Trickle-Up Economics - The Ultimate Rich Man's Con
We've all heard of the economic theory of trickle-down economics. Basically, the more money the rich are allowed to make, the more of that money will find its way down the food chain to those with less. It's a crock. But now, the President and Congress have proposed a new policy - trickle-up economics.
Basically (and this is largely oversimplified, but is adequate for for the sake of this discussion), banks operate by selling stock in order to generate capital. They then reinvest that capital, typically in the form of loans, in order to generate profits and increase their stock value in order to raise more capital. The investors make money and those without money are allowed to purchase things that they couldn't afford otherwise (like houses, cars, and XBox 360s). As long as everything works, everyone remains relatively happy.
However, for the last several years, the executives of these banks have been using the capital to give out loans, known as subprime mortgages. These loans were considered high risk, because those who received them would not typically be qualified to receive loans of that amount, based on their income, outstanding debt, and past credit histories. These risks were counterbalanced by the fact that the interest rates (and therefore the amount of payoff for investors) were high, and they were being secured by the collateral of the ever increasing housing costs. Basically, if the loanee failed to pay, they could still recoup their cost by foreclosing on the home, and reselling it for even more than it was purchased for. Of course, this was unrealistic, as it was impossible for housing prices to continue to increase forever. In fact, due to artificially lowered federal interest rates, these houses were selling for far greater than they were ever worth.
Fast forward to today - many of the recipients of these loans have defaulted (which was not highly unexpected). However, because the houses cannot be resold for anything close to what was paid for them, the banks now have billions of dollars in liability - greater than most of their assets - which makes their net worth, and subsequently their stock prices, zero or less. Because of this, they cannot raise any more capital to use to give out as loans so that they can buy back all of these foreclosed homes. The rich can no longer get richer - you see the problem?
Of course, it's not just the rich who are out - many people have lost everything they had (for many, that wasn't much to start with), and those that are still doing alright are stifled by the fact that they can't get loans to grow. Hence, the crisis at hand.
However, what the federal government has proposed is that we take out a giant loan, subsidized by your tax dollars, and use that loan to buyout all of the bad loans from the banks, thus decreasing their liability and increasing their net worth. The belief is that this will allow them to again raise capital so they can again issues loans and start the entire cycle over again. Of course, the bad loans will continue to sit there, rack up significant interest, add to the already existent $10 TRILLION NATIONAL DEBT, and causing the value of the dollar to continue to decline. Meanwhile, the banks will continue to give out money at 30% interest rates, and charging you a $40 late fee on a $200 balance every time your payment is late by a day. And the executives who were responsible for this fiasco? They will continue to get board of director jobs or get paid as bank lobbyists, and use the millions of dollars they received as golden parachute packages to make more money for themselves, never having to pay for their failures.
This is a scam, and it needs to be stopped. Write or call your congressman and tell them that you do not approve of them mortgaging your children and grandchildren's future in order to pay for their mess. Do not allow them to resell your money to you at a profit!
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71 commentsReplies
H55 said, (71 days ago)
I agree that the government bailout isn't all that appealing. But the alternative is even worse. If the bailout doesn't happen, the economy dies. DOA. Worldwide. So it seems to be a necessary bitter pill just to get trading happening again, and convince banks to start extending any credit.
Which is separate, of course, from the question of what regs we impose on the financial industry as the price of the bailout. That'll be fun to watch.
H55 said, (71 days ago)
@soulcamp: see, I just though TLDR was an incredibly clever reference to Teldar Paper ;)
soulcamp said, (71 days ago)
@H55: How exactly will the economy collapse? Everyone seems to reference that as the end result, but I have yet to see any real predictions as to what exactly they expect to happen? I'd like to see a model that shows that the result is actually worse than increasing the national debt by a trillion dollars. You see, as far as I can tell, that's no better than these banks failing. The investors have already lost their money. Those that could afford it will move on. Those that can't are screwed. However, this plan seems to screw those people twice.
soulcamp said, (71 days ago)
Most members of congress aren't actually smart enough to understand what I just wrote. Yet, they are about to rush into a serious decision again without taking the time to really analyze or understand the problem, and I fear the end results will again be disastrous. Right now, they (and everyone else) seem to be willing to blindly accept the word of those who generated this entire mess in the first place. This is the Patriot Act all over again, except this one can't be corrected as easy.
