They are not buying anything. Bad debt is worth zero. What they do is inflate money supply by $700,000,000,000. This money will not be paid back. All it will do is further increase national debt.
Alright you guys, I think there are a lot of misconceptions going around. For it or against it, your opinion should be based on facts. This is what I have been able to find out:
Back in 2001 or so the housing market began to pick up steam. A lot of credit was available and interest was low, so many people were able to obtain credit. As housing continued to rise people expected to turn a profit from their house and were willing to pay more. Housing prices doubled in some areas, and in hot areas they trippled. Here’s where the problem comes in: the companies selling mortgages gave loans to people without properly insuring they could pay. They assumed, as did homeowners, that the investment was solid so even in a pinch they could get there money back.
Now, with the economy going south, housing prices leveled. People stopped buying so much, and some people were layed off. They all needed to sell there homes, and it helped home values go down. As the home values plummeted, bankruptcies from people unnable to pay their debt increased because people who got fired could not sell.
The cost caused by the defaults wasn’t really what caused the problems. The mortgages are sold, chopped up into little pieces called security bonds and the owners get payed a divedend from homeowners through banks and so forth. As bankrupcies increased, the value of these bonds dropped along with investor confidance. These bonds, and the companies that purchased them, are very important to the flow of currency in America and the world.
What “the bailouts” propose to do is purchase these security bonds from the private sector. Because of the way the bonds are chopped up into bonds, the good loans and the bad debt are all lumped together. So, only about 5%(assuming there isn’t a major economic catastrphe[again]) of the loans purchased would be bad. Also, since the values have been driven down largely by poor investor confidance, they are likely to go up in value because they are at a historic low in price.
Now, there are many people being blamed. Greedy “shark” lenders making high-risk subprime loans, republicans(including McCain) deregulating certain aspects of the financial system, Bill Clinton’s push for available housing that made rules that made it harder for lenders to reject risky loans.
The main problems I have with the bill as it is proposed is that it is not simply a one time purchase. That wouldn’t be so bad, assuming we can recoup our losses to a certain extent. But it is a huge complicated thing, with a regulatory commity and sweeping powers for Chancellor Palpetine, excuse me, the Federal reserve(actually, I’m not sure about this part, but the rumors i’ve heard arn’t good). And some poelpe want to get all controlling and governmental in the big financial companies and that always messes stuff up.
So I’m on the fence. Bill O’reilly and Glenn Beck(seriously, the illuminati must have kidnapped his family, he was shooting blood out his eyeballs over the proposal friday, then monday he was all for it) both think its neccesary, so does my financial assets dude friend, but I am still unsure. I like the freemarket, the rules just need to make it fair, not socialist.
Aww, geez…
Did you have to come along and spoil it with all them facts?
I wouldn’t claim to be a socialist or a capitalist. There has to be a balance between extremes.
An unrestrained free market is definitely not beneficial for the common good, but too much regulation centralises power to the government and breeds corruption. Unfortunately balance is rare and we seem to keep flipping between extremes.
P.S. If you are taking advice from Bill O’Reilly, good luck to ya.
Yes, but the non-bad loans won’t be counted against the $700bn.
$700bn is the value that is expected to be written off. Fresh money created out of thin air.
Will it cure the markets? Probably not. Economists say the actual meltdown will be in the $62 trillion CDS market. That is almost 5 times the volume of the entire US GDP.
…and if the rest of the world start calling in their debts…
:eek:
It’s interesting to note how divided the Republicans are on this issue. Nationalising banks to save the free market must be a bitter pill for a conservative to swallow.
To those who oppose the bailout: what’s the plan B?
Take a look at my post about the same topic, an everyone’s duty to watch:
The financial meltdown the economists of the Austrian School predicted has arrived.
We are in this crisis because of an excess of artificially created credit at the hands of the Federal Reserve System. The solution being proposed? More artificial credit by the Federal Reserve. No liquidation of bad debt and malinvestment is to be allowed. By doing more of the same, we will only continue and intensify the distortions in our economy - all the capital misallocation, all the malinvestment - and prevent the market’s attempt to re-establish rational pricing of houses and other assets.
