Economy in meltdown?

[badasshairday III]

Why are they bailing them out? What is the point of this sh*t? Why is the government getting its hands on wall street?

 

[badasshairday III]

A bailout requires responsible Americans to pay for the acts of greedy bankers, mortgage brokers, flippers, and over-extended home-borrowers. In other words, the government wants you to pay for the blunders of others who knew, or should have known, better.

Equally as important, a bailout would permanently price out of the housing market all those responsible Americans who have been patiently saving to buy a house that they can actually afford. The current housing correction is necessary to remedy the historic run up in housing prices over the past decade. By bailing out the housing market, the government will prevent housing prices from returning to affordable levels, thereby ensuring that renters will not be able to buy a home and current homeowners will not be able to upgrade.

A government bailout of the housing market is both fiscally and morally irresponsible; it is an unfair subsidy being paid to the wealthy (bankers), the greedy (mortgage brokers, flippers, and yes some homeowners), and the incautious (some homeowners), with little or no benefit to those paying the bill (taxpayers).

Why should responsible Americans be
forced to pay for the mistakes of others?

A bailout is morally irresponsible because it encourages reckless and irrational behavior. Here is a short list of the many "moral hazards" that a bailout enables:

A bailout sends the wrong message about personal responsibility. It tells Americans in no uncertain terms that their financial decisions have no consequences; the government will pick up the tab.

A bailout tells responsible Americans that they are suckers. If responsible American had been smart, they would have overextended themselves, purchased homes they could not afford, and taken out home equity loans based on the paper value of their property. Then, when the bill came due, they could just pass it to the government.

A bailout allows banks, mortgage brokers, speculators, and refinancers to benefit from their abuse of the system. By doing so, it encourages these people to act irresponsibly in the future.

A bailout will force Americans who acted responsibly to pay for those who did not. The average American -- who saved and scrimped for years to buy a house, but could not because speculators and over-extenders boosted home prices beyond affordability -- will now be forced to pay for the homes of those who were less scrupulous.

A bailout will have a disproportionately negative affect on the minorities and the youth. Minorities and Americans under 35 (scroll down the link for 2007 data) are disproportionately underrepresented among homeowners. While non-hispanic whites enjoy a 75% homeownership rate, less than 50% of blacks and hispanics own homes. Similarly, only 42% of Americans under 35 own homes, compared to 80% for Americans 55 and older. A government bailout will perpetuate this race and generation gap by propping-up inflated house prices, thereby permanently pricing minorities and a generation of youth out of the market. And in a Kafkaesque irony, these folks will actually have to pay to prevent themselves from buying homes (i.e., taxes).

A bailout is also fiscally irresponsible:

A bailout props up over-inflated housing prices, thereby putting homeownership out of reach for young families and responsible Americans who recognized that there was a bubble. The housing market needs the correction that the bailout seeks to prevent because the average American cannot afford to purchase a home. "You cannot be both in favor of affordable housing and in favor of propping up home prices!"

A bailout creates perverse incentives. Rather than punishing their behavior, it encourages fiscal irresponsibility among bankers, brokers, speculators, and refinancers. These folks made money hand over fist in the past nine years (remember, homeborrowers who tapped their home equity received cash money to pay for Escalades, vacations, and stainless steel appliances; now they want you to pay for it!). Why change your behavior when you benefit from it?

A bailout shifts the risks of falling market prices from financially secure banks to the American taxpayer. As a result, either taxes or the federal deficit will skyrocket! This is a government handout that we simply cannot afford and, moreover, it is wrong!

A bailout is contrary to the free market principles upon which our economy is based. It jams a huge wrench into the market correction, with negative effects that will be both severe and long-term.

It will truly be a sad day in America when our politicians vote to bail out the few from their irresponsibility to the detriment of the many who were responsible.

We, the American people, deserve better.