This is Naomi Klein's "Shock Doctrine" theory in practice again. Utilize a period of shock to get people to approve policies that are not in their best interests.
soulcamp said, (71 days ago)
Also, the people responsible for this are CRIMINAL! They knew what they were doing. They knew that the loans were bad and they knew that the housing market would collapse. They are trying to pretend that nobody could see this coming, but that is bullshit. They are simply counting on the fact that most people don't understand it well enough to think this was just a mistake. It was GREED and CORRUPTION pure and simple.
Still don't think anyone could have predicted this? Warren Buffet pulled all of Berkshire-Hathaway's investments from Freddie and Fannie in 2001, sighting what he considered to be poor management by the company's executives as the reason.
MisterDarcy said, (71 days ago)
Soulcamp:
I have some initial responses to your first post on this thread.
1. Effect on the Economy: Zero Credit = No Growth
From what I understand, a crisis in investor confidence and failing banks would spell a huge credit crunch that will make investors (who are fickle, emotional human beings like all human beings) stay wide and clear of investing in the US. This would result in a credit crunch that will slow all business activity. You need credit to create businesses and run the economy. It's a weakness but it is also the engine of the US. For example, think of microloans for the poor: Microloans enable the poor to start businesses.
2. Effect on the Economy: Asia and China Freaks Out
Asian banks and China are one of the biggest investors in the US, buying bonds in US companies and buying other forms of US debt. Any crisis in the capital markets may lead to China pulling out or decreasing the rate of debt being bought by China. And from there, you have a crash of the US economy.
3. Who is paying for this: Is it *all* the Taxpayers?
I'm still reading into this, but I'm not sure who is paying for the bailout? From my understanding, it could either financed through the selling of T-bills (which the US taxpayers will have to pay interest on and *eventually* paybeck) or perhaps by printing printing money?
I havn't seen any reports thus far on this.
4. Is the US really gonna spend all that 700 Billion USD?
Note that all the "bailouts" are not one time payment, but as needed. So, when you hear $700 Billion Bailout, it's not the USG writing a check for 700 Billion. Unless I hear otherwise (and I still havnt read my Saturday copy of Financial Times), I believe it is about giving Fed/Treasury the ability to spend up to that much to help the markets.
Additionally, there has been speculation that the USG could actually make money on AIG, by the selling of the assets over the long term (2-5 years).
5. Criminal but Negligent Mostly
"It was GREED and CORRUPTION pure and simple." Partly yes, but Congress, the Bush Administration and the financial agencies (Treasuery to the Feds) failed to act more than anyone else.
McCain blamed corporate irresponsibility, but where was Greenspan and Congress on this one?
MisterDarcy said, (71 days ago)
One last thing, I would suggest your read Nouriel Roubini's "The Rising Risk of a Systemic Financial Meltdown: The Twelve Steps to Financial Disaster." It was published in February 2008, here's the link (but I think you need to be registered):
http://www.rgemonitor.com/redir.php?sid=1&tgid=10000&cid=244929
om nom nom said, (71 days ago)
i haven't seen the specific terms and i am far from trusting the gov't in ANYthing, but there is a reasonable interest rate that meets that risk it is assuming. many analysts, in the buyout of AIG felt that the taxpayers were likely to turn a profit. now i'm not going to appeal to the "too big to fail" theory because it contains the same "leave taxpayers holding the bag" last resort of the 80s s&l crisis. but govt does make sense as a lender of last resort in certain cases. suppose they don't step in. banks fail. money supply shrinks. interests rate rise without an infusion from the central bank. if they print more money, you get inflation. if they let interest rates rise, investments fall at a time the economy is hurting. basically you give the biggest lender of last resort the chance to take a high risk investment AT THE RIGHT PRICE. now it might fail leaving taxpayers holding the bag. but it could also pay off, marking a big win. but it's a risk that should be taken in light of alternatives.
Reamworks SKG said, (71 days ago)
This has all been caused by the 2 MILLION people who knowingly took out mortgages they couldn't possibly pay back. At least 1 MILLION of those involved some fraud (seller financed down-payment assistance, lying about income, lying about intent to occupy that house.)
We need to start by building 1 MILLION PRISON CELLS to hold these fraudsters. Without them, there wouldn't be 2 trillion dollars of worthless paper kicking around.
