Should the Federal Govt. Spend $1 Trillion Bailing Out US Financial Institutions?

[stdreb27]

Originally Posted by reefraff
http:///forum/post/2768525
If the government buys these home loans for 30 or 40 cents on the dollar is it really a bail out? These companies just lost a lot of money,
For you guys with house payments figure out what you will repay the bank for your home before you own it. Somewhere around double what you paid for the house sound about right?
So say the government pays 40 cents on the dollar for a loan on a 200,000.00 house. Worst case scenario is the homeowner walks on the loan and the govt. is stuck with the house. So now you have this house the govt. paid 80,000 for that sold for 200,000 in the last few years. Home prices have dropped but they haven't dropped that much. Best case is that they renegotiate the loan terms so the interest rate is half what the original was. Say the reset on a loan was 7% and the govt. gives it to them for 3.5%. Instead of making 400,000 back on a 200,000 dollar investment the govt. will get back 320,000 on an 80,000 dollar investment.
I am sorry but I just don't see how even the federal government, even with liberals at the control can possibly

[hr]
this up so bad that the investment would not end up making a net profit.
The problem is the costs involved with selling, legal fees evicting, they typically sell these at auctions and they sell at a significant discount. Banks don't even like forclosing on homes.

 

[acrylics]

Originally Posted by stdreb27
http:///forum/post/2767356
There is plenty of politics involved, but the mechanics of the market is as interesting as the political reasons for it to happen. (I loved economics in college well hated it but loved it and this is a mix of micro/macro/management/and monetary economics I'm in geek heaven it is better than tv)
Funny, I hated econ in college but became fascinated with it in my later years
Here is where I really do differ from you, we have about 13 trillion dollars of gdp every year, here in the states. Take out the federal budget. You're talking about 9 trillion. There is TONS of money out there if this stuff was worth picking up. It is the principles of the market. If we are going to assume as I think you do that the government is out to turn a buck at this stuff, I'm not against the feds turning an honest buck instead of taking it out of my paycheck.
I am not assuming the gov't is out to turn a buck but I'm in favor of it if it can, similar to you in this regard (I think.) But right now, since our economy runs on credit in one form or another and there is a credit crunch, we are, in effect, in a deflationary period (Austrian school.) If this gets bad enough as the banks lose confidence in each other, the effect can get much worse, another great depression could follow (pls note I don't say *will*) This is where I'm at a crossroads; while I believe in theory that capitalism runs best without gov't interference, if banks lose confidence in lending, then a deflationary period follows as credit=our money supply. This itself can cause a depression, the last time we had a great depression - we had got the "new deal". I don't want to see this again because it will probably be what we have multiplied.
Right now, M2 is about 5 times M1, as credit tightens, M2 gets smaller and smaller, thus a deflationary period at least in the credit markets and in turn - is spilling over into the consumer as well (though IMO much of this is good and healthy)
In short, we are already in too deep in some respects and only time will help but a depression will lead to even more of a bad thing if things play out as I'm thinking. Of course I could be wrong, I always allow for that. If all a bailout does is delay the inevitable depression, I'm okay with it, I will adapt but I don't want to see the eventual ramifications.
At the price the feds purchased all this junk debt. No one was willing to buy even a portion of it. I do realize that it would be all but impossible to get someone to loan you the money for buying the bad debt. But why not as the fed let it fall then pick it up at the prices that other firms were willing to pay for the "toxic debt".
Eventually someone will, it's what happens in the meantime that troubles me. It's a perfect (albeit micro) example of the deflation I was speaking of. If you absolutely know that what is offered for sale will be cheaper tomorrow, why buy it today? Money supply does sink if you accept credit=money. It stimulates zero growth and can lead to a liquidity trap. In some ways, you see it happening now, the 3 month Treasury is the hot ticket right now even with it's yield of .48-.49%.
FWIW, I don't subscribe wholeheartedly to any specific economic school or model.
We overpaid to rescue some major investment institutions. In an era of giant buyouts, I don't buy that no one was out there willing to make an offer. And imo any offer is better than watching the government (which had to privatize the capital hill cafeteria.) Why I'd prefer congress not get their grubby little hands on it.
I'd prefer the same but no one was making offers for Lehman, as an example.

 

[mgatdog]

[reefraff
I am sorry but I just don't see how even the federal government, even with liberals at the control can possibly

[hr]
this up so bad that the investment would not end up making a net profit.
Yea right.

