|
The Great Bailout |
Save America Plan |
| Winners |
Foreign and U.S. investors in, and foreign and U.S. management and employees of, financial companies in and outside the U.S. |
Americans |
| Losers |
Americans |
Foreign and U.S. investors in, and foreign and U.S. management and employees of, financial companies in and outside the U.S. |
| Borrows from American taxpayers |
Yes, over $700 billion with high risk of not being paid back |
Yes, much less than $700 billion with near zero risk of not being paid back |
| Deposit and investment account insurance |
Weakens them by weakening FDIC, NCUA, and SIPC |
Strengthens them by strengthening FDIC, NCUA, and SIPC |
| Money market fund insurance |
Yes, temporary and limited funding |
Yes, permanent and unlimited funding |
| Inflation |
Raises inflation a lot, costing Americans more to live |
Raises inflation a little |
| Management of surviving financial companies |
As weak as they are today |
Much stronger than they are today |
| Liquidity |
Uses a new unproven method to inject cash into the financial system to reestablish the flow of credit |
Uses existing proven methods to injects cash into the financial system to reestablish the flow of credit |
| Toxic, high risk loans/debt |
Bought by the Treasury at over-market prices and held for a long time, gambling that buyers will eventually pay more than the inflated purchase price |
Briefly held by FDIC, NCUA, and SIPC before being resold to willing buyers at market prices |
| Housing prices |
Fall to sustainable levels slowly, delaying the recovery |
Fall to sustainable levels quickly, speeding the recovery |
| Concentration of power |
Treasury, which has strong ties to Wall Street |
FDIC, NCUA, SIPC, and the Federal Reserve, who have a long history of serving Main Street |
| American education |
Weak focus on safety of deposit accounts and money market funds |
Strong focus on safety of deposit and investment accounts, safety of money market funds, and financial management of houses and investments |
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It was brought about by some very greedy individuals who invented complex financial instruments that concealed what they were doing - buying and selling things they did not own or that did not exist and treating the profits gained thereby as real money, which they took as commissions or profits. Also lending money to people who were notorious for not paying it back at rates that could not be sustained.
Looked at practically, and logically, this is clearly bonkers, and would sooner or later start unravelling. Unfortunately, these people had by then taken their profits, commissions and fat pay checks and vanished before they could be brought to account, leaving the rest of us to pick up the pieces and pay for the consequences.
Originally the finance industry was a world where trust was the order of the day, and a man's word was supposed to mean something. If a man shook your hand and said he would pay you back, that was enough for you to give him the money. Unfortunately that trust is now gone, and a man's promise has been rendered meaningless by a greedy and unscrupulous few.
I am simply amazed that the so-called clever people running our major financial institutions could all be so stupid as to allow this to happen and even more amazed that when it has, how quick they are to hold their hand out begging for help. They should all be strung up and left to rot as an example, so this never happens again.
Why do you want to save the FDIC, the NCUA and the Fed Reserve? Let it all crumble and it will get reinvented...
During WWII they re-invented the monetary system as a means to more easily trade and barter goods. it happened that they used cigarettes as they common currencies. The moral of the story is that if we make a tabula rasa... we will most probably return to a similar situation.
So whether we save the "investors" or some "Americans" s not exactly how I look at the problem. The question is whether we want to re-distribute the wealth -or whatever is left- and how.
Whether you trust that Mr Paulson, Mr. Bernanke and Pres. Bush are a lot smarter than the "system" and that the system left to by its own will be better. Will de-privatizing our financial sector -even for a short term- be better than letting the free market economy forces reach an equilibrium without external interventions? In general many agree that a government intervention may avoid or delay a serious meltdown of the economy on the very short term. But I am not sure this is necessarily good.
The real loser if this happens is China... They are the ones with most at stake here. And they are not leveraging their surplus to do anything.
The bottom line: It depends what Paulson, Bernanke and Bush do when they redistribute the wealth.