And don't feel sorry for one nanosecond for people who have "lost their homes". If you put NO MONEY DOWN, and were paying a TEASER RATE, and took out HOME EQUITY LOANS to buy CRAP you didn't need, you lost NOTHING when you have to walk away. In fact, you made out like a bank robber, because that's exactly what you are.
Reamworks SKG said, (71 days ago)
BTW: I predicted this! You've heard me ranting for years. About 4 years ago, I got rid of all my broad-market mutual funds, because I didn't want any exposure to BANKING our HOUSING equities. I loaded up on (exchange traded) metals, AND I SHORTED CENTEX AND PULTE! (now illegal to do!)
Reamworks SKG said, (71 days ago)
AND *NOBODY* TOOK MORE MONEY from FANNIE AND FREDDY than: ***BARACK OBAMA****
1. http://purplepeoplevote.com/2008/09/17/obama-receives-big-money-from-fannie-mae-and-freddie-mac/
(Sorry I'll get a more trusted source for these numbers)
AND **BARACK OBAMA** wants to continue to prop up house prices! HE IS OPPOSED TO AFFORDABLE HOUSING! He mentions "falling house prices" as a problem again and again is is speeches. Your HOUSE shouldn't be an FDIC-insured BANK ACCOUNT. Even though Steven and I 100% own TWO properties (NO MORTGAGE) we are OPPOSED to propping up house prices! LET THEM FALL TO THEIR PROPER VALUES
AND **BARACK OBAMA** was/is a big supporter of seller-financed down-payment assistance programs THAT THE IRS HAS RULED TO BE A SCAM! http://www.nehemiahcorp.org/ See the problem with these scams? SELLER FUNDED down-payment assistance means the "downpayment" is folded into the house price--which raises the house price. And the risky mortgage is now owned by ME, the TAXPAYER.
Of course, John McCain has a few screws loose, and Palin is simply a wackjob with a slut for a daughter. So I'll write in Ron Paul.
Oom Mao Mao said, (71 days ago)
Why do you not blame at least partially the banks for loaning these people money? Surely they have a responsibility to do due diligence when giving out a loan.
Reamworks SKG said, (71 days ago)
Oh, I do! But it makes me angry that NOBODY puts any blame on the people who bought houses they couldn't possibly afford, thinking that somehow, some magic equity fairy (Barney Frank?) would wave his magic wand and make it all work out!
Also, a lot of this started because banks were SUED and forced to make "affordability products" because "not enough" minorities and poor people were qualifying for mortgages! (BTW: Republicans like George Bush I encouraged this and expanded Fannie and Freddie so they can make riskier mortgages).
What happened was that, because ANYONE could qualify for at least the conforming maximum, house prices everywhere rose to $417,000. If they had had tradtional standards, like the 20% down we put on our first home (to get a 15-year mortgage, now paid off), there would be plenty of affordable housing.
http://raceethnicity.rutgers.edu/SubprimeMortgageCrisisSummary.html
(for example)
Reamworks SKG said, (71 days ago)
BTW: YOU SHOULD BE OUTRAGED that George W. Bush signed into law the "Deadbeat Specu-vestors tax relief act of 2007" (Of course, it had a different name).
It eliminates income tax from forgiven mortgage debt! Anna Eshoo, the cunt who is my Congresswoman called this "surprise income!" She also, back in the dotcom crash, TRIED TO GET TAX BREAKS FOR FAILED DOTCOM SPECULATORS. Fortunately, that didn't get anywhere.
FiZ said, (71 days ago)
@Ream: I'm not trying to absolve **BARACK OBAMA** of guilt here, but you obviously missed this one: http://www.nytimes.com/imagepages/2008/09/10/us/politics/2008_FANNIE_GRAPHIC.html
Reamworks SKG said, (71 days ago)
No, I didn't miss that one! IT JUST DIDN'T HELP MY POINT! I didn't earn that forensics team trophy for being stupid!
MisterDarcy said, (71 days ago)
@Reamworks:
"Also, a lot of this started because banks were SUED and forced to make "affordability products" because "not enough" minorities and poor people were qualifying for mortgages!"
Yep, that's why no one will blame the people that got the mortgages, esp. if such people are not white. Politicians, especially Democrats, will never blame the votes for making poor choices. That's career suicide my friend.
