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Thread: Finance Market Bailout, Stock Market Reaction, other reasons to love Washington right now....

  1. #1

    Default Finance Market Bailout, Stock Market Reaction, other reasons to love Washington right now....

    As I am posting, today's 777-point loss on the Dow is currently the largest point drop to date and as a percentage, it's still one of the larger drops ever(over 7%). Coincedentally, the price of oil also dropped (over $10...the largest ever); typically, oil fares well on bad days for stocks (since it is a tangible good, which is why gold is so expensive).

    Anyways, what I wanted to ask ...what are everyone's thoughts/feelings on the whole "bailout" idea? Basically, I'm pretty disappointed that they worked all weekend to come up with something, only to shoot it down (although the fact that the nays were not completely partisan suggest maybe the plan may have been imperfect). One would think that the CURRENT Congress would want this done, rather than waiting 3 months; the economy can't wait that long just because some people want to save their seats in Congress.

  2. #2


    The value of the dollar is up considerably today, too. Thank god the bailout wasn't passed.

    This guy knows what he's talking about:

    Quote Originally Posted by Jeffrey A. Miron, Economist and Libertarian

    CAMBRIDGE, Massachusetts (CNN) -- Congress has balked at the Bush administration's proposed $700 billion bailout of Wall Street. Under this plan, the Treasury would have bought the "troubled assets" of financial institutions in an attempt to avoid economic meltdown.This bailout was a terrible idea. Here's why.

    The current mess would never have occurred in the absence of ill-conceived federal policies. The federal government chartered Fannie Mae in 1938 and Freddie Mac in 1970; these two mortgage lending institutions are at the center of the crisis. The government implicitly promised these institutions that it would make good on their debts, so Fannie and Freddie took on huge amounts of excessive risk.

    Worse, beginning in 1977 and even more in the 1990s and the early part of this century, Congress pushed mortgage lenders and Fannie/Freddie to expand subprime lending. The industry was happy to oblige, given the implicit promise of federal backing, and subprime lending soared.

    This subprime lending was more than a minor relaxation of existing credit guidelines. This lending was a wholesale abandonment of reasonable lending practices in which borrowers with poor credit characteristics got mortgages they were ill-equipped to handle.
    Once housing prices declined and economic conditions worsened, defaults and delinquencies soared, leaving the industry holding large amounts of severely depreciated mortgage assets.

    The fact that government bears such a huge responsibility for the current mess means any response should eliminate the conditions that created this situation in the first place, not attempt to fix bad government with more government.
    The obvious alternative to a bailout is letting troubled financial institutions declare bankruptcy. Bankruptcy means that shareholders typically get wiped out and the creditors own the company.

    Bankruptcy does not mean the company disappears; it is just owned by someone new (as has occurred with several airlines). Bankruptcy punishes those who took excessive risks while preserving those aspects of a businesses that remain profitable.
    In contrast, a bailout transfers enormous wealth from taxpayers to those who knowingly engaged in risky subprime lending. Thus, the bailout encourages companies to take large, imprudent risks and count on getting bailed out by government. This "moral hazard" generates enormous distortions in an economy's allocation of its financial resources.

    Thoughtful advocates of the bailout might concede this perspective, but they argue that a bailout is necessary to prevent economic collapse. According to this view, lenders are not making loans, even for worthy projects, because they cannot get capital. This view has a grain of truth; if the bailout does not occur, more bankruptcies are possible and credit conditions may worsen for a time.
    Talk of Armageddon, however, is ridiculous scare-mongering. If financial institutions cannot make productive loans, a profit opportunity exists for someone else. This might not happen instantly, but it will happen.

    Further, the current credit freeze is likely due to Wall Street's hope of a bailout; bankers will not sell their lousy assets for 20 cents on the dollar if the government might pay 30, 50, or 80 cents.

    The costs of the bailout, moreover, are almost certainly being understated. The administration's claim is that many mortgage assets are merely illiquid, not truly worthless, implying taxpayers will recoup much of their $700 billion.

    If these assets are worth something, however, private parties should want to buy them, and they would do so if the owners would accept fair market value. Far more likely is that current owners have brushed under the rug how little their assets are worth.
    The bailout has more problems. The final legislation will probably include numerous side conditions and special dealings that reward Washington lobbyists and their clients.

