It's Bailout Week!

Submitted by Rich Toscano on September 19, 2008 - 1:59pm

Earlier in the week I jokingly suggested that the federal government was limiting itself to one financial industry bailout per day. Well, that was sure wrong.

Let's review the week so far:

  • The Fed announced it will lend even more to financial institutions (many of them not under the Fed's regulatory authority) in exchange for even more dubious collateral than before. This allows everyone to continue to pretend that the collateral, such as some subprime mortgage backed securities, is worth more than it actually is, which in turn allows everyone to pretend that financial institutions have more money than they actually do.
  • Because the Fed has run low on funds due to all of that lending, the Treasury announced it will borrow more money to give to the Fed so that they can keep up their lending and continue the charade described above.
  • The Fed nationalized insurance giant AIG (also not under its regulatory authority).
  • The Fed pumped a hundreds of billions of dollars into the system both domestically and globally via loans to foreign central banks.

continue reading at voiceofsandiego.org

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Submitted by Bethesda32 on September 19, 2008 - 5:06pm.

I went into a Wachovia yesterday in Greenville, SC to transfer my money market account to my regular checking account. The manager would not transfer it for me. I went into another branch and requested to transfer it. The bank officer assisting me said, "May I inquire as to why?" Boy, this is just a plain ol' money market account--and not a money market fund. Since when do they need to know my reasons. Does this set off warnings to anyone?

Submitted by Bethesda32 on September 19, 2008 - 5:07pm.

I went into a Wachovia yesterday in Greenville, SC to transfer my money market account to my regular checking account. The manager would not transfer it for me. I went into another branch and requested to transfer it. The bank officer assisting me said, "May I inquire as to why?" Boy, this is just a plain ol' money market account--and not a money market fund. Since when do they need to know my reasons. Does this set off warnings to anyone?

Submitted by Bethesda32 on September 19, 2008 - 5:07pm.

I went into a Wachovia yesterday in Greenville, SC to transfer my money market account to my regular checking account. The manager would not transfer it for me. I went into another branch and requested to transfer it. The bank officer assisting me said, "May I inquire as to why?" Boy, this is just a plain ol' money market account--and not a money market fund. Since when do they need to know my reasons. Does this set off warnings to anyone?

Submitted by HereWeGo on September 19, 2008 - 6:04pm.

Don't forget the biggest bailout of them all, RTC-II.

Submitted by cr on September 19, 2008 - 6:07pm.

If they are going to waste that much of our children's yet to be hard earned money to pay for this worthless crap they should at least start the money at the bottom of the food chain instead of injecting right in to the pockets of the heads of companies and fund managers who got us into this mess.

Why not use that money to bolster real estate spending?

Devise a method of offering an equal and fair amount (based on income, taxes paid, etc.) to those paying on-time, those in default (that can prove they didn't lie on their mortgage) and those who have actually been saving to buy a house?

Submitted by mcpk on September 19, 2008 - 7:15pm.

In the words of Nouriel Roubini, we have made sure that "profits are privatized and losses are socialized."

Submitted by Taison on September 19, 2008 - 8:00pm.

Remember a few years back during the Asian financial crisis, we criticized other countries bailout their financial system? Saying it was a free market, no bailout should be allowed kind of crap? Now look at us.

Submitted by LA_Renter on September 20, 2008 - 7:57am.

AP
Rescue plan seeks $700B to buy bad mortgages

Saturday September 20, 10:30 am ET
By Julie Hirschfeld Davis, Associated Press Writer
Bush rescue plan seeks $700B for to buy bad mortgages, would raise limit on national debt

WASHINGTON (AP) -- The Bush administration is asking Congress to let the government buy $700 billion in toxic mortgages in the largest financial bailout since the Great Depression, according to a draft of the plan obtained Saturday by The Associated Press.

http://biz.yahoo.com/ap/080920/financial...

___________________________________________

Now we all know these initial price tags are merely an introduction to the actual cost. So we are starting at $700 Billion...........this kind of makes your knees weak doesn't it. The next thing to pay attention to in this financial catastrophe is the language of our foreign financiers towards US Treasuries. You will not see an overnight flight out of these but listen to statements like "decreasing our allocation into US Treasuries". Thats where it starts. It really does appear to me that everything you recognized about the US financial and economic structure is gone. This is a very similar feeling I had watching the Berlin Wall fall except the emotions here are inverted.

Submitted by 34f3f3f on September 20, 2008 - 8:01am.