Little p said, (71 days ago)
omg reamw- shorting pulte and centex- yaaaay!!!
also- soulcamp, you wrote all of that??
well done dude. wow.
i'll hang with you guys for econ any day - and forensics too. i didn't get a trophy, but i got a little gold pin thingy.
soulcamp said, (71 days ago)
@MisterDarcy: Re: Credit Crunch - We've been in a credit crunch for quite awhile, and I don't believe this is going to fix it. Investors are fickle, but they are also still investors. They're gonna invest, they're just going to be more cautious in the future. Much like after the dot-com crash. The investment capital market came to a crawl for awhile, but it eventually got it's bearings and picked back up. I don't see this as being any different.
Microloans - there is NO guarantee that this buyout will spark banks to make microloans. In fact, since they are considered higher risk, chances are they will NOT be making very many of these until the market has stabilized. If you want to try to trigger growth through microloans, I think you need to not rely on free market at this time. Instead, support for something like a federally-backed entity would be a more targeted use of money. If we're going to spend a trillion dollars are taxpayer money in order to stimulate growth, trickle-down is not the fastest way to do so. Put the money where it helps those who need the most help first.
China - One of the biggest problems this country has is relying too much on foreign money to drive our markets. Why is it that Republicans can make such a big deal about a dependence on foreign oil, but are perfectly fine with rapidly increasing our reliance on foreign capital? This scares the shit out of me. Again, if we're gonna spend a trillion dollars, I'd rather it be spent directly on American companies rather than ease the burdens of the heavily foreign-owed banks in the hopes that they will choose to spend it on American companies (of which there is no guarantee).
Blame - The agencies failed to act because of ideology. It was the belief that even if the free market led to an overabundance of greed and corruption, that it would somehow balance itself out. However, when this balance finally comes into play, the notion of free market gets thrown entirely out the window. These people need to made to look like the idiots they are. Whenever any aspect of socialism is shown to have a flaw, they immediately jump on it as proof that the entire concept of socialism is a failure. But when free market is shown to have any flaws, they are completely ignored. Time has come to admit that a true free market economy, with no regulation or oversight of any kind, is flat out bullshit.
soulcamp said, (71 days ago)
@om nom nom: I'm willing to agree that a government buyout might indeed be the best solution, but not just because of the word of free market economists. They fucked this one up big time, and I demand that ALL solutions be given equal consideration, and that we not blindly pick ONE and put ALL OF OUR EGGS IN THAT BASKET.
And if we do wind up with a government buyout, I want some goddamn regulations put in place on how this money can and cannot be used. And those regulations need to favor Main Street, not Wall Street. No more 30% interest credit cards. Want to stimulate the economy? Stop allowing corporations to bleed the American people dry. Yes, they didn't really need that XBox 360, but the fact is they were pushed into buying it by the constant barrage of corporate marketing and false patriotism that spending money is "good for the economy". 18% is MORE than adequate for a credit card company to make a profit without hurting the lower and middle classes. And the late fee bullshit MUST STOP. Late fees should be based on a percentage of an account balance, and should appropriate for the amount of time that they are late. Increasing the fees based on the amount of time the payment is behind is not only fair, it provides a greater incentive to pay. This bullshit of making huge profits buy charging unreasonable late fees is fucked.
soulcamp said, (71 days ago)
@Reamworks: Don't think I'm going to allow you to drop into my conversation and spread FUD, just for the hell of it. You KNOW DAMN WELL that trying to pin the majority of the blame on the mortgage takers is dishonest.
While some of the blame falls on the shoulders of those who borrowed the money, you cannot even begin to make the claim that they should share the blame equally with those who KNEW that their actions would lead to total collapse and continued to do so based purely on GREED.
The actions of the executives at these banks went well beyond simple negligence. They KNEW that the loans could not be repaid. They KNEW that the cost of housing was significantly inflated. But they deliberately went on making the loans, and did everything they could to hide these bad loans from the public. They acted in a way that was CRIMINAL and they need to be behind bars.
The people who took out these loans were told that they could afford them by the banks and realtors. Those people were both educated and licensed, and there is no excuse other than deceit. The loanees were not blameless victims, but they were also not calculated criminals like you're trying to make them out to be.
soulcamp said, (71 days ago)
And until I see photographic evidence of your $4600 contribution to the Ron Paul campaign, you can just STFU!
soulcamp said, (71 days ago)
Finally, none of these subprime mortgage loans came about from lawsuits. That's simply an attempt to redirect blame in order to defend a failed ideology.
