Bailing On The Bailout Bill–UPDATED
September 24, 2008 / 12:35 am • By Dr. Melissa ClouthierIt’s 700 Billion. Today. Assuming…do I need to finish that sentence?
It’s getting porkified.
It ties Republicans to Bush-Pelosi.
It turns American banking into a socialist enterprise.
It means trusting Paulson.
It has Democrats licking their FDR-loving, bacon dripping chops.
It will, somehow, make those who get paid for failure, even richer.
It reveals the crass political class, yet again.
It means it’s time to get educated about economics.
It reveals American greed. Ace says:
If the federal government were guaranteeing a trillion new dollars for no-money down car purchases with no credit checks or proof of employment or income, what do you think would happen to the price of cars?
They’d triple. For a while.
Housing market turns into dangerously overinflated bubble. Which is what always happens when a trillion fresh, cheap, easy dollars flow into a sector and begin chasing the same limited pool of goods.
[I'd like to point out, as a complete aside, that higher education is inflated in exactly this way. What happens when the government gets out of the student loan business? Why, colleges stop building their edifices and competition enters the market. Right now, tuition is soaring because of student loans.]
It all started with a Democrat policy that was to induce “fairness” and by forcing banks to loan to those who couldn’t afford to pay back the loans, NOW you, taxpaying fool that you are, should pay back the loans someone else couldn’t make.
I’m beginning to think this bill is a bad idea.
UPDATED:
Ben Stein’s take.
Because these giant financial companies never dreamed that the subprime mortgage securities could fall as far as they did, they did not enter a potential liability for these CDS policies anywhere near their true liability – which again, is virtually bottomless. They do not have a countervailing asset to pay off the liability.
This is what your humble servant, moi, missed. This is what all of the big investment banks and banks and insurance companies missed. This is what the federal government totally and utterly missed. This is what the truly brilliant speculators in these instruments did not miss. They could insure a liability they could also create and control. It is as if they could insure a Cadillac for its value upon theft – but they could control what the value the insurer had to pay off was. The insurer thought it might be fifty thousand dollars – but it was manipulated into being two million.
This is the whirlpool sucking down finance.
Now, we are about to have a similar phenomenon happen with commercial mortgage debt, debt from mergers and acquisitions, credit card debt, and car loan debt. Many trillions of dollars in Credit Default Swaps have been sold on all of this, and the prices of all of them have fallen and can be made to fall more.
As I said, the pit of loss is bottomless. Warren Buffett, the smartest man of all time in the world of finance, has called financial derivatives – of which Credit Default Swaps are a prime example – “weapons of financial mass destruction.” And so they are. As with the hydrogen bomb, no one thought they would ever be used to end the world. But unless someone figures a way out – and maybe the new RTC is and maybe it isn’t – we are in real peril. This should never have happened. Now that it did happen, should the taxpayer pay to make the billionaire speculators whole on their bets? What the heck is to be done?
You mean, you don’t know, Ben? Heaven help us. How is the average person supposed to know. In frightening situations, animals fight or flight or freeze. Right now, the collective world is staring, frozen in fear at what we think we might be beholding. Problem is, no one is quite sure what they see. Is this the end of the world as we know it? We don’t know.
Is a bailout the answer? That seems to me to be “fighting”.
Doing nothing, is that fleeing? There will be a run on the banks if this goes south and all the money dries up. Pure. Panic.
Mary Katherine Ham has what the players are saying.
So, I’m still trying to figure out what to do about this mess. If, as a business owner, you extended credit to those who couldn’t pay (and we all have), it’s a right off. But too many bad clients or charity cases makes for an insolvent business and it doesn’t matter how many paying customers you have. You cease to be able to make overhead and can’t produce anything because you don’t have enough money to make your product.
What happens? You go out of business or go beg for money from someone else to keep you solvent while you change your ways. Wall Street is asking for the latter because if they go out of business, they suck much of the economy with them.
But the problem, fundamentally, seems to be that too many Americans are wallowing in debt–not just those unqualified for homes. So, this problem is emblematic of how many Americans are living–way above their means. And this cultural problem extends from the average person all the way up. That is, the debt to income/capital ratio is off for everyone.
If you have money in stocks, you’ve already lost your money unless you’re big enough to be invested with Warren Buffett. So that’s gone for a while. What’s left? Your money market, credit cards, your home (but no one is giving loans against those now), and your cash flow. But you won’t have cash flow if there is a bank run. Is this doomsday scenario possible? That’s the question no one seems to be able to answer.