Anathema to many in the US, but common practice in many countries is tax avoidance or evasion. In fact, tax evasion is not even illegal in Switzerland (one can debate the pro's and con's). I would not blame anyone for boycotting this bailout. Tax payers should insist the money be paid back with interest, but excluding those who committed fraud, or were greedy. Everyone who wittingly contributed to this mess should have all their assets seized to help pay for this. A similar fate should befall those who were in positions to prevent it, but did nothing. All cases where mortgage fraud was committed should forfeit their homes, which should be sold at a fair market price to those who have not been able to afford a home.

This is one of the worst cases of wholesale greed, corruption, and mismanagement in modern history, and frankly is disgraceful. If this country doesn't pull itself up by it's bootlaces, then it will continue it's decline and become a mere fleeting historical anecdote.

Submitted by VanMorrisonFan on September 20, 2008 - 10:53am.

Bethesday32...

It sure sets off alarm bells to me, but just ignore them. There are two ways of handling these matters...the nice way and the not so nice way.

Nice way is to say, "I am planning to buy a huge chunk of Wachovia stock, but I need to use my checking account to do it."

Weird way to answer..."My checking account has all my lucky numbers in it!" Just keep smiling when you say this!

Optional, "You can ask, but I am under no obligation to answer."

Not so nice way, "No, you may not inquire as to why. Please do the transfer, or would you be happier if I withdrew all of my money and simply took my business elsewhere?"

Submitted by mike92104 on September 20, 2008 - 3:25pm.

Just for grins I divided 1 trillion dollars by the population of the united states and got just over $3200 for every man, woman, and child in the country.

Submitted by underdose on September 20, 2008 - 5:00pm.

NEW RULE!

Bush, McCain, Palin and all neo-cons must stop calling themselves free-market capitalists.

I watched Bill Maher last night, and oddly Bill agreed with a socialist he had on the show that was indicting capitalism for this mess. A libertarian on the panel correctly pointed out that what she was suggesting was replacing the current incompetent government manipulation of the markets with different incompetent government manipulation. Bill, who usually strikes me as rather bright, kept incorrectly saying this is the fault of capitalism and de-regulation.

It makes me sad to see the term "capitalism" so grossly misapplied. Bush and co. call their policies "free-market capitalism", and tragically people have let this bastardized new definition of the term take hold. But for the record, it's grossly wrong.

The existence of a Fed that can print money at will is not capitalism. Market manipulations like artificially holding a key interest rate at a negative value in real terms is at odds with the free market. Implicit (through Fannie Mae and Freddie Mac) and explicit (through the FDIC) guarantees to socialize banks' losses, therefore encouraging credit expansion and discouraging risk assessment, is not capitalism. Giving tax incentives to home ownership over renting is not laissez-faire. And taking unprovoked military action for the benefit of one particular industry (which incidentally makes very large political contributions) and sticking tax payers with the bill is about as far from free-enterprise as it gets.

These bailouts, and everything that facilitated the road to this situation, are deserving of some other label. Socialism, quasi-communism, cronyism, fascism. I'm not sure which label fits. But it sure isn't capitalism. Everyone, please stop calling it that.

Submitted by Wickedheart on September 20, 2008 - 6:51pm.

mike92104 wrote:
Just for grins I divided 1 trillion dollars by the population of the united states and got just over $3200 for every man, woman, and child in the country.

Well multiple the figure by 2 or 3 then add in interest for the next couple 100 years or so. Remember the S&L fiasco was only supposed to cost $20 billion.

Submitted by CricketOnTheHearth on September 21, 2008 - 8:14pm.

I wrote to Pelosi and Reid just now, saying basically that I do not want my tax dollars used to bail out idiots who ran amuck and created this bubble.

I said instead that they should just write down the balance of the mortgages to sane levels, and let the banks take the remainder off their books in a way that wouldn't cause them to implode. In other words, just "evaporate" all this debt that should not have been created in the first place.

As I understand the numbers, there is more dollars in mortgage debt than in all the rest of the economy; i.e. there just isn't enough money in the world to pay it off, so it either has to go away or it will drag us all down with it.

Submitted by cashflow on September 21, 2008 - 10:07pm.

I don't quite understand why there's not a harsher reaction from the general taxpaying public about this. I think we're just brainwashed from the media. All these journalist types smiling about this, while the average american will get taken for 1000's in taxes...and is this really going to help the average american or just wall street.

What are we to do to voice our concern?!? I know people in my generation (gen x) that are priced out of housing realize this will artificially keep us priced out longterm. I

Submitted by bdiego on September 21, 2008 - 10:52pm.

Correct me if I'm wrong, but wouldn't it be better and cheaper to let the failed banks fail than to try to bail them out until they fail anyways? There's some big assumptions here that these failed banks wouldn't fail if they had just a *little* bit more money.