ALL of the subprime mortgages in question were made specifically to give an illusion of increased assets so that the banks could raise more capital. PERIOD.
MisterDarcy said, (71 days ago)
@SoulCamp:
"The investment capital market came to a crawl for awhile, but it eventually got it's bearings and picked back up. I don't see this as being any different."
See, that's where you and I fundementally differ.I dont have faith in the market system like that and the credit crunch now is several magnitude higher.
Did you see the 3-month t-bill yield nearly go to 0%? That means to buy the t-bill would be a loss (inflation with ~0% interest). That's how freaked out people are.
Additionally, I've read some FT or WSJ article on how monthly buying of T-Bills from China has decreased from 22 billion to 17 billion since the crisis began (not sure if its exact numbers). The effect of the credit crunch on the ability for the US to continue to finance itself is very real.
Yes, investors will invest like you say, but invest elsewhere...leaving no one to buy American debt and with that a flight to commodities (thus raising the cost of living) and the dollar to collapse.
Also on the Microloans, sorry let me clarify. I was using "microloans" as an example of the power of credit in an economy. An economy can be stagnant (and with it the people) until microloans started becoming popular.
MisterDarcy said, (71 days ago)
@SoulCamp:
"Why is it that Republicans can make such a big deal about a dependence on foreign oil, but are perfectly fine with rapidly increasing our reliance on foreign capital?"
Um, that's been a problem of the government - Republican, Democrat or whatever - for quiet some time. I remember still being in college and that was the running topic in International Political Economy course. US has unsustainable debt, but the hope was the US was too big to fail and Chinese needs us to buy their crap. Additionaly, here are political reasons.
Do you want to be the politican to demand people to give up that XBOX, SUV, flat screen TV, laptop (i have 3), driving to the grocery store, unsustainable surburbia, etc...yeah no.
I'd love to see President Obama (cross fingers!) asking Americans to give up their rampant materialism (your 2000 sq. foot house with lawn to your Wii Nintendo) and instead of using credit cards, save 10-15% of their income.
Yeah, the US would need another Great Depression to get their priorities in order.
soulcamp said, (71 days ago)
"Yeah, the US would need another Great Depression to get their priorities in order."
That's not too far from being my point. I believe it's going to happen. The question is, how much worse off do we make it by trying to delay the inevitable. Is adding another trillion dollars to the national debt going to help?
But, politicians CAN influence people without having to directly tell them. Balancing the budget is a start. If deficit spending is good enough for the US Government, why shouldn't it be good for it's citizens, as well?
soulcamp said, (71 days ago)
I want a constitutional convention. I want to eliminate the electoral college. I want proportional representation. I want to change the way congressional power is divided (no more committee assignments based on seniority or the ability for a single person to prevent legislation from ever reaching the floor). I want spelled out right to privacy (not just an abstract interpretation based on something completely unrelated that was written 200 years ago).
Personally, based on the current culture and attitude of this country, I don't see this happening anytime soon. But until it does, we're are going to continue to fall behind the rest of the world as a modern democracy.
soulcamp said, (71 days ago)
@MisterDarcy: Why not create more incentives to invest in US companies? Ones that employ actual US workers and that build real products. Instead of spending all $700 billion on buying bad debt, how about we spend a large chunk of that investing in creating a clean, renewable energy market? Everyone agrees that the market will grow eventually. But why wait for the free market and hope that the money eventually gets turned around into private loans that will help grow the sector. Let's invest that money directly, ala NASA of the 1960's. Make it a national directive. This will help the US economy both short term and in the future, as well as improving security and the environment. It's certainly a better investment than buying bad debt.
IceOwl said, (71 days ago)
All of the most well-known modern economists that I've ever heard speak were all lying through their teeth and believing their own lies. They want to believe that deregulating markets is better for everyone, and every time the markets get deregulated, things like this happen.
IceOwl said, (71 days ago)
I also find it very strange the solution to a financial borrowing problem is to lend more money.
Reamworks SKG said, (70 days ago)
You know what's odder? When house prices started to fall, Congress passed a law RAISING the "conforming limit" for Fannie and Freddie from 417K to nearly 700K! It made NO SENSE!