Last night the president addressed the nation about the financial crisis. There is no point in going through his remarks line by line, since I’d only be repeating what I’ve been saying over and over - not just for the past several days, but for years and even decades.
Still, at least a few observations are necessary.
The president assures us that his administration “is working with Congress to address the root cause behind much of the instability in our markets.” Care to take a guess at whether the Federal Reserve and its money creation spree were even mentioned?
We are told that “low interest rates” led to excessive borrowing, but we are not told how these low interest rates came about. They were a deliberate policy of the Federal Reserve. As always, artificially low interest rates distort the market. Entrepreneurs engage in malinvestments - investments that do not make sense in light of current resource availability, that occur in more temporally remote stages of the capital structure than the pattern of consumer demand can support, and that would not have been made at all if the interest rate had been permitted to tell the truth instead of being toyed with by the Fed.
Not a word about any of that, of course, because Americans might then discover how the great wise men in Washington caused this great debacle. Better to keep scapegoating the mortgage industry or “wildcat capitalism” (as if we actually have a pure free market!).
Speaking about Fannie Mae and Freddie Mac, the president said: “Because these companies were chartered by Congress, many believed they were guaranteed by the federal government. This allowed them to borrow enormous sums of money, fuel the market for questionable investments, and put our financial system at risk.”
Doesn’t that prove the foolishness of chartering Fannie and Freddie in the first place? Doesn’t that suggest that maybe, just maybe, government may have contributed to this mess? And of course, by bailing out Fannie and Freddie, hasn’t the federal government shown that the “many” who “believed they were guaranteed by the federal government” were in fact correct?
Then come the scare tactics. If we don’t give dictatorial powers to the Treasury Secretary “the stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet.” Left unsaid, naturally, is that with the bailout and all the money and credit that must be produced out of thin air to fund it, the value of your retirement account will drop anyway, because the value of the dollar will suffer a precipitous decline. As for home prices, they are obviously much too high, and supply and demand cannot equilibrate if government insists on propping them up.
It’s the same destructive strategy that government tried during the Great Depression: prop up prices at all costs. The Depression went on for over a decade. On the other hand, when liquidation was allowed to occur in the equally devastating downturn of 1921, the economy recovered within less than a year.
The president also tells us that Senators McCain and Obama will join him at the White House today in order to figure out how to get the bipartisan bailout passed. The two senators would do their country much more good if they stayed on the campaign trail debating who the bigger celebrity is, or whatever it is that occupies their attention these days.
F.A. Hayek won the Nobel Prize for showing how central banks’ manipulation of interest rates creates the boom-bust cycle with which we are sadly familiar. In 1932, in the depths of the Great Depression, he described the foolish policies being pursued in his day - and which are being proposed, just as destructively, in our own:
Instead of furthering the inevitable liquidation of the maladjustments brought about by the boom during the last three years, all conceivable means have been used to prevent that readjustment from taking place; and one of these means, which has been repeatedly tried though without success, from the earliest to the most recent stages of depression, has been this deliberate policy of credit expansion.
To combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about; because we are suffering from a misdirection of production, we want to create further misdirection - a procedure that can only lead to a much more severe crisis as soon as the credit expansion comes to an end… It is probably to this experiment, together with the attempts to prevent liquidation once the crisis had come, that we owe the exceptional severity and duration of the depression.
The only thing we learn from history, I am afraid, is that we do not learn from history.
The very people who have spent the past several years assuring us that the economy is fundamentally sound, and who themselves foolishly cheered the extension of all these novel kinds of mortgages, are the ones who now claim to be the experts who will restore prosperity! Just how spectacularly wrong, how utterly without a clue, does someone have to be before his expert status is called into question?
Oh, and did you notice that the bailout is now being called a “rescue plan”? I guess “bailout” wasn’t sitting too well with the American people.
The very people who with somber faces tell us of their deep concern for the spread of democracy around the world are the ones most insistent on forcing a bill through Congress that the American people overwhelmingly oppose. The very fact that some of you seem to think you’re supposed to have a voice in all this actually seems to annoy them.