 

[stdreb27]

Originally Posted by acrylics
http:///forum/post/2768554
I am not assuming the gov't is out to turn a buck but I'm in favor of it if it can, similar to you in this regard (I think.) But right now, since our economy runs on credit in one form or another and there is a credit crunch, we are, in effect, in a deflationary period (Austrian school.) If this gets bad enough as the banks lose confidence in each other, the effect can get much worse, another great depression could follow (pls note I don't say *will*) This is where I'm at a crossroads; while I believe in theory that capitalism runs best without gov't interference, if banks lose confidence in lending, then a deflationary period follows as credit=our money supply. This itself can cause a depression, the last time we had a great depression - we had got the "new deal". I don't want to see this again because it will probably be what we have multiplied. .
I don't see a deflationary period on the horizon. If anything, if dumping this much money into the markets, isn't followed by a massive contractionary polity by the fed. We are going to see some serious inflation. (by American standards) You can actually do some algebra and make the change in the money supply = inflation. (particularly seniorage) (where I'm coming from) and if you go back and look at history it is pretty dang close.
This is why government intervention in a market is such a serious problem. Because it is unsustainable. And eventually it has to go. And we get something like this bailout, or a big crash.
Your cross roads is understandable, I agree, in my head, I justify SOME regulation as needed protection just like we have police officers. The constitution says "promote general welfare" and I see that as providing a framework to allow us to reach for "the American dream" which including protection from the less scrupulous. That is why I'm not against organizations like the fed or some policing/ethical regulation. Likewise, our whole economy is based on trust, since our monetary system is fiat based, we did need some guarantee even if it is only on paper, to convince people to buy back into the system, after the 30's.
Originally Posted by acrylics
http:///forum/post/2768554
Eventually someone will, it's what happens in the meantime that troubles me. It's a perfect (albeit micro) example of the deflation I was speaking of. If you absolutely know that what is offered for sale will be cheaper tomorrow, why buy it today? Money supply does sink if you accept credit=money. It stimulates zero growth and can lead to a liquidity trap. In some ways, you see it happening now, the 3 month Treasury is the hot ticket right now even with it's yield of .48-.49%.
FWIW, I don't subscribe wholeheartedly to any specific economic school or model..
Let me clarify, No one was willing to pickup lehman at what the feds want to pay, so why not let lehman sink lower. And buy it at a lower price, they are sol anyway. Might as well pick it up cheaper if you can.
Originally Posted by acrylics
http:///forum/post/2768554
I'd prefer the same but no one was making offers for Lehman, as an example.
They did have some interest, but not at the price that the fed wants to pay. I don't remember who is was specifically.

 

[1knight164]

I'm hearing that even if the gov does make money on this deal, "joe public" won't see a dime. Can anyone explain if this is true?

 

[crimzy]

I don't pretend to be an expert on the economy (actually sometimes I do but then I get called out by the real experts), however. where do the bailouts end? The bailout for the

[hr]
crisis would be approximately $700 billion. Do we all agree that this was caused by the combination of greedy

[hr]
brokers, greedy borrowers and the depreciation of the real estate market?
My understanding is that we are also on the verge of a $1 trillion dollar credit card crisis, (caused by greedy credit card companies, greedy consumers and a weak economy). Do we bail them out next?
Didn't we reject the airline industry's request for assistance a few years ago? Unfortunately the airline industry has struggled since 9/11, the war in Iraq and the rise of oil prices. None of this is their fault. Aren't they worthy of some help?
Any republicans that are in favor of the bailout... what ever happened to free enterprise? Success or failure on an entity's own merits? Republicans whine so much that social programs make us socialists... what's the rationale for the bailout in a capitalist society?

 

[stdreb27]

Originally Posted by crimzy
http:///forum/post/2768779
Any republicans that are in favor of the bailout... what ever happened to free enterprise? Success or failure on an entity's own merits? Republicans whine so much that social programs make us socialists... what's the rationale for the bailout in a capitalist society?
I'm still out on this one, however, the arguments, (using a conservative free market approach) that I've heard are this.
- We'll (govt) can make money on the deal. (I heard one guy say upwards of 1 trillion dollars of profit)
- We have to or else. (short term market controls do work, the problem being sustainability)
- We have to introduce more regulation to fix the bad regulation that under the guise of "affordable housing" got us into this mess to begin with. (the part of me arguing for the bailout)
Do I think they should, I don't know.