I nearly vomit whenever I hear someone say we're having a housing crisis. The "housing crisis" was when the median house price was 10x the median income! The crisis is NOW ENDING! It won't be completely over until median house price is about 2x median income. (The Levittown houses, for example, sold for about $7K when incomes were about $3200)
Reamworks SKG said, (70 days ago)
@soulcamp! I'm all for government funded work projects! Let's start by building 1,000,000 prison cells to hold the people who committed mortgage fraud.
Reamworks SKG said, (70 days ago)
I also want a FLAT TAX! Here's how it will work:
1. Take the total budget: $2.650 trillion
2. Divide by the population 300,000,000
You get $83,000 per person!
Pay that amount! Can’t afford it? Off to Jail!
I’ll be serious for a second here: Anyone paying less than $83,000 has NO RIGHT to complain about taxes! (They do have a right to complain about SPENDING.)
Reamworks SKG said, (70 days ago)
"@Reamworks: Don't think I'm going to allow you to drop into my conversation and spread FUD, just for the hell of it. You KNOW DAMN WELL that trying to pin the majority of the blame on the mortgage takers is dishonest."
@SOULCAMP: You're a typical MAMBY-PAMBY liberal! You're saying that the American Public were too stupid to know that taking out mortgages they can't possibly pay back is bad, and that NANNY GOVERNMENT should tell them exactly what they should have done? Why don't we just assign people to apartments, like they did in the former Soviet Union?
IceOwl said, (70 days ago)
All of the most well-known modern economists that I've ever heard speak were all lying through their teeth and believing their own lies. They want to believe that deregulating markets is better for everyone, and every time the markets get deregulated, things like this happen.
"I'd love to see President Obama (cross fingers!) asking Americans to give up their rampant materialism (your 2000 sq. foot house with lawn to your Wii Nintendo) and instead of using credit cards, save 10-15% of their income."
He already made a speech about this at the DNC, saying that we can't expect that things will cost nothing and that we can have whatever we want whenever we want it.
IceOwl said, (70 days ago)
@Reamworks: you don't have very good reading comprehension skills, do you? He was saying that the bankers who gave out those loans in the first place knew better than do what they did, but didn't care and did it anyways because they thought they could gain from it even though the practise they were engaging is was not only extremely unethical but economically unsound as well.
Most people are not economists, they just want to pay their bills and live their lives without having to worry about where the money goes.
MisterDarcy said, (70 days ago)
Ok guys, I'm tired of this thread. Too many disconnected thoughts among us. I'm gonna go watch Eurovision videos.
MisterDarcy said, (70 days ago)
Oh and one final, I suggest you read this from an economist at UCSD:
http://www.econbrowser.com/archives/2008/09/paulson_bailout.html
soulcamp said, (70 days ago)
@IceOwl - Don't mind @Reamworks - he really does know what he's talking about. He's just trying to get my goat cause I called him on his Ron Paul bluff (he thinks Ron Paul is almost as nutty as Mitt Romney).
soulcamp said, (70 days ago)
@MisterDarcy: I agree. I need to stop thinking about politics for awhile before I give myself a coronary. Time to go play some chess with my son or something.
But, I still stand by my initial intention of this convo - we need to NOT RUSH INTO MAKING RASH POLICIES AGAIN WITHOUT SERIOUS DISCUSSION AND REFLECTION ON THE ISSUES.
That kind of thinking is what has gotten into most of the trouble we've been in as a nation for the last 8 years. No more Shock Doctrine!
I am writing my senators, congressman, and Obama, urging them to not act rashly.
soulcamp said, (70 days ago)
@le_sacre: I really take this particular topic so seriously because I am truly afraid of our leaders making a grave mistake from which there will be no recovery. Far more so than I am of an overnight "total economic collapse". Just look how we our last rash decision to go to war without all the facts turned out.
H55 said, (70 days ago)
See the newest news? Morgan Stanley and Goldman are no longer investment banks, but "bank holding companies," which allows the SEC to more closely regulate their activity.
Doesn't sound like a bad move, especially since they haven't actually written the substantive regs yet.
mike08810 said, (70 days ago)
Can Morgan stanley just declare itself a bank? I worked as a bank teller for six months, But i swear to god one of the things they made me memorize was Glass-Steagal was passed to split morgan stanley apart from JP morgans giant bank.....