Now let me put my "out of the box" thinking hat on. Why did we save Fannie and Freddie? The whole system came down crushing, lenders took too many risk (to keep fueling the growth engine). Now let's say we did not save any of the lending institution, and they went bankrupt in a way where both your deposits are gone as well as your debts. Nothing survives. This means that anyone who borrowed money from WAMU to buy a house would own their house and see their debt written off. The loser are obviously the people who lend money and the winner are those who borrowed money. That's one way to redistribute wealth. Is it fair? I would challenge that this is pretty close to a zero sum game ... value is not created. and therefore redistributing the wealth is never fair to everyone.
I don't think our nation's leaders would be inclined to intervene, if it were not for all the outside.foreign investments being at risk and what wide spread defaults and system failures would do to our reputation in the world, not to mention the impending presidential election.
Over the years, the "experts" and advisors have always recommended investment abroad to balance one's portfolio. I always shyed away from that because I felt that I would be investing in a black hole, where finanicial reports were prepared under unknown or unsupervised standards and the geo-political risks were unfamiliar to me. Now America has become such a black hole. It is embarrasing to us as a nation and because of that, we cannot afford noattempt to intervene. A bad remedy would be better than no remedy.
P.S. Having felt that none of the 4 top executive candidates in this coming election were worthy of their target offices, considering our large population, I had not intended to vote in November. Now that I've seen how a bad president can bring a country to ruin, I will be voting for the lessor of evils. It is obvious that the most capable would not want the job.
Please raise/double my Federal Taxes just to pay down all the Federal Debt because I love my children.
Where the hell is the Sacrifice by Americans today just like our ancestors sacrified for us?
1) Eliminate (or at least freeze for now) all foreign aid. Since we cannot take care of our own, we need to stop kissing everyone else in the world's butt and worry about US.
2) Start billing, and then retroactively bill Iraq for the cost of the war. They've got oil. We didn't take it from them as a lot of people thought we would, but why are we letting them build wealth while our economy tanks, largely due to efforts in behalf of their freedom, which they do not seem to appreciate.
3) Start looking at programs such as space exploration that have nice to have benefits, but are not critical to our economic survival. Set priorities on these endeavors and temporarily eliminate those that are not crucial.
It is time to plan for our own survival as a super power, or settle for the Third World.
Because bankers around the world can't trust eachother right now, for fear that they all have undisclosed bad assets, they are not lending to each other on the wholesale market, or are lending at much higher rates (Libor has really jumped in the last few days). That increases rates for credit cards and adjustable mortgages, half of which are based on Libor. The banks are also hoarding cash to shore up their reserves against any bad mortgages they hold. The mortgages may not be bad, but because they can't sell them and there is no secondary market for them, they are forced to mark them to market and hold extra reserves for them. The end result of this is that consumers mortgage payments increase, and home buyers have a harder time getting new mortgages (because the banks are hoarding cash). So that means more foreclosures and fewer buyers, which further reduces the value of the mortgage backed securities, and on and on, accelerating the housing market meltdown. My fear is that if enough banks start to fail in this spiral, that the federal government won't have enough money to cover FDIC, and if people loose confidence in FDIC, then we have an old fashioned run on banks and bam, the Great Depression all over again.
I am particularly worried about banks starting to shut off business credit lines. We have one which we really rely on to carry receivables. They are tempted to do this as a way of hoarding cash.
The government, by stepping in and buying the mortgage backed securities that no one will buy right now, can create a secondary market in them, allowing banks to mark to market at more reasonable valuations and hold less reserves, which means more lending. Also, to the extent this allows a lot of banks to sell those assets and puts them in a stronger balance sheet position, confidence will return among banks and they can stop gouging each other in the wholesale market, which means Libor goes back down to sane levels.
Its all about breaking the vicious cycle. Once that is broken and the markets stabilize, the federal government may eventually end up making a profit on the mortgage backed securities it bought, because it is not forced to sell them in a distressed market but can wait for better times. It may also be the Americans actually do a better job of paying those mortgages (again with lower Libor) than the market prices currently forecast, they turn out to be decent assets, and the government again recoups its investment.