the issue.

I thought through the option above, and I wonder what that will really solve? It doesn't free up any money, does it?

[fractalgal]

I think the problem is that Americans *don't* want to buy them - either privately or through the government. The bailout bill will force the issue.

I thought through the option above, and I wonder what that will really solve? It doesn't free up any money, does it?

Yes, right now they are worthless - probably most of them. If we are to believe that over time we will get a return from the government on them, then why not the same scenario but without the government.

Part of the reason the money is "frozen up" is because people are afraid to act because they think the government bailout is on the way so they want to wait and see what will happen.

[Robin in Tx]

To me it makes more sense to mark them down with one other factor - what % are likely to default (let's say 15% - I don't know what it is.) So, in your example:

The bank would mark down the loan to $75,000 (the value of the security) and then another 15% to $63,750. If they did that with *all* their loans (with different default percentages for prime and sub-prime) wouldn't that give an accurate picture?

The mortgage-backed security may not have much worth in the market, but the loan itself is worth more. Am I understanding you correctly?

Yes, you are understanding me correctly. Problem with these loans is there aren't on the books idividually, but as packages and I guess it's hard to price a package when there are so many, many loans at varying degrees of risk... surely they can come up wtih something, though.

In regards to comments elsewhere, it really doesn't make any sense at all to force these companies to sell off their assets at fire sale prices... not to the govt, not to individuals, nor to anyone else. The banks should be allowed to weather the process of realizing their actual loss throughout time. Nothing more, nothing less. That's my opinion.

I really don't understanding why anyone would object to these banks keeping the loans on THEIR books to deal with. Why use accounting methods to force them into either a bail out, or a sell out to private investors, or into failure? (oh, and guess who steps in and takes over when a bank fails - the govt... between Fannie Mae, Freddie Mac and FDIC, the govt is going to be one holding the bag in the end anyway). This is insane. Let them lie in the bed they made. The one they actually made. Not the bed as others decide to view it from day to day. I'm sure this is all coming to a head now because the write downs are quarterly, and sometime after July is when we get a peek at the 6/30 financials. That's when banks began to fail.

I wonder how much of the serious decline in manufacturing in August is tied to tight credit. anyone know?


ETA: Just read the article about Ford's sales dropping over 30% in September, and how they are expecting similar reports from other manufacturers. Here's a quote from the article - I'm beginning to wonder if people understand how critical the ripple effect of credit contraction really is...

"Dealers from many manufacturers have said their customers are having an increasingly hard time qualifying for loans to buy autos, as banks have restricted lending because of widespread mortgage defaults that led to disruptions in the financial markets and the collapse of several banks. Plus, several automakers' finance arms have limited or discontinued leasing."

This sort of things gets around to hurting all of us eventually. Hurting hard, too. Harder than the cost of the bail out, many would argue.

[Renee in FL]

Robin, I think the problem is that the government already (through the FDIC) insures the deposits at the banks. They already have a hand in it, so if they simply remove the mark to market rule and the bank fails because of bad debt (like WaMu), then the gov't is on the hook anyway, right? I saw the bailout as a way for the gov't to mitigate their damages by gaining more control.

(I have no idea if that is the right thing to do or not or whether it will work, but it is what it is.)

[Robin in Tx]

Robin, I think the problem is that the government already (through the FDIC) insures the deposits at the banks. They already have a hand in it, so if they simply remove the mark to market rule and the bank fails because of bad debt (like WaMu), then the gov't is on the hook anyway, right? I saw the bailout as a way for the gov't to mitigate their damages by gaining more control.

(I have no idea if that is the right thing to do or not or whether it will work, but it is what it is.)

Even the bail out gave a nod to lifting the mark to market rule for these particular types of assets. You are right... and there isn't going to be a JPMorgan to jump in and buy the assets of every bank that fails. All it would take is one or two more big banks to do that and FDIC reserves would be WIPED OUT. What would happen in this country if suddenly everyone's deposits were not covered by FDIC? Can you imagine the run on the banks?

[Renee in FL]

Even the bail out gave a nod to lifting the mark to market rule for these particular types of assets. You are right... and there isn't going to be a JPMorgan to jump in and buy the assets of every bank that fails. All it would take is one or two more big banks to do that and FDIC reserves would be WIPED OUT. What would happen in this country if suddenly everyone's deposits were not covered by FDIC? Can you imagine the run on the banks?