I guess its no differnt then Merrill Lynch being bought by bank of america, but it strikes me as odd that their just makeing this up as they go
le_sacre said, (70 days ago)
http://www.nakedcapitalism.com/2008/09/why-you-should-hate-treasury-bailout.html
i really do not like clauses like 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."
le_sacre said, (70 days ago)
i am (to toot my own horn) a smart guy. and i have spent a bit of time trying to understand this situation and still don't understand it properly. that's why i'm glad there's Paul Krugman:
http://www.nytimes.com/2008/09/22/opinion/22krugman.html?hp
i pretty much subscribe to Krugmanology and believe everything he says. it's like a smarter (but no less lazy) version of Oprahism.
soulcamp said, (70 days ago)
@le_sacre: That first article is truly frightening. Now I am even more scared shitless.
And the second one is a significantly more elegant version of my argument. Nobody knows if this is going to work, but the people who are touting that it's the only solution are the same ones who have been telling us everything is fine for the last 2 years. I simply do not trust these guys as far as I can spit.
MisterDarcy said, (70 days ago)
@le_sacre: While I find him interesting and a must read, I wouldn't believe everything Paul Krugman says, but that's my inner Republican talking.
Also, where are the people who say this will work. Liberals and Conservatives are all being "dooms day" on the bailout. Check out eternal gloom and doom old school conservative Pat Buchanan:
"For years, we Americans have spent more than we earned. We save nothing. Credit card debt, consumer debt, auto debt, mortgage debt, corporate debt — all are at record levels. And with pensions and savings being wiped out, much of that debt will never be repaid.
Our standard of living is inevitably going to fall. For foreigners will not forever buy our bonds or lend us more money if they rightly fear that they will be paid back, if at all, in cheaper dollars.
We are going to have to learn to live again without our means.
...
Notice who is managing the crisis. Not our elected leaders. Nancy Pelosi says she had nothing to do with it. Congress is paralyzed and heading home. President Bush is nowhere to be seen.
Hank Paulson of Goldman Sachs and Ben Bernanke of the Fed chose to bail out Bear Sterns but let Lehman go under. They decided to nationalize Fannie and Freddie at a cost to taxpayers of hundreds of billions, putting the U.S. government behind $5 trillion in mortgages. They decided to buy AIG with $85 billion rather than see the insurance giant sink beneath the waves.
An unelected financial elite is now entrusted with the assignment of getting us out of a disaster into which an unelected financial elite plunged the nation. We are just spectators."
- http://buchanan.org/blog/2008/09/pjb-the-partys-over/
MisterDarcy said, (70 days ago)
@mike08810:
Glass-Steagal Act was effective repealed by the Clinton Administration, which is thankfully a good thing. Otherwise who would buy all the failing investment banks?
See:
http://www.marginalrevolution.com/marginalrevolution/2008/09/glass-steagall.html
soulcamp said, (70 days ago)
@MisterDarcy; Did you read the first article that @le_sacre posted? It's long, but I think it spells out most of my concerns to a tT.
Also, that article by Buchanan may mark the first time in history I have ever agreed with a single word that has come out of his mouth.
soulcamp said, (69 days ago)
Republican Senator, Richard C. Shelby:
"In my judgment, it would be foolish to waste massive sums of taxpayer funds testing an idea that has been hastily crafted and may actually cause the government to revert to an inadequate strategy of ad hoc bailouts."
Thank you, Senator. I'm glad to hear that at least one of our elected leaders is thinking responsibly on this issue.
soulcamp said, (69 days ago)
The next thing I am looking for is someone to step up and discuss the necessary and realistic decline of housing costs. Everyone, including Paulson apparently, seem to be counting on the idea that somehow housing costs will rise again to the levels that they were when these mortgages were made, and that will allow them to eventually be be sold off for a profit to taxpayers. That's simply never going to happen. They need to stop lying about this.
@Reamworks is right. Housing prices that are 10x the average annual income is ridiculous, and was never sustainable, even for a minute. While I don't think they can/will ever get back to 2x, they need to come down to no more than 3-4x. And this means that EVERYONE is going to take a loss.
I do believe that *some* of any bailout needs to be directed to recouping some of the losses of those homeowners who didn't act completely irresponsibly, but were still screwed by buying a home during a time of the outrageously inflated prices of the artificially generated bubble. They are going to be forced to pay on a mortgage that is valued at much greater than the property will ever be. There is no reason that the banks, who did act irresponsibly, should receive all of the benefits of a bailout, but nothing goes to those who are still upholding their end of a shoddy deal.
