If you were the King of the U.S.A., and could make the unilateral decision to bail out Wallstreet with this bill to the tune of USD$700b, but then afterwards would have to return to your day job, what would you do?

Well, since nobody has given any actual evidence that donating a little more than $2,000 from every man, woman, and child in America to line the pockets of McCain's "barrons of greed" or whatever he called them (the very same he bragged to about passing lots of deregulation), I'd study the issue in detail, and look into my alternatives before making my decision. We didn't do that on the whole "Iraq has WMD and will have nukes very soon" thing, and look where it got us. With the same people making the same dire "the world will end tomorrow if you don't do what we say" predictions.

But I'm not convinced that if we don't bail out a specific list of financial institutions, that nobody will ever be able to write a check again. There are still far more banks that haven't failed and don't (as yet) seem to be at risk.

And this is an instance where the whole "free market" thing conservatives pretend to believe in, might actually be correct. If some of these places have been making very bad bets, and other shenanigans, perhaps it really is time to thin the herd a little bit, and let the weak die off.

I know I'd be very upset if I was a local credit union, with my taxes funding my competitors.

I more or less liked the final draft as it was presented in the morning paper.

I do want to correct one mis-statement. This is not a wall street bail-out. It is a banking bail-out. From a heavily pushed Federal program called "give the losers a chance" (my name).

Bail em' out... I have been watching this very closely and I will feel a lot better when the bill has passed.

Originally Posted by Cheshire_cat

Bail em' out... I have been watching this very closely and I will feel a lot better when the bill has passed.

Well, how are you gonna feel now that the bill did go through?

Originally Posted by juliensimon

Well, how are you gonna feel now that the bill did go through?

did???

I personally would like to see every CEO of the “failed” banks on the streets dirt poor tomorrow; however, there is the fate of the country to consider and I think that pumping the money back in will help take care of some of these problems we are facing now. I mean if you look at the stock market every time they thought they had a deal or was working on one it was rising, and every time it looked like it feel through it the stocks feel. It’s a gamble both ways, I just hope whatever happens, and whoever does it, it works out for the good of us all.

As a non American I hope you will excuse me for butting in.

We in the UK are having the self same discussion but unlike the US our Prime Minister goes ahead and throws tax payers money around without having to gain approval from our parliament.

I feel that it is wrong to bail out failed banks and financial houses as this will lead to similar problems in the future, notwithstanding that more controls from central government are likely in the future. Whatever controls are put in place the lawmakers will always be one step behind.

I think Republicans in the house did the right thing in killing this bill.

Originally Posted by Cheshire_cat

did???

woops, I meant didn't.

Originally Posted by juliensimon

woops, I meant didn't.

I believe it will happen, its just a matter of when and how.

Listening to the pundits on this, many see this as corporate welfare that wont even solve the real problem which is availability of credit. Sooooo.... If you believe the U.S. is going into a depression if we don't bail out failing U.S. financial institutions(I'm about 30% of the way to believing that), and if you believe that turning the U.S. government into an investment bank with Paulson at the head, buying troubled mortgage backed securities for pennies on the dollar will solve that problem(I'm about 5% of the way to believing that), then you are for this thing.

It seems the more knowledable economists from both sides of the isle think we have the time to come up with a plan that works, which lends money, rather than gifts it to these idiots. No matter where you stand on this issue, I hope the FBI probes into these failures come up with a list of people we can hang for this. Apparently the criminal investigations may go all the way down to the brokers who wrote this bad paper and fraud charges may ensue.

By the way, did anyone catch all the video floating around of the Democrats in Congress blocking any attempts made by the Republicans in congress to investigate Fannie and Freddie's lending practices before the turd hit the fan? Barney Frank and a few others from Congress need to loose their jobs at a minimum if people are to have any real faith that our corrupt legislators are accountable to the american people.

unfortunately there have been 11 or 12 attempts to fix the problem in the last 10 years or so.. No one cared because it meant not making loans available to people in lower income brackets, and that would be evil to deny them the same opportunities that other people "enjoyed"..

What I find interesting is that everyone recognizes that the subprime loans are bad loans and they're a major reason the banks are going under. Washington, however, is insisting that taxpayers will see a return on their investment after only a few years if they take on the loans. If they're bad for the banks, how can they be good for the taxpayers? And if they're a good investment for the taxpayers, why don't the banks just hold on to them?

I also fail to see how a bank "bailout" is going to help. Washington argues that there is a crisis of confidence in the credit market and that by bailing out the banks, the banks will be able to start lending to people again. But isn't that how we got here in the first place, banks lending people money when they shouldn't have? I realize there are legitimate reasons for borrowing money, but simply put, a lot of people haven't been living within their means and making it easier for them to borrow more money isn't a long term solution. A bailout only prolongs the inevitable.