I continue to urge you to contact your representatives and give them a piece of your mind. I myself am doing everything I can to promote the correct point of view on the crisis. Be sure also to educate yourselves on these subjects - the Campaign for Liberty blog is an excellent place to start. Read the posts, ask questions in the comment section, and learn.
H.G. Wells once said that civilization was in a race between education and catastrophe. Let us learn the truth and spread it as far and wide as our circumstances allow. For the truth is the greatest weapon we have.
-Ron Paul
Wise words from a wise man…
I saw the film you presented here. It’s very interesting and informative. I highly recommend it to those who are concerned about this issue.
P.S. If you are taking advice from Bill O’Reilly, good luck to ya.
I was just noting that even prominent smaller government free market proponents are advocating the bailouts, and I do think his viewpoints are worth considering.
It’s interesting to note how divided the Republicans are on this issue. Nationalising banks to save the free market must be a bitter pill for a conservative to swallow.
To those who oppose the bailout: what’s the plan B?
Nationalizing the banks wouldn’t be such a bitter pill to take if it was administered orally.
And I think plan B is to let the failed companies liquidate naturally and bite the bullet, letting the free market absorb the cost and right itself. The idea is that we would have a natural return to normal now, rather than artificially increasing the size of the withdrawals but pushing them back. Basically it’s a debate about how bad biting the bullet would be and whether the bailouts would just make the collapse bigger or or work.
That Ron Paul quote is pretty convincing. I bet he could have done bette rin the primaries if this had happened yet.
An interesting link::eek:
Closing the ‘Collapse Gap’: the USSR was better prepared for collapse than the US
“I hope that I didn’t make it sound as if the Soviet collapse was a walk in the park, because it was really quite awful in many ways. The point that I do want to stress is that when this economy collapses, it is bound to be much worse. Another point I would like to stress is that collapse here is likely to be permanent. The factors that allowed Russia and the other former Soviet republics to recover are not present here.
In spite of all this, I believe that in every age and circumstance, people can sometimes find not just a means and a reason to survive, but enlightenment, fulfillment, and freedom. If we can find them even after the economy collapses, then why not start looking for them now?”
Incidentally, I disagree with Mr. Orlov’s conclusion that a collapse in the US will be worse… there will probably be more whining per capita, but ultimately Americans will learn to live without SUVs and cheap consumer goods rather quickly, I think.
Less like Mad Max and more like The Waltons.
Edit:… and for those of you too young to remember, check out this Simpson’s Clip:
I haven’t seen the waltons …
All this really boils down to is trying to keep the ball rolling. The proposed bill is a horrible horrible idea (not just for the 700 billion… that’s not even close to the worst aspect of that bill) and the end result will be Great Depression 2.0. The reason the depression was so bad in the 30’s was because the government fixed prices and wages. Companies were losing money hand over fist and to continue doing business with the fixes they had to let people go. There were massive lay-offs and firings of employees, no one had any money, yet the prices were fixed for the sake of business. They were afraid businesses would start raising prices to compensate for losses, and that people would be making the same amount, thus the cost of living would go up. In reality, because the businesses couldn’t lower wages, couldn’t lower or raise prices because the market on goods wasn’t allowed to adapt to the new market, businesses went belly up, people lost work and no one could afford anything at all.
This bill effectively does the same thing, but at present it only affects construction, housing and credit industries. They are trying to game the system and keep these banks from collapse by taking the burden from them and allowing them to just continue doing business as usual. The problem with that is that business as usual is what got us here in the first place, and no one will be held accountable for these bad practices. The credit companies are next. The credit bubble is on the same level as the housing bubble. So many people have credit card debt, and these companies are using the same tactics for that debt as the lending industry did with the mortgages. No one has brought this up yet, but I guarantee you that it will start popping up eventually. You don’t have an average credit card debt of $40,000 per american citizen for very long without realizing that there’s something fishy going on with the credit there. When peole start losing their jobs and start defaulting on their credit card bills en mass, that will be the next big thing to worry about. If this bill is allowed to pass, then there will be no way to cushion that fall unless all of THAT debt gets wiped clean by the fed as well. Why do you think there’s a provision in the bill that allows the fed to make policy without any other authority oversight for two years. They don’t have to answer to anyone for two years.
