Unsettled Economy & The Bailout

[Peshkwe]

Re: Unsettled Economy

Ok so what would happen if the bailout doesn't happen? Recession? Depression?

Some folks don't think it'll be that bad to let things take their natural course without intervention:

http://www.chicagotribune.com/news/c...6253846.column

Bernanke warns of a recession. But economic downturns are not to be avoided at all costs. And one good thing about recessions is that they end, usually in a matter of months. An intervention of this nature, by contrast, would have malignant consequences for decades to come.

For me I think I'd rather have it done and over quick even if it is painful for awhile rather than have it be a slow, long drawn out affair. That scares me more.

[Peshkwe]

Re: Unsettled Economy

They came up with a plan (they're on the news now) all it has to do is pass the house and senate and get signed.

They haven't released any details yet though, but did say there was gonna be oversight and home owners aid of some sort.

[turtlegirl]

Re: Unsettled Economy

Sooooooo.....would you like to share with us what you think should be done?

I think that all of us need to start squrreling away canned food and rice, and drinking water, and maybe a jerry can of gasoline or two. Get a bicycle. Candles, batteries, duct tape, etc...just like you would prepare for a hurricane (or just like we'd prepare for if Matson stops coming) Now. Anything you can forsee needing for the rest of the year, get it now, before the economy goes to hell in a handbasket. Especially you outer islanders. Been thinking about refurbishing your catchment system, or getting a backup generator, or solar panels, or a chicken coop? Do it now, while you can still afford it and the supplies are available.

[Frankie's Market]

Re: Unsettled Economy

I really hate to say "I told you so," because this is bad news,....

Washington Mutual Inc. just collapsed, marking the all-time biggest bank failure.

http://voanews.com/english/2008-09-26-voa7.cfm

As U.S. lawmakers grappled over a $700 billion dollar bank bailout plan, one of the nation's largest banks - Washington Mutual Incorporated - collapsed under the weight of its enormous bad bets on the U.S. mortgage market. From Washington, VOA's Purnell Murdock reports on what is seen as the largest bank failure in U.S. history.

With financial markets reeling over the recent crisis on Wall Street, the collapse of Seattle-based Washington Mutual could not have come at a worse time.

Federal regulators moved quickly, seizing the troubled mortgage lender late Thursday and selling the thrift's banking assets to U.S. investment bank J.P. Morgan for nearly $2 billion.

The Federal Deposit Insurance Company (FDIC), insures Americans' bank deposits of up to $100,000. But it says because of the deal it will not have to use its assets to cover Washington Mutual's deposits.

The FDIC had already spent billions of dollars in its takeover of IndyMac, which collapsed in July. Some analysts say a Washington Mutual failure could have used up half the money in the government insurance fund.

If anyone is still under the illusion that the economic crisis is only of concern to Wall Street fat cats, they had better wake up and smell the coffee. A failure in the banking system affects everyone, not just tycoons. It's easy for the finger waggers around here to say "no bailout. Everyone should just tighten their belts, yadda yadda yadda." But if more banks fail, the FDIC won't be able to keep finding buyers. And if that happens, then guess what? Public money has to be used to pay out for all the FDIC insured funds anyway. So there's no getting around the inevitable, which is that the govt. will end up using taxpayer dollars in coping with this crisis. To think otherwise is to be in denial.

[matapule]

Re: Unsettled Economy

I really hate to say "I told you so," because this is bad news,....

No, you love saying "I told you so." Let's be honest.

It's easy for the finger waggers around here to say "no bailout. And if that happens, then guess what? Public money has to be used to pay out for all the FDIC insured funds anyway. So there's no getting around the inevitable, which is that the govt. will end up using taxpayer dollars in coping with this crisis. To think otherwise is to be in denial.

That IS exactly what a significant and growing number of professional economists is suggesting SHOULD happen. Cramer is not an economist, he is a Wall Street guy and entertainer.

BTW no FDIC funds have been used at WaMu. And WaMu would have required $350B of the $700B just to fix just that one bank.

You have stated that you don't know what should happen, which is fine.

With truthfulness and humility, I admit. I really don't know. My grasp of macro-economics is so limited that I wouldn't know how to solve it.