 

[The Gardener]

I'm not necessarily disagreeing with you in philosophy, Badass, but perhaps you need to hear the case for them as was laid out to Congress by Hank and Ben:

http://www.nytimes.com/2008/09/20/washi ... -cong.html

As Senator Christopher J. Dodd, Democrat of Connecticut and chairman of the Banking, Housing and Urban Affairs Committee, put it Friday morning on the ABC program “Good Morning America,†the congressional leaders were told “that we’re literally maybe days away from a complete meltdown of our financial system, with all the implications here at home and globally.â€

Mr. Schumer added, “History was sort of hanging over it, like this was a moment.â€

When Mr. Schumer described the meeting as “somber,†Mr. Dodd cut in. “Somber doesn’t begin to justify the words,†he said. “We have never heard language like this.â€

“What you heard last evening,†he added, “is one of those rare moments, certainly rare in my experience here, is Democrats and Republicans deciding we need to work together quickly.â€

“You have the credit lines in America, which are the lifeblood of the economy, frozen.†Mr. Schumer said. “That hasn’t happened before. It’s a brave new world. You are in uncharted territory, but the one thing you do know is you can’t leave them frozen or the economy will just head south at a rapid rate.â€

As he spoke, Mr. Schumer swooped his hand, to make the gesture of a plummeting bird. “You know we’d be lucky ...†he said as his voice trailed off. “Well, I’ll leave it at that.â€

Senator Richard C. Shelby of Alabama, the senior Republican on the Senate banking committee, said in a television interview that cost to the government of purchasing bad debt could run to $1 trillion — a potential warning sign since Mr. Shelby is a longtime skeptic of government intervention in the private market.

 

[iamnaked]

Good article Gardner.

When banks lend money they typically do it in instalments... which a lot of businesses rely on to keep their cashflow situation from causing them to going under in the short run. You have to weigh the risk of moral hazard very carefully against the risk of obliterating all these businesses.

Perhaps it's not such a no brainer.

Like at a badly out of control drinks party, sometimes you have to keep the punch flowing to get the ugly out the door.

I just wonder how they're going to pay for this. I heard as a politician wanting to raise taxes in America is tantamount to publicly admitting how proud you are to be a child molester.

 

[Cassin]

...........I heard as a politician wanting to raise taxes in America is tantamount to publicly admitting how proud you are to be a child molester.

hahahahahahaha......too funny and so true. If you want to kill your career just mention you want to raise taxes.

hilarious analogy :bravo:

 

[hair_tomorrow]

The economy is in a meltdown - no doubt about it.

And not that I have a crystal ball - but I have a very uneasy feeling that it's going to get much worse before it gets any better.

It may bounce back just a tad after the presidential elections - then it should really nose-dive. Prepare now for the worst.

My best advice is to think liquidity.

Ease up on and pay off your credit cards.
Keep putting $$ into your 401K - but by no means hit it up as a short term cash reserve.
Don't put your money into CDs - especially long term CDs (interest rates suck and your $$ gets tied up - not to mention tax hits and penalties on early withdrawls).
If you own a home - now is not the time to take on a second mortgage or dip into the equity you may have built up.
If you're gainfully employed - do whatever it takes to hold onto your job.

It's going to be a very bumpy ride.

Start living more frugally and build up your cash reserves.

 

[Lucky_UK]

If you own a home - now is not the time to take on a second mortgage or dip into the equity you may have built up.

Especially people who have bought a house in the past 2-3 years ( like me ) if you release your equity then your mortgage payments will increase, another 0.5% in intrest rates would be too much for some people.

My advice is if you have over £35k / $50k in savings, put it in seperate banks, just make sure the banks are totally independant than each other so if either go bust you will get 100% of your hard earned cash back.

 

[iamnaked]

Apologies to any who've already seen this gem from Euromoney. I thought it was rather good!

If you had purchased £1000 of Northern Rock shares one year ago it would now be worth £4.95, with HBOS, earlier this week your £1000 would have been worth £16.50, £1000 invested in XL Leisure would now be worth less than £5, but if you bought £1000 worth of Tennents Lager one year ago, drank it all, then took the empty cans to an aluminium re-cycling plant, you would get £214. So based on the above statistics the best current investment advice is to drink heavily and re-cycle.