 

[rylan1]

Originally Posted by crimzy
http:///forum/post/2768779
I don't pretend to be an expert on the economy (actually sometimes I do but then I get called out by the real experts), however. where do the bailouts end? The bailout for the

[hr]
crisis would be approximately $700 billion. Do we all agree that this was caused by the combination of greedy

[hr]
brokers, greedy borrowers and the depreciation of the real estate market?
My understanding is that we are also on the verge of a $1 trillion dollar credit card crisis, (caused by greedy credit card companies, greedy consumers and a weak economy). Do we bail them out next?
Didn't we reject the airline industry's request for assistance a few years ago? Unfortunately the airline industry has struggled since 9/11, the war in Iraq and the rise of oil prices. None of this is their fault. Aren't they worthy of some help?
Any republicans that are in favor of the bailout... what ever happened to free enterprise? Success or failure on an entity's own merits? Republicans whine so much that social programs make us socialists... what's the rationale for the bailout in a capitalist society?
As a buckeye... I often agree with your logic... I have the same questions... I didn't consider the credit crisis... but was also thinking about airline industry and other large institutions such as auto makers. They all are hurting and bankruptcy could be a possibility. Now everyone is greedy... but given that these transporation people are having to deal with the consequences of a bad economy and oil/gas issues.
But that is a serious question that needs to be answered... when does it stop. I agree with credit cards and constantly changing intrest rates... even though a price says fixed... they can change it at anytime.. Also.. people are racking up more debt because they are still trying to maintain their lifestyle on less take home income...
I'd propose legislation capping credit card fees.... and perhaps having universal standards that put credit scores in tiers... maybe like 1-5 and base the interest rate upon that... for example
550-624 = 20%
625-699 = 17%
700-774 = 11%
775-850 = 5%

 

[rylan1]

Anyone still believe that if McCain wins... he won't raise taxes?

 

[reefraff]

Originally Posted by stdreb27
http:///forum/post/2768538
The problem is the costs involved with selling, legal fees evicting, they typically sell these at auctions and they sell at a significant discount. Banks don't even like forclosing on homes.
Yeah but the banks paid a whole lot more for them. The devil is still in the details but if they buy these right this could end up making money.

 

[stdreb27]

Originally Posted by Rylan1
http:///forum/post/2768812
As a buckeye... I often agree with your logic... I have the same questions... I didn't consider the credit crisis... but was also thinking about airline industry and other large institutions such as auto makers. They all are hurting and bankruptcy could be a possibility. Now everyone is greedy... but given that these transporation people are having to deal with the consequences of a bad economy and oil/gas issues.
But that is a serious question that needs to be answered... when does it stop. I agree with credit cards and constantly changing intrest rates... even though a price says fixed... they can change it at anytime.. Also.. people are racking up more debt because they are still trying to maintain their lifestyle on less take home income...
I'd propose legislation capping credit card fees.... and perhaps having universal standards that put credit scores in tiers... maybe like 1-5 and base the interest rate upon that... for example
550-624 = 20%
625-699 = 17%
700-774 = 11%
775-850 = 5%
Great, so government gets involved with morgages, basically lowering rates, morgage market fails. Now you suggest they get involved with credit card companies?

 

[reefraff]

Originally Posted by 1knight164
http:///forum/post/2768763
I'm hearing that even if the gov does make money on this deal, "joe public" won't see a dime. Can anyone explain if this is true?
Remember the big tobacco lawsuit? That was originally filed to refund money to the taxpayers for the money medicare had paid out for tobacco related illnesses over the years. The government got involved and all the money ended up going to the lawyers and the government.
When the government talks about taxpayers the meaning is a moving target. When the context is such that there is an excess of funds due to be returned they mean taxpayer collectively as in the state or federal government. WHen it comes time to ask for money the term has a whole different meaning.

 

[reefraff]

Originally Posted by Rylan1
http:///forum/post/2768812
As a buckeye... I often agree with your logic... I have the same questions... I didn't consider the credit crisis... but was also thinking about airline industry and other large institutions such as auto makers. They all are hurting and bankruptcy could be a possibility. Now everyone is greedy... but given that these transporation people are having to deal with the consequences of a bad economy and oil/gas issues.
But that is a serious question that needs to be answered... when does it stop. I agree with credit cards and constantly changing intrest rates... even though a price says fixed... they can change it at anytime.. Also.. people are racking up more debt because they are still trying to maintain their lifestyle on less take home income...
I'd propose legislation capping credit card fees.... and perhaps having universal standards that put credit scores in tiers... maybe like 1-5 and base the interest rate upon that... for example
550-624 = 20%
625-699 = 17%
700-774 = 11%
775-850 = 5%
Don't mess with the credit card companies man! I am making about a grand a year in cash back bonuses for the privilege of taking a 28 day interest free loan every month to pay for everything we buy or pay for except for the electric bill

 

[1knight164]

Originally Posted by reefraff
http:///forum/post/2768865
Remember the big tobacco lawsuit? That was originally filed to refund money to the taxpayers for the money medicare had paid out for tobacco related illnesses over the years. The government got involved and all the money ended up going to the lawyers and the government.
When the government talks about taxpayers the meaning is a moving target. When the context is such that there is an excess of funds due to be returned they mean taxpayer collectively as in the state or federal government. WHen it comes time to ask for money the term has a whole different meaning.