18 Responses to “Bailing On The Bailout Bill–UPDATED”
September 24 2008 / 3:21 am
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I started out in favor of the bailout but as time passes…not so sure.
September 24 2008 / 8:26 am
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I agree with Michelle Malkin: Kill the bailout bill.
September 24 2008 / 9:15 am
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I think it is preposterous for the credit industry to ask the American people, the very ones who they prey on to bail them out.
They offered this riduculous mortgages to people who could not afford them. Then they lobbied for a change in the backruptcy laws to prevent people from getting out from under their debt. And now they are asking us to bail them out with nothing in return. This is the disconnect in America today. The eastern seaboard has no guilt in destroying the economy for the rest of the country to benefit themselves.
September 24 2008 / 1:33 pm
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Charlie is dead on. Why would any of us bail out this group of lyiing, coniving jackasses. Yes, they changed the bankruptcy laws and now they want us to bail them out – with NO oversight! Excuse me, but f**k off! Paulson said yesterday that he does not believe that oversight is warranted. First, the fed allows deregulation (many to blame on BOTH sides of the aisle) and the banks/wall st. concoct this entire derivitave scheme, it goes south, and now they want a blank check from the public with no oversight, payback plan, etc. The arrogance from BOTH sides is astounding. Furthermore, if anyone thinks that this will trickle down to the consumer then they have their head buried up you know where. The banks will keep the money to cover bad debt, reduce LTV ratios for customers, freeze business debt (as they already have in my case) and tell the American consumer to stuff it. This may be one of the few times that I actually agree with Michelle Malkin. BTW, if anyone thinks that either presidential candidate will be able to fix this they are sadly mistaken. I say throw all of them out – dems, repubs – ALL of them. Read more about the derivitaves unwinding from John Markman and you will see that the worst is yet to come – this has the potential to make the Japanese recession look like a walk in the park. Kiss credit goodbye – and the economy that was fueled by it.
September 24 2008 / 10:11 pm
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What are your thoughts about the President’s speech this evening? What is your take on McCain putting everything on hold for the time being?
September 25 2008 / 12:50 am
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This plan in its present state makes about as much scene a condom machine at the Vatican. How can you have a plan to give out $700 Billion dollars without any accountability , run by a man (Paulson) with a clear conflict of interest ?
Given the unimaginable loss that has gone on in the last 8 years and with added incompetence, read the story below its only common scene that we Americans ask for proper planning and accountability before we just hand over 700 Billion dollars.
This story was missed or covered up because the information was released on 9/10, its Chaney saying he cant account for 2.3 Trillion Dollars, ya I said Trillion $$$$$$
http://benfrank.net/patriots/news/national/pentagon_missing_trillions
One last point , I have owned multiple houses and cars over the years, in the process of getting the loans for the cars or houses the common practice is too fill out very granular contracts concerning the monies and repayment, this is the level of scrutiny and protection is what we need to build into this loan. When ever I have received a loan from a bank I was always charged interest, handling fees and late fees. We as American citizens loaning thees monies to the bank should receive the same things that banks have been asking us for over the years.
Ron Paul 08
September 25 2008 / 10:48 am
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Cut to the chase!
Congress wrote the rules. The banks and Wall Street played by those rules. (Some played right up to the edge to be sure. They’re mistake was not doing due diligence and trusting the government). Fanny and Freddy are government entities and went corrupt at the behest of congress in the name of “fairness” or some other Marxist Bull Stuff. (And they also got to make political contributions out the their “profits”) So now, those same people who caused this mess, are asking us, (the subjects), to pay for it. (and blowing a lot of smoke in the process so as to make it harder for us to get a bead on them).
I think it’s way past time for the torches and pitchforks.
I kinda like the smell of hot tar in the morning.
September 25 2008 / 11:28 am
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It is urgent that all citizens contact their representative and senators immediately to block support for the bailout of the Wall Street banks. What they have proposed so far is:
1) We are going to cure a credit hangover with 700 billion to stimulate new credit. That is like offering a recovering alcoholic a drink to help him through his withdrawal pains.
2) Bernanke and Paulson for two days have said they will allow all banks to bid on the toxic waste held by the WS banks. That statement alone should send chills down every Americans spine…..these crooks are perfectly willing (and orchestrating) the transfer of the toxic waste from the WS banks to the mom and pop banks and community banks across our nation.