But how can you argue for or against any proposal if your grasp of economics is limited?

[Vanguard]

Re: Unsettled Economy

FDIC May Need $150 Billion Bailout as More Banks Fail

[GregLee]

Re: Unsettled Economy

$700,000,000,000 is available to be given away, right?

Not exactly. It's not available, and nothing is to be given away. The money will be borrowed, and the full amount would only be spent if the bail-out plan failed. The $700B is pledged to back the value of certain securities, but the idea is to give the markets confidence in the securities' worth. For that to work, the money has to be available for their purchase, but they don't necessarily have to be purchased.

And the money will not be given away; it will be used to buy securities which have some worth and which, having purchased, the government will then own. Later they can be resold. Whether the government will lose or profit by the transactions is uncertain. It's possible that it will profit -- that is, it may make back more than the portion of the $700B that was spent.

[matapule]

Re: Unsettled Economy

Not exactly. It's not available, and nothing is to be given away.

It will be "given away" in terms of purchasing securities in what are now "junk stocks" in the companies that are the brink of failure.

The money will be borrowed,

From whom? Our government is in debt, it has no money to lend.

and the full amount would only be spent if the bail-out plan failed.

If the government stepped in to save WaMu, it is estimated that would have taken $350B of the $700B. Actually some economists are estimating it is going to take closer to $1 Trillion to save all these companies.

The $700B is pledged to back the value of certain securities, but the idea is to give the markets confidence in the securities' worth. For that to work, the money has to be available for their purchase, but they don't necessarily have to be purchased.

The current plan is they will be purchased if the market doesn't step in to purchase them. There is no guarantee the free market is going to do that, so you might as well presume the $700B is spent.

But let's presume for a moment that the free market does purchase these securities. Why not purchase them if you know that if your stocks go down, the government is there to bring their value back up. It is like guaranteeing a profit for a stock investor - someone who is taking a risk, but without the risk. And the taxpayer is being asked to back this plan that will assure that stock investors don't lose money in these stocks. I don't like that picture. The taxpayer is being asked to protect stock investors and stock brokers.

And the money will not be given away; it will be used to buy securities which have some worth and which, having purchased, the government will then own.

That is still being negotiated. Bush/Paulson's proposal did not include that provision.

Later they can be resold. Whether the government will lose or profit by the transactions is uncertain. It's possible that it will profit -- that is, it may make back more than the portion of the $700B that was spent.

That is true, the taxpayer (I wish you would stop saying government, it is the taxpayer) is now being forced to play the Stock Market game whether they want to or not. The government is taking our tax dollars and "investing" them in the stock market in stocks that are currently high risk. And who is going to pay the carrying cost of that $700B.....the taxpayer.

[GregLee]

Re: Unsettled Economy

"The money will be borrowed, ..."

From whom? Our government is in debt, it has no money to lend.

Our government will issue notes and guarantee to tax us to make good on the interest and, eventually the principal. The lenders will be whoever buys the notes. If you as an individual want to lend someone money, you have to first acquire the money, but governments don't need to do that, since they are in charge of the currency. I think most everyone knows that, so maybe in asking the question, you are playing dumb to make some point. But what's the point?

[Frankie's Market]

Re: Unsettled Economy

No, you love saying "I told you so." Let's be honest.

I see a pattern here. First, you accuse me of spouting propaganda. And now, you say I relish being the bearer of bad news. Instead of responding to the substance of what I have to say, you resort to personal attacks. What a shame.

That IS exactly what a significant and growing number of professional economists is suggesting SHOULD happen. Cramer is not an economist, he is a Wall Street guy and entertainer.

Yet another personal attack, with no arguments of substance against any of what Cramer is saying.

BTW no FDIC funds have been used at WaMu.

Uhhhhhh yeah. Swell job of you repeating the very same thing in the article that I quoted.

The Federal Deposit Insurance Company (FDIC), insures Americans' bank deposits of up to $100,000. But it says because of the deal it will not have to use its assets to cover Washington Mutual's deposits.

But how can you argue for or against any proposal if your grasp of economics is limited?