    Anticipation of the bailout will engender strategic behavior by Wall Street institutions as they shuffle their assets and position their balance sheets to maximize their take. The bailout will open the door to further federal meddling in financial markets.

    So what should the government do? Eliminate those policies that generated the current mess. This means, at a general level, abandoning the goal of home ownership independent of ability to pay. This means, in particular, getting rid of Fannie Mae and Freddie Mac, along with policies like the Community Reinvestment Act that pressure banks into subprime lending.

    The right view of the financial mess is that an enormous fraction of subprime lending should never have occurred in the first place. Someone has to pay for that. That someone should not be, and does not need to be, the U.S. taxpayer.

  3. #3


    I think this is a really fvcked up situation... and wall street is completely to blame. Personally I think the CEOs and board members of these lending companies should all be hunted down by the FBI and brought up on charges of terrorism. Their unethical profit-mongering haa caused more damage to the US economy than the attacks of 9/11... and they didn't have to kill a single person. The fallout from the events of the past year will take at least the next 20 years to get over... possibly longer than that. The rich bastards up in new york have screwed us all folks... we should be thanking them. In the future it is going to be nearly impossible to buy a house or get a loan to start a business or buy a car without a substancial amount of collateral down up-front.... I'm talking 10-25%... I don't know about y'all... but I don't have $10,000 to $25,000 sitting around... and it will take 5-10 years to save that much.

  4. #4


    I hate to say it, but the "easy credit" which was so readily available in the past decade is largely to blame. Lenders lent money to way too many people who couldn't pay and now they are paying the price. The bailout plan was not to just give 700 Billion to the big banks, rather to allocate that money in a loan format with pretty bad terms. This is really not much better than the banks giving loans to people who had bad credit. I say, give this some time, and it will get better.

    I know the last week was bad, and the last few months have been pretty horrible for the economy, but the nation will be ok.

  5. #5


    Honestly I'd rather see all these billions of dollars distributed as stipend checks to the American people. Don't we deserve it instead of the money-grabbers on wall street?

    Let's not forget to count the 10 billion a month wasted on that war in Iraq which has been going on for 6 years now...

    let's see... that would have been 720 billion right there... more than enough to cover that "bailout plan" and it wouldn't have cost the American people anything more...

  6. #6


    Sorry, Darkfinn, but those people that took those loans when they knew they couldn't pay them back are to blame also, along with the people that overvalued homes, the loan officers that made the loans to get their commissions, etc. It is not just the CEO's and board members.

    The problem with what the esteemed Mr. Miron has to say is that they based upon his politics. The debts are worth something, because most of them were used to buy houses, and the houses have value, but financial institutions don't want the houses, they want the money. Most of the people that have these mortgages can't pay them back to a bank. The government could refinance these loans, extending the length of time that the loan would be paid back, reducing the monthly payments to what they can pay. It will end up costing the "government" something, but it won't be the $700 Bn.

    But the government has to do something to prevent this from happening again.

  7. #7


    In all likelyhood, it'll bounce back. It always has in the past, but it still nonetheless is going to make things hard for now in the USA

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  9. #9


    Yea I lost 10G... Bush should shut up and leave the market to it's own.

    I blame greedy morgage officers and especally real estate agents. The realtors notch up the prices just out of reach for greater comissions and the lenders created thease crazy loans for people who can't afford them so they can get their comissions. Then they buyers defalt and the banks go down their long gone with their cut in their pocket. When I bought my home (15 years ago) My morgage with taxes and insurance had to be less than 1/3 my income. The kid that works wtih me got one for 100% of his pay two years ago. He is having major problems now that overtime is limited.

    If George W. does get a bail out plan passed it should recover the money from the greedy salesmen.


  10. #10


    Quote Originally Posted by Darkfinn View Post
    I think this is a really fvcked up situation... and wall street is completely to blame..
    Since people who take out loans that don't pay back can not be at fault at all or people who take out adjustable loans thinking the rate can only go down, not up.

    Really even when these adjustable loans were all the rage you could still find fixed rates, my dad did. Quit trying to only blame CEO's and BS, you can at least admit its EVERYBODY'S fault instead of blaming people who in actuality do hard work (though not labor) looking after a company that employees thousands if not millions of people.

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