Thanks! So basically the feds get the money (profits) and can do with it as they please. The "intent" would be to use that money to help the public, but there are no guarantees. Whoever becomes president can use that money to further they're agenda. Hmmmm...Hopefully they include something in this plan that puts taxpayers first. Thanks again.

 

[reefraff]

Originally Posted by 1knight164
http:///forum/post/2768879
Thanks! So basically the feds get the money (profits) and can do with it as they please. The "intent" would be to use that money to help the public, but there are no guarantees. Whoever becomes president can use that money to further they're agenda. Hmmmm...Hopefully they include something in this plan that puts taxpayers first. Thanks again.

The government is a magic box. When they take money from the people to help the people a dollar goes through a mystical process. A dollar enters but only something like 58 cents if I remember correctly leaves back out to the people it was intended to help. They need to create lots of unnecessary positions for the politicians to appoint in=laws and nieces and nephews to and these people must be paid.

 

[1journeyman]

Originally Posted by Rylan1
http:///forum/post/2768817
Anyone still believe that if McCain wins... he won't raise taxes?
So again I ask; Are you now saying Obama won't raise taxes or implement the numerous expensive social programs he has promised?

 

[1knight164]

Originally Posted by Rylan1
http:///forum/post/2768812
I'd propose legislation capping credit card fees.... and perhaps having universal standards that put credit scores in tiers... maybe like 1-5 and base the interest rate upon that... for example
550-624 = 20%
625-699 = 17%
700-774 = 11%
775-850 = 5%
Don't know if anyone has seen this, but it's about time! Protections for the consumer.
http://theboard.blogs.nytimes.com/20...little-guy/?hp
Here's a summary of the credit card bill of rights:
http://maloney.house.gov/documents/f...OROnePager.pdf
For those who love the details, here's the full bill:
http://maloney.house.gov/documents/f...44billtext.pdf

 

[1journeyman]

Originally Posted by Rylan1
http:///forum/post/2768812
.... I didn't consider the credit crisis... but was also thinking about airline industry and other large institutions such as auto makers. They all are hurting and bankruptcy could be a possibility. Now everyone is greedy... but given that these transporation people are having to deal with the consequences of a bad economy and oil/gas issues..... when does it stop. I agree with credit cards and constantly changing intrest rates... even though a price says fixed... they can change it at anytime.. Also.. .....
I'd propose legislation capping credit card fees.... and perhaps having universal standards that put credit scores in tiers... maybe like 1-5 and base the interest rate upon that... ....
Good Heavens

First off, credit card companies cannot raise your interest rates anytime. If they do, you simply don't make another charge and your previous Rate is fixed. If you make a charge and agree to the new terms then you get charged.
That said, are you seriously now proposing socializing the Auto industry, Airline industry, CC card, etc.
Where, exactly, does it end? When do we let the Free Market actually try to work? Where does personal responsibility end?

 

[rylan1]

Originally Posted by 1journeyman
http:///forum/post/2768916
Good Heavens

First off, credit card companies cannot raise your interest rates anytime. If they do, you simply don't make another charge and your previous Rate is fixed. If you make a charge and agree to the new terms then you get charged.
That said, are you seriously now proposing socializing the Auto industry, Airline industry, CC card, etc.
Where, exactly, does it end? When do we let the Free Market actually try to work? Where does personal responsibility end?
I am not saying we should socialize anything... I am saying that this bailout opens the doors to other bailouts..
And yes... I believe a CC company can up your rates at anytime.

 

[rylan1]

Originally Posted by 1journeyman
http:///forum/post/2768904
So again I ask; Are you now saying Obama won't raise taxes or implement the numerous expensive social programs he has promised?
Obama is going to raise taxes ... and give cuts to middle class and lower class... I also think his programs will be prioritized... and that he won't be able to implement everything he wants and if he does it will be towards the end of the admin....
McCain's budget however operates at a higher defecit than Obama's.... so the next year will be how to bring in line costs... and yes raising taxes some where.
I mean lets be real... 2 wars and about $1 trillion in new spending due to bailouts... means higher taxes.