3) Wall Street has rallied together to sell this to an unsuspecting public. During the 1960 presidential campaign President Kennedy was told the Republican National Committee deemed him unqualified. He wittily responded that he was sure their view was unanimous. Fast forward to today, it should be no surprise we have unanimous consent amongst the Wall Street pundits about the need for a WS bailout package……it’s their wealth they are trying to salvage at the expense of America!
3)These Wall Street henchmen (Bernanke and Paulson) along with their WS masters pulling their chains have lied and deceived Congress and the public throughout these developments. There has been no transparency or truthfulness whatsoever in what little information Wall Street has dribbled out this past year regarding the true state of affairs of their businesses. Kenneth Lay and Jeff Skilling were convicted for this same kind of deception.
As a small businessman from Houston, this is not the first crisis I have witnessed (the 1980’s depression in Texas being the most challenging), and this crisis will not trigger the end of the world. Do not be railroaded by the Wall Street power brokers. I offer these following observations:
1)AIG: This is not the first insurance company to go belly up. We had Texas Employers do the same here in the 1980’s. An insurance company going into receivership is not the end of the world. Remember, because the company is in receivership does not render the insurance policies “due and payable” or at risk. A government take over of AIG is needed to manage the policy portfolio as a normal going concern.
2) Do not worry about inaction on the Paulson plan unsettling the markets. The markets are unsettled due to govt meddling, not lack of govt meddling. Restore the short sale uptick rule to reign in the short sellers and let the free market operate. Further govt meddling will only accelerate the market turmoil. It would be beneficial to hold hearings as to who financed the supposed research on the abolishment of the uptick rule in the first place. That rule was installed in the 1930’s to prevent bear raids like we are seeing today. Who bribed who to have the rule abolished recently?
3)Again, DO NOT support the plan put forth by Paulson to bail out Wall Street. For a century the crooks at Goldman Sachs, Citibank, Lehman, Merrill Lynch, Bear Stearns, Morgan Stanley et al have been screwing this country and every time they get in trouble the fed is there for them.
If my business fails the Wall Street pundits call it creative destruction….it’s time for creative destruction on Wall Street.
A new world order with Fidelity, Wells Fargo, US Bancorp, Bank of America, Frost, Comerica, and other well managed banks at the helm is long overdue. In case you missed it, Wells Fargo (WFC) and US Bancorp (USB) stocks made new all time weekly closing highs last week. The banking industry will be just fine.
Please do not allow yourselves to be railroaded by Wall Street. Contact your reps (and Pelosi and Frank) immediately to oppose this travesty to the American taxpayer!
September 25 2008 / 2:00 pm
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Here comes Santa Claus,
Here comes Santa Claus,
Right down Bailout Lane!
Fannie Mae and Freddy Mac
A-pullin’ on the reins!
Gummint Gravy Train pouring in,
All is Happy and Bright!
Dream of condos to flip flip flip
‘Cause Santa Claus comes tonight!
Here comes Santa Claus,
Here comes Santa Claus,
Right down Bailout Lane…
September 29 2008 / 9:50 am
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heres an idea ,
why not if the issue is about protecting the american working people, why not instead of bailing out these banks give every american working tax payer , 300,000.00 having to pay tax on this of course ,just like they want to pay these top dogs of these companys that got us into this mess..they donot deserve a package, they should be in the same boat as any of person lossing ajob, find another scale yourself down… let them get caught up on their mortgage (if they can afford to stay in their home,if not auction these homes off, they will be bidders for them) pay for gas help them over their job loss etc and let these banks duke it out on their own , put some of this debt out for some others to purchase, how about it mccain and obama , wouldn’t this jump start the ecomony, just a thought
September 29 2008 / 11:53 am
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If they pass this bill…they will all be scrambling in a month or less.. trying to say they were lied to.. Paulson and Bernanke need to go NOW
September 29 2008 / 9:47 pm
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WE NEED THE BAILOUT
If you have any investment (401K, nest egg, kids’ college…) you probably seen 20%+ of it evaporate today.
Are you ready to see a bigger chunk of go up in smoke?
I aggree wall street doesn’t deserve a bailout. But now the thieves are gone with the money, do you want to be the one left holding the empty bag?
A bailout will ensure that you have some money left in the bag while hopefully the stipulations in it allows us to go after the theives…
October 1 2008 / 5:17 pm
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Anyway, here’s a big stinker for you; and I need some quick investigative help and loud questions to be asked. This should be a factor in our Senator’s decisions today regarding the bail out deal.