Who said investment has to be boring unk:

 

[Starseed]

Brilliant! ( but I'd probably have bought "Kestrel Super Strength" m'self...)





Boys...Did you know that you can get your "Edited n times in total" up to double figures just by leaning on the Edit/Submit buttons? Very nice way to pass the time ...
.

 

[Starseed]

My advice is if you have over £35k in savings, put it in seperate banks, just make sure the banks are totally independent than each other so if either go bust you will get 100% of your hard earned cash back.

The £35k limit as you say only applies PER AUTHORISATION, and often there's just one authorisation for a banking group containing several companies. For example, LLoyds now contains Halifax, Bank Of Scotland plus others. Finding out what the groupings are is pretty near impossible. The FSA website is supposed to help, but it doesn't. Not that it affects me much.

( The exception of course is Northern Wreck, where the Govt. has guaranteed deposits up to ANY amount, not just £35k. Nice irony here....)

Best advice is to stick to Building Societies ( US: Savings and Loans), and f*ck the banks.

( and the gurantee limit in America is $100,000 . Don't know about the grouping rule there tho..)

 

[Lucky_UK]

correct, theres a site where you can check whether co owned banks share the same licence, for example: RBS owns Natwest, but both banks are seperately licenced so as long as you have no more than £35k in each of the banks you should be safe.

or for 100% money protection then NS&I (gov't owned) is a safe option but their rates are amongst the lowest and the method of withdrawing / transferring is very olde worlde :freak:

 

[The Gardener]

or for 100% money protection then NS&I (gov't owned) is a safe option but their rates are amongst the lowest and the method of withdrawing / transferring is very olde worlde :freak:

How funny, I was just about to add in a reply stating that another safe place to park funds in the US is a "Treasuries Only Money Market" account and I wondered if there were a British counterpart of the same vehicle.

Just as you said, rates are very low, in fact the demand for these bonds is so high that the yield has actually been slightly negative... but your principal is safe.

 

[Lucky_UK]

Yep

This link shows who owns who (UK)

http://www.thisismoney.co.uk/saving-and ... _page_id=7

 

[Starseed]

Man, you've just filled a hole for me. I could probably have found it, but you know how things are - other things demand your attention, like women, intoxicants, shopping, cooking, & bloody cleaning, & trying to stay healthy. Part of my income comes from a monthy-interest deal from the Chelsea Building Soc (2 year fixed interest deal) which expires next month & I have to re-invest somewhere.

Forewarned is forearmed. Meanwhile -

Keep a clean nose
Watch the plain clothes
You don't need a weatherman
To know which way the wind blows

- Bob Dylan "Subterranean Homesick Blues"

.

 

[badasshairday III]

This bailout bullshit isn't going to work. I just went grocery shopping today, and I already notice the price of things going up even more.

 

[The Gardener]

This bailout bullshit isn't going to work. I just went grocery shopping today, and I already notice the price of things going up even more.

Inflation is not the menace being held at bay.... the inflation you are seeing is due to commodity hoarding as a symptom of institutional fear. The true menace is deflation, which is the specter that will be unleashed if the banking credit system fails.

 

[iamnaked]

700bn from the government to bail out Wall Street? I can't believe the cheek of these guys, or how badly the government is playing its hand. It should be a treasury bonds for shares swap, not some shitty exchange in which the government gets the toxic waste and the city boys start high fiving over their champagne.

 

[badasshairday III]

700bn from the government to bail out Wall Street? I can't believe the cheek of these guys, or how badly the government is playing its hand. It should be a treasury bonds for shares swap, not some shitty exchange in which the government gets the toxic waste and the city boys start high fiving over their champagne.

Seriously. Privatize the gains and socialize the losses. BULLSHIT. Free market my ***.

 

[Harie]

The bailout plan is the biggest crock of sh*t ever. I'm forced to pay for poorly run businesses that should by all rights go under. The rich get richer because fcuking government allows corruption and poor business practices to continue. Free market my ***. It's about as free as it is in China and just as corrupt.

Wednesday, September 24, 2008

Dear Friends,

Whenever a Great Bipartisan Consensus is announced, and a compliant media assures everyone that the wondrous actions of our wise leaders are being taken for our own good, you can know with absolute certainty that disaster is about to strike.