I said that my grasp of macroeconomics is limited, in the sense that if someone suddenly put me in charge of a nation's economy that is spiraling into a deep recession and I was given X number of dollars with the objective of trying to avert trouble, I wouldn't have the knowledge, expertise, and experience to know exactly where to direct that money and how much of it needs to be spent.

But while my knowledge may be limited, I'm not totally ignorant on the matter, either. I know enough that some form of govt. intervention is needed to restore public confidence in the financial system. Otherwise, we're on the precipe of a impending disaster.

Ironic that while I'm having to respond to denials that a govt. bailout is needed, yet another major bank (Wachovia) is reeling, right on the toes of WaMu's collapse.

http://money.cnn.com/news/newsfeeds/...0_FORTUNE5.htm

[turtlegirl]

Re: Unsettled Economy

Good job, guys!!

While you all were bickering online, I was prepping by moving my money (small amount that it is, but at least its something) and buying rice and beans, etc..

Actually, I feel awful for anyone who has large sums of money to be concerned about from the middle class. They could end up in a baaad way if they don't plan now.

Anyone remember the rice shortage of this year?

Unless you plan on eating your cash once it becomes devalued, I strongly suggest investing in your own personal needs., especially food.

Aww, forget it...just don't come by my house looking for a bowl of red beans and rice should this all go to (r@p.

Any one remember the great depression?? "Oh no, it can't happen to us, we're America!" ... cut to investors jumping out of their windows on Wall Street.

Not to play Chicken Little, but if things do go bad, it will be without enough warning, and I'll be prepared, while everyone else is waiting at the stores trying desperately to purchase whatever's leftover.

And finally, rest assured, people . The Bush administration sees the end of their rule coming up just around the corner, and I believe they'll do whatever they can to line their pockets (and their 'friends' pockets), at the expense of every American citizen, because this is their last gasp, and nobody holds them accountable, anyway. They even try to ensure their unaccountability by telling us that they support plans and projects with no oversight and accountability!!

[matapule]

Re: Unsettled Economy

Ironic that while I'm having to respond to denials that a govt. bailout is needed, yet another major bank (Wachovia) is reeling, right on the toes of WaMu's collapse.

And where does it all end? Who else is going to fail and need a bailout. Is $700B enough? How about $1T or $2T? Where does the bailout end?

Maybe we are staring in the face of another Stock Market crash and no amount of money can fix it.

[matapule]

Re: Unsettled Economy

Our government will issue notes and guarantee to tax us to make good on the interest and, eventually the principal.

My point is that everyone needs to understand that this bailout is going to cost them money through increased taxes. This isn't free money. The taxpayer will pay with a possiblity that there may be a profit in the future. But I have no confidence that the government will give it back to the taxpayer if there is a profit. They will just find something else to spend it on.

And how will those taxes be collected? Do we go with the Republicans who traditionally have tried to move the tax burden from the wealthiest to the middle class or the Democrats who want to increase taxes on the wealthiest Americans.

The lenders will be whoever buys the notes.

How do we guarantee that there will be anyone to buy these notes? We have notes issued by a government that is seriously in debt, guaranteeing what is now junk stock. I'm not interested in buying.

If you as an individual want to lend someone money, you have to first acquire the money, but governments don't need to do that, since they are in charge of the currency.

Yes, that is right, they just print more money, which leads to inflation.

Can you give me your take an my assertion that guaranteeing these junk stocks only assures that investors who took a risk will not lose money and assure that stock brokers will continue to make money by propping up a sagging stock market.

[matapule]

Re: Unsettled Economy

While you all were bickering online,

I can appreciate your frustration, TG. But the "bickering" is an important dialog that Americans should be participating. These are tough, dangerous times. I don't consider it bickering so much as "vetting" out the real issues. This is going to take patience and understanding. But I know where you're coming from.

[turtlegirl]

Re: Unsettled Economy

Sigh.

For anyone interested, here is an abbreviated timeline of our great American history.

The good stuff starts in 1926, when the Revenue Act of 1926 was passed, which cut the taxes of the wealthy by two thirds. Follow it thru the Great Depression, and the years afterward.

wow, that was only 82 years ago