If the bailout goes through, it could be a watershed political event. Washington could have a lot of new faces in January.

Originally Posted by Cheshire_cat

I believe it will happen, its just a matter of when and how.

It just passed in the Senate. Now it goes back to the House. This time it will likely go through. IMO, not passing this bill is not going to cause a depression. I think that it's coming anyway and this measure will have very little effect, other than hastening the fall for small business, individuals, and the government itself.

tim

Its hard for most of us to get our brains wrapped around this. I have no idea whether this is the correct answer to your questions, but this is what I've come up with based on talking about it with my friends.

Originally Posted by VirtuosiMedia

If they're bad for the banks, how can they be good for the taxpayers? And if they're a good investment for the taxpayers, why don't the banks just hold on to them?

These loans probably fall into two major categories.
1) Adjustable Rate Mortgages that are now adjusting upwards making the payments so high, the people making the payments can no longer afford to pay.
2) Low/No doc loans made to people who couldn't afford to make the payments in the first place.

The first category of loans were made to people living beyond their means or people speculating on a rising market. Many of these people have very good jobs and could continue to make the payments if they never adjusted upwards. Since the payment is the profit(annual yield) on these investments, the banks could just decide not to adjust these mortgages upwards and accept the lower annual yield for some time. Unfortunately, most of that "A Rated" paper has been sold several times over and the projected revenue invested in other places on a very large scale, since the paper was so secure. Without that revenue, the holders of that paper (Many of our commercial banks) find themselves in a cash short position where they can no longer cover their bills. Feasibly, the Federal government could buy this paper at an extreme discount, accept payments on the non-adjusted rate making a small profit now, and wait for the market to recover a little, recovering the entire investment + profits later.

This fails to address two things. A) The people who gambled and bought these properties beyond their means would be getting a sweetheart deal that the rest of us who played by the rules were never offered. B) Since the market has fallen by as much as 50% in some areas, why would many of these debtors continue to make any kind of payment on a debt of $1,000,000 when the underlying asset is only worth $500,000. For many, it makes better sense to walk away, deal with the credit issues(BK), and rent, or buy a house through someone else(Owner carried financing, etc) at the newly discounted rate.

The second category of these mortgages should be guaranteed to foreclose. The mortgages are still backed by a real asset which has a real value, so the value of the government's investment of our taxpayer dollars in these properties depends on what price they buy this paper at. The federal government could decide to buy the paper at an estimated real market value, providing immediate liquidity and some fairly sizable write downs to the banking establishments that currently hold it. They could then decide provide to temporarily lower the payments to the "homeowners" in an effort to keep them in their houses and slow down the foreclosure process and put a floor underneath housing prices. Once the market starts to recover, they could sell these assets off for what they paid for them, or give the "homeowners" the option to return to making the full payments.

I believe that Paulson had it set up to make a tidy profit for the government (or himself and some legislators) off of the entire mess. Any way you look at it, the bailout has two horrible side effects. It rewards people who borrowed more than they could afford to pay, and it keeps our housing markets artificially high. IMO, once the deadbeats are out of the homes they could not really afford in the first place, the market will be fully adjusted and can make a healthy recovery.

Originally Posted by VirtuosiMedia

But isn't that how we got here in the first place, banks lending people money when they shouldn't have?

Exactly. Right now, banks have self regulated for survival. Home loans are currently happening left and right, but only to extremely qualified people. Perhaps credit should be loosened somewhat from its current state, but we definitely never want to go back to where we were, and it seems that some new regulations (or reinstatement of some of the old ones) will be in order.

Originally Posted by VirtuosiMedia

If the bailout goes through, it could be a watershed political event. Washington could have a lot of new faces in January.

Which could be a lot more meaningful than any change of command in the Oval office. Unfortunately, the cynical side of me says out with the old rats, in with the new ones.

There is another large group of mortgages that you are not taking into consideration. There is a substantial number of mortgages taken out by people who work hard, make decent money, and could afford their mortgages a year ago. Fast forward a year and gas is $4/gallon, milk is $3.50/gallon and a loaf of bread is $2, the price of natural gas is higher, even the price of electricity is higher - essentially the price of everything has gone up but their paycheck has remained the same. Now they can't afford that mortgage. I'm still within my means, I can still pay our bills (barely), but I know a lot of people that could comfortably pay their bills at this time last year that are robbing Peter to pay Paul this year.