The events of the past week are no exception.

The bailout package that is about to be rammed down Congress' throat is not just economically foolish. It is downright sinister. It makes a mockery of our Constitution, which our leaders should never again bother pretending is still in effect. It promises the American people a never-ending nightmare of ever-greater debt liabilities they will have to shoulder. Two weeks ago, financial analyst Jim Rogers said the bailout of Fannie Mae and Freddie Mac made America more communist than China! "This is welfare for the rich," he said. "This is socialism for the rich. It's bailing out the financiers, the banks, the Wall Streeters."

That describes the current bailout package to a T. And we're being told it's unavoidable.

The claim that the market caused all this is so staggeringly foolish that only politicians and the media could pretend to believe it. But that has become the conventional wisdom, with the desired result that those responsible for the credit bubble and its predictable consequences - predictable, that is, to those who understand sound, Austrian economics - are being let off the hook. The Federal Reserve System is actually positioning itself as the savior, rather than the culprit, in this mess!

- The Treasury Secretary is authorized to purchase up to $700 billion in mortgage-related assets at any one time. That means $700 billion is only the very beginning of what will hit us.

- Financial institutions are "designated as financial agents of the Government." This is the New Deal to end all New Deals.

- Then there's this: "Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency." Translation: the Secretary can buy up whatever junk debt he wants to, burden the American people with it, and be subject to no one in the process.

There goes your country.

Even some so-called free-market economists are calling all this "sadly necessary." Sad, yes. Necessary? Don't make me laugh.

Our one-party system is complicit in yet another crime against the American people. The two major party candidates for president themselves initially indicated their strong support for bailouts of this kind - another example of the big choice we're supposedly presented with this November: yes or yes. Now, with a backlash brewing, they're not quite sure what their views are. A sad display, really.

Although the present bailout package is almost certainly not the end of the political atrocities we'll witness in connection with the crisis, time is short. Congress may vote as soon as tomorrow. With a Rasmussen poll finding support for the bailout at an anemic seven percent, some members of Congress are afraid to vote for it. Call them! Let them hear from you! Tell them you will never vote for anyone who supports this atrocity.

The issue boils down to this: do we care about freedom? Do we care about responsibility and accountability? Do we care that our government and media have been bought and paid for? Do we care that average Americans are about to be looted in order to subsidize the fattest of cats on Wall Street and in government? Do we care?

When the chips are down, will we stand up and fight, even if it means standing up against every stripe of fashionable opinion in politics and the media?

Times like these have a way of telling us what kind of a people we are, and what kind of country we shall be.

In liberty,

Ron Paul

 

[Harie]

You know - after I posted the above, I did some digging into the proposal and as long as it is changed to have some checks and balances, it just may work. The govt buys up the bad mortgages - mortgages that are only bad because homeowners can't afford payments anymore - and restructures payment schedules to allow homeowners to make payments. It's not beyond the reach of the govt to allow amortization schedules of 50 years if need be...As long as something is being paid.

Plus, the govt has time on it's side. It can afford to keep this bad mortgages on the books for years and years without an issue. They just have to wait till the economy recovers - which it eventually will and then sell. If they play their cards right, they could make $$ on this whole deal.

That is, of course, assuming that checks and balances are added to the deal.

IMO, things that need to be addressed are:

1. Who values what the mortgages & assets are worth? If the mortgages are in default, they are obviously not worth mkt value. Nothing should be bought at mkt value. The companies need to have all assets/expenses looked at. If the CEO/CFO/CIO etc make 5 million/year, their salaries should be slashed down to the max amt that a govt employee makes.

2. Will any fines/penalties be levied against those in charge of the failed lending institutions? It was their own lax credit policies that got us into this mess...

3. Anyone that falsified paperwork to get a loan should be prosecuted.

4. The clause that gives the Secretary immunity and absolves him of any wrongdoing needs to be removed.

5. Some sort of program that allows homeowners to restructure loans directly with the govt should be addressed and added.