Here’s what I just e-mailed and faxed to Senators; including John Ensign, as seperate e-mails (This is Ensign’s copy) :
URGENT**** Per your Vegas office, I am sending you the web address to the website for the Las Vegas Real Estate Brokerage tied to Frank Raines:
http://prosofrealty.com/
Also, Google Farrah Gray and Frank Raines, and Ronald Branch and Frank Raines for more links between them. I believe the evidence I am collecting shows that Frank Raines was funneling the Fannie and Freddie foreclosures to this group to list for resale. I talked to a broker who worked there briefly. He heard their names mentioned, but more importantly; the commissions paid to the ‘brokerage’ were maybe 3% of the sales price, but the sales person or selling broker only got maybe $1,500 or less. The brokerage was then funneling the money back to the owner/investors. There is a shell company in the middle, but I am picking up ties to Raines all along the path. This is kind of like the Erin Kenny situation; I could see connections; but in her case it took me a while to find all the connections. One thing I am, is persistent.
Don’t vote yes on this bill today, Senator Ensign. There is a tie between Frank Raines and this company, and it will blow up this topic shortly. Any one of our politicians who votes yes to this rescue bill today is going to look as though they didn’t look hard enough at the details before they voted. You can’t vote on this without knowing the facts. You need to say that you are not voting for a 700 Billion dollar or more bill to taxpayers without all the information. Also, I talked to a broker who was working there. He said that basically, this gave Freddie and Fannie execs a reason to foreclose, secretly. They made more money this way, taking these houses back and selling them via these shell brokerage groups; rather than working with any borrowers.
This bail out bill profits these lenders even more. Many were complicit.
From my past experiences , I’ll keep digging up the dirt and taking to the FBI and the Secretary of State until someone does something. I need help, because any of our politicians who vote yes on this bill are going to look like they were complicit. Help me out here, you guys. Let’s go.
Cyndy
October 1 2008 / 5:19 pm
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The reason that our politicians are being so condescending, saying that we don’t understand the need for this bail out isn’t because we can’t understand it, it’s because they can’t communicate clearly to us—because they don’t understand either. Who wants a representative who’s stupid enough to sign a 700 Billion dollar bail out bill (may be more before it’s over) without fully understanding it? No one who’s worthy of my vote would vote on something so profound without having all of the facts.
October 1 2008 / 8:47 pm
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“WE NEED THE BAILOUT
If you have any investment (401K, nest egg, kids’ college…) you probably seen 20%+ of it evaporate today.”
If we bail out wall street, we will have to print 700 billion dollars. There will be a deadweight loss from inflation. Then we will lose money on that 700 billion dollars that we loan to wall street at a negative interest rate. Then we add in the oppotunity cost of the 700 billion dollars. Then Wall Street will loan the money back to us through bank loans at a high interest rate. This isn’t a 700 billion dollar bill, but more likely a 3 trillion dollar plus bill, any economist/mathmatician/rational person will tell you that the price tag of this bill is much much more than 700 billion dollars.
This bailout will cost us much much more than if we do nothing. My theory and math fully support that we should not support this bailout. This bailout has a CHANCE of saving our 401k’s, but it will most likely cause an increase of inflation by 25%-35% over the next 3 years. Plus the yield on Treasury bills will fall to a negative percenatage, most like -4%, doesn’t sound like a great bill to me.
October 2 2008 / 9:43 am
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In the “bailout” agreement there is a statement that says the FDIC cap will go from $100,000 to $250,000. I wonder how many people really realize what this means! It means that if you make less than $250K a year you will still have FDIC taken out of your paycheck. Grab a paystub, look at the amount. Then look at your Year To Date Earnings. Are you close to $100k? Right now, once you hit $100k for YTD earnings they stop taking out that deduction and that amount goes in YOUR POCKET! For me it would mean an extra $167 a week! I could sure use that money. If this bailout is approved you have to wait until you make $250k a year for the FDIC deduction to stop! This is absolutely ridiculous and is in NO WAY helping middle class America! Call your Representatives now and tell them no way!
October 2 2008 / 9:46 am
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I think you’re confusing FDIC with FICA.
It’s still a lousy bill and people need to tell their congressman to vote NO.
October 2 2008 / 12:21 pm
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How long will it be before more money is required, Is this just a short term fix ?