The solution in the bill is basically “print so much money that the debt becomes payable because the value of the dollar is so small at that point”. The problem with that solution is that it affects everyone’s dollar, not just the debt. We’ll all be making less, companies will start feeling a huge pinch, people will start being laid off, and what you end up with is the exact scenario that caused the first Great Depression.
The alternative - which is really too late to prevent disaster, but would prevent it from lasting as long as the first depression - is to just let these debt-holding institutions collapse, be bought by other banks and have the economy fix itself. Yes, it will be a bad time, and many people will lose their jobs and many companies will go under and our economy will nose dive, but it will be easier to clean up and faster to get back on track. The solution being offered right now is a temporary fix that will continue to get weighted down, our economy wilting for another year or so and then eventually have a catostrophic collapse all at once. The solution to prevent that is to allow banks to fail, have their assets be gobbled up by other banks - where those assets will not be so illiquid - and which will prevent the damage from filtering too far out from wall street. The reason the people on Wall Street don’t like that solution is because THEY will be the ones losing all of their money. It would be catastrophic for THEM. Well, for most of them, anyway. It would be bad for us as well, but not nearly as bad as they’re trying to convince us it would be.
Note - I’m pretty much wsted on cold/flu medication right now, so if something in here doesn’t make any sense, I blame the meds.
hello all,
how bad will be the effect to other countries if this continues?
Quite bad.
Nothing really. Only if China should collapse the rest of the world will be in trouble.
Only people in the USA thinks it will go bad around the world if the economy of US fails.
US is going down due fuel based economy , Asia has a strong economy based more on technology (check your pc is made in Taiwan , Singapore, Japan , Thailand …) all the manufacturers of electronic equipment is in Asia 99% , EU economy is based on gold not fuel.
US has that politic for ages “The whole world will collapse if we do!” bulshit!
They begun the war , they did got 2 atomic bombs on Japan ? And still bombed 3 others for they fuel agony!
PS: I`m crazy everything I write it is a fiction not my real thinking
Actually, Messrs. Paulson and Bernanke propose to do both.
PapaSmurf if that be case, then you don’t owe the banksters any loyalty. The Banks let those small businesses’ fall without a care, but yet when Banksters face collapse they want your full compassion.
The badly managed banks do not have my “full commpassion”, in fact the opposite. For example, I loathe Wachovia and Lehman. I bank at BB&T, and fully support them, because they are a well-run company. I have legal obligations to banks, not loyalty. I have switched banks in a heartbeat. I think that if a company runs itself into bankruptcy, let the chips fall where they may.
I have compassion for the tens of thousands of finance people who have lost their jobs recently, just like I have compassion for tens of thousands of IT people who have lost their jobs (HP-EDS) recently. Heck, I have compassion for me as I search too! I have anger against CEOs who pocket tens of millions for running their company into the ground.
Regarding loyalty, My grandfathers fought and died to make this country. I am loyal to it, so long as it is loyal to our Constitution. Enacting legislation to create King Paulson would be treason.
um, Germany began WWII. The US got involved when we stopped selling fuel to Japan for their fleet, and they retaliated by bombing Pearl Harbor, and then all heck broke loose.
It now appears that congress is determined to shove this ‘solution’ up our rectum by the end of this weekend. They have however agreed to do it in stages. I’m not sure if that is to reduce the pain or maximize the fun (for them.)
Of course, since the government is not in the real estate business, any actual assets, they acquire will need to be offloaded to a bank or something so then the banks will hold both the title and the new loans as these properties go back on the market. You will be truly blessed to be owned by a house.
US is going down due fuel based economy , Asia has a strong economy based more on technology (check your pc is made in Taiwan , Singapore, Japan , Thailand …) all the manufacturers of electronic equipment is in Asia 99% , EU economy is based on gold not fuel.
So the US is not based on technology? And Asia and Europe don’t require energy and fuel? How do they get their electronics to market? What exactly do you mean by “the EU is a gold based economy”?
The euro isn’t backed by gold, and the gold trade simply could not support an entire continent. Maybe Switzerland.
Things will probably be worse in the United States, but without their primary market Asia and the EU will have some problems too. We’re all in this together.
Yes we are all in this together.