In other words, isn't this bailout essentially doubling your bet after a loss, hoping to either break even or lose twice as much?

Submitted by underdose on September 22, 2008 - 9:26am.

bdiego wrote:
In other words, isn't this bailout essentially doubling your bet after a loss, hoping to either break even or lose twice as much?

That this is a losing proposition would seem to be plainly clear to any thinking person. It begs the question, are Paulson and Bernanke raving idiots, or are they willfully trashing the economy for some selfish agenda?

Submitted by ltokuda on September 22, 2008 - 12:31pm.

underdose, I think the problem with "free-market capitalism" is that "free-market" and "capitalism" can be at odds with one another.

The power of capitalism is that individuals can identify inefficiencies in the market place and invest money to take advantage of those inefficiencies. The individual profits and society is supposed to be benefit from the investment. Its supposed to be a win-win situation.

Unfortunately, some of the biggest inefficiencies are in the government itself. Capitalists take advantage of these inefficiencies by investing money (i.e lobbying, etc). This hurts the "free market".

Also, capitalist can make money by creating inefficiencies in the market. They can make money by investing against the free market. A monopoly would be good example of that.

When it comes down to it, the "free market" ideals depend on people doing things against their self interest. It depends on people being honest, transparent, lawful, etc. That's why a truly "free market" will never exist.

Submitted by underdose on September 22, 2008 - 7:12pm.

ltokuda, agreed, capitalism is frought with problems. The best quote about it I've ever heard is "Capitalism is the worst of all possible systems... except for all the others." All systems that people have come up with depend on people being honest, lawful, etc. Socialism depends on everyone pulling their fair share, no one being lazy, and the government being staffed with honest and competent people who will not abuse their power. Good luck with that! So nothing really works as advertised, but what has the best chances of not failing miserably and violating people's rights? I'd like to give capitalism a chance (we've never really had it in my lifetime) because I think it would suck less than what we have now. I just hate to see it unfairly indicted for the sins of some other system.

If you are a purist, like Ayn Rand was, you would argue that your example of companies lobbying ceases to be either free-market or capitalism. Rand called this the "aristocracy of pull". I call it "cronyism" for lack of a better name. I think cronyism is usually used to describe a president appointing friends to high posts, so I admit I'm overloading the term. In the magical world of ideals that will never come true, government officials would reject bribe offers and hold to their defense of the free-markets. I'm not holding my breath. I don't know what the solution is. I just hate to see us go further from capitalism as the "solution" to some other system's failings.

Submitted by ltokuda on September 24, 2008 - 8:05am.

underdose, I basically agree with all of your views. The only difference is that I believe it is fair to blame capitalism for the current economic mess.

I think capitalism is the best system we know of. It also has its faults. If you say we can't blame capitalism for our current mess because we're practicing some bastardized version of its ideal form, then you can't give it any credit for its successes either. There has never been an ideal form or capitalism so how can we say that it actually works? If you want to allow capitalism to take some credit (as I do), you must also allow it to take some blame.

Ultimately, capitalism leads to socialized benefits for the rich. History has proven it over and over again. We're seeing yet another example of it today to the tune of $700 billion. Capitalism, in the real world, will always steal from the public to give to the rich.

If Ayn Rand believes that capitalism dies when it deviates from the ideal, then the data suggests that "ideal capitalism" is not a stable system and will always die off quickly. So should we just write off capitalism as a complete failure? I don't think so.

All systems work perfectly in an ideal world. But the value of a system is determined by how well it performs in practice. Capitalism has proven itself to have some value in the real world. It also has its flaws. Our goal should not be to try to make our system conform to an unrealistic, ideal world version of capitalism. Instead, we should try to improve the system by adapting it to reality. The first step in that direction is recognizing the inherent flaws in the system itself.

Submitted by Carl Veritas on September 24, 2008 - 6:41pm.

Foreign governments bailed out by US taxpayers.
You didn't read it from the headlines?

The US taxpayer just bailed out all those foreign governments holding Fannie and Freddie paper.

It gets better----

Those same foreign "investors" are probably looking to have other unwanted US assets taken off their hands by
the US taxpayers, er, bailout package.

By the way, the Fed actually bailed the banks by taking over AIG since the firm had so much book of business with banks. I'm sure the taxpayer see all this coming at them, right?

The Fed is merely executing the task it was created for---to be the lender of last resort for bankers suffering from bank runs. The mission just got hijacked by politicians along the way since its creation in 1913.
Until we all pull our money out of banks, congress will not change the status quo.
Only a depression inducing taxpayer action like that can get their attention. Get your withdrawal slips out.

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