Reamworks SKG said, (69 days ago)
Actually, Soulcamp, "Everyone" won't take a loss! People who didn't buy during the bubble won't!
And I won't either, because my paid-up house did cost about 2x our income when we bought it! And I DON'T CARE what it's worth.
The value of your primary residence should have NO BEARING on your "worth" under the "you have to live somewhere" principal.
House prices WILL return to 2x median income. You can bet on it! (I did, in fact, when I shorted homebuilder stocks in 2007.)
Reamworks SKG said, (69 days ago)
Nobody who bought a house that they couldn't possibly afford should get off without any penalty. As they are now. In fact, they're being treated as victims! Boo hoo!
soulcamp said, (69 days ago)
@Reamworks: I'm not just talking about those who can't afford their mortgage - I am talking about everyone who took a mortgage. Why should a bailout compensate one side (banks) of those in a shoddy deal and not those on the other (homeowners). The banks were largely responsible for the inflation of housing costs by issuing too many mortgages, pushing for constantly lower interest rates, and allowing things like seller-financed down payments.
I've discussed this with you and you agree there are those who are caught up in this who did not act irresponsibly. While you were lucky enough to have purchased your home before the bubble, there were millions of people who weren't that lucky. Those who had been saving for years to buy their first home, those who were forced to buy larger homes because they had children, etc. - not because they simply wanted to cash in on their inflated equity. And because of the bubble, there were simply not enough rental properties available, and those that were we also inflated.
There really are victims here, and any bailout proposal that helps only those who acted irresponsibly because they are the ones who are in trouble is simply not fair.
soulcamp said, (69 days ago)
These hearings are a fucking joke! It's obvious that Paulson and Bernake have no real plan whatsoever, and are just shooting from the hip. It's like they're giving an oral book report, but they never read the book.
Angus MacSmitey said, (69 days ago)
There are things about the bailout plan that disturb me greatly, even as a broke-ass, no-asset-having layman (over and above the horrible, horrible $700 Billion):
Their proposal does not regulate bonuses or salaries or payouts for the dumbfucks that caused the problem in the first place. Why do we keep allowing people who fuck up their golden parachutes?
Their proposal does not include any protection for the little guy losing his home. Yes, they're partially at fault, but come on, there's a big difference between a shmoe losing everything and a banker having to trade in the platinum-plated Ferrari for a silver-plated one.
The whole "No judicial or agency oversight" thing. Oh, yes, THAT's fucking brilliant.
And Bernake says that not doing this will result in a recession? Hello, asshole, we're already there.
FiZ said, (69 days ago)
http://www.threepanelsoul.com/comics/098.png
Now I'm having trouble figuring out if that's his view on the economy or his advice to anyone outside of their section 8 clause.
soulcamp said, (69 days ago)
@FiZ: Honestly, I don't think Bernanke had anything to do with the section 8 clause. When Paulson was questioned directly about it by Dodd, his excuse for it was that they were in a hurry and that their proposal couldn't be perfect. WHAT?!?
MisterDarcy said, (69 days ago)
I'm stopped keeping up. In any case, if everything fails, I'm moving to Bali to start a expat commune. The weather is nice, food is cheap and people are super friendly. Maybe, we can be those crazy American troubadours in Indonesia? Singing songs and doing puppets shows?
soulcamp said, (69 days ago)
@MisterDarcy: I am less worried that congress is going to approve something rashly and without review. I am hoping that if they do take a bailout approach, they start small - significantly less than $700B - and test out their theory. Paulson was able to give no good answer as to why it had to be $700B all upfront, and agreed that the $700B would not be spent all at once.
But I don't have the confidence that bailing out the banks by buying their bad debt will invigorate new investments. I think everyone know this is just the tip of the iceberg and no one is going to invest money into the banks at this time. I think money would be better spent directly targeting particular markets and industries that we feel have large growth potential and will generate significant revenue, like new energy.
Also, I don't think the housing market will ever recover to the point that these bad mortgages will ever be worth what the US government pays for them.
soulcamp said, (69 days ago)
@MisterDarcy: How many soul musicians do you think I can pull together in Bali? I think Soul Camp could make it big there - we'd have no competition whatsoever.
IceOwl said, (68 days ago)
I'm pretty sure that economists and bankers actually have no idea what they're doing when it comes to solving financial crises like this.
TLDR