I see all of this as a house of cards that has come crashing down. None of this is "real" - if everyone had to go and pay back everyone they owed money too, there wouldn't be enough to go around, correct? So much of our money goes out of the country each day!

So, removing the mark to market rule is not an end all to the problem, right? It would still mean that there wasn't enough money to go around.

[LizzyBee]

If mark to market were relaxed, the banks would be able to carry their real estate portfolios on their balance sheet at something closer to book value. The good thing about mark to market is it can and does prevent fraud (you can't overstate the value of your assets). The bad thing is that in times like this (liquidity crisis, and instability due to panic - yes, panic), it tends to exaggerate the bad news. Everyone knows that the value of these mortgage backed securities is much more than 10% of their original value. Only 20% of homes are in foreclosure, and each of them are collateralized by real estate that is worth a lot more than 10% of the loan balance. The devaluation of these mortgages is exaggerated and temporary.

P.S. Many don't want to get rid of mark to market completely because they believe it prevents fraud. So there is a legitimate argument there. The package that was voted against yesterday gave the SEC the authority to suspend mark to market when immediately necessary.

I got an email update at work today that said the SEC and FASB are working on the mark to market issue this week, and FASB is expected to release new interpretive guidance later this week. I'll let you know if I hear anything more specific.

I also received another email saying the SEC issued some guidance yesterday. Here is a link to the press release which includes the guidance:
http://sec.gov/news/press/2008/2008-234.htm

And a link to FAQ about fair value (mark to market) accounting:
http://www.aicpa.org/mediacenter/fva_faq.htm

[LizzyBee]

Here's a link to a letter from the Center for Auditing Quality to Congress in which CAQ urges Congress not to suspend mark to market accounting.

http://www.thecaq.org/newsroom/pdfs/CAQ_FV-Letter_MOC.pdf

[Amy loves Bud]

Can you point to one single mainstream respected economist who feels this bailout isn't necessary?

I don't know of any, and I do know the overwhelming consensus of respected economists is strongly in favor of the bailout.



Bill

I read this (http://www.marginalrevolution.com/marginalrevolution/2008/10/the-consensus-v.html) today and thought of you. ;)

[hornblower]

I think the problem with 'respected well known' economists is that their hands have been all over this mess from the beginning & they were the ones calling for deregulation of the industry. My perception is that the bailout is designed more to fix things for them than anything else.

There are many economists - respected academics and researchers - and not necessarily the guys wheeling and dealing, who are opposed.
http://faculty.chicagogsb.edu/john.cochrane/research/Papers/mortgage_protest.htm

And the editorial today in the Chicago Tribune says it very well:
http://www.chicagotribune.com/news/nationworld/chi-oped1003pressoct03,0,3142589.story

"Media haven't deigned to cover bailout dissent"

"While it is true that most Wall Street economists predict doom and gloom for America without immediate government action, many of these economists are connected in some way to the institutions that would benefit from a bailout. There are scores of respected economists who hold different opinions, but nobody is running to the University of Chicago (http://www.chicagotribune.com/topic/education/colleges-universities/university-of-chicago-OREDU0000151.topic), for example, to put its economists on national television. "

[LizzyBee]

I am confused about exactly what the bill allows the government to buy. I thought they were going to buy mortgage-backed securities. The theory that the actual mortgages are worth more than the securities would allow the government to recoup their investment when the economy rebounds. (That is my paraphrase and understanding of Robin in TX's posts on this subject.)

However, the latest update I got at work says this:
The House voted 263-171 on Oct. 3 to pass a massive package of tax cuts and new authority for the Treasury Department to purchase up to $700 billion in nonperforming loans from financial institutions in order to restore the health of the nation's credit markets.

So are they buying mortgages or securities?
If the government is buying the mortgages, are they going to foreclose on the property that secures the mortgages? The logistics of the federal government foreclosing and selling the property that secures $700B in mortgages is mind-boggling.
If the loans they're buying are already defunct, a future rebound in the economy/real estate market isn't going to restore the value of the loans.

This is why I was an accounting major, not an economics major. The more I read, the more confused I get.