Congratulations to you taxpayers who who were adamantly opposed to the $ 700 billion bailout. Today - the House of Reps voted against it. Immediately the stock market plunged to its biggest point loss in history (777 points on the DOW). International markets are plunging around the world. The U.S stock market has lost $1.4 TRILLION in value today - that 2X the $ 700 billion plan. If we had completed the $ 700 billion bailout, most or all of it would have been recovered and there may have even been a taxpayer profit made of up to $ 2 Trillion.
Everyone is way over-exaggerating the bailout at $700 Billion. What people don’t understand is that this money is not being spent - it is being invested in assets (loans) at fire-sale prices. These loans will be restructured and re-sold over time and taxpayers will make a profit.
We are collectively $ 1.4 Trillion poorer today. This number will increase if panic ensues. Be prepared to watch your Pension Plan fold up and not pay any benefits, your IRAs and 401Ks go to half of what they were. Be prepared for many of your insurance providers to fold up and not pay you a dime. Be prepared for your employer to stop giving you a paycheck because they can't get the short term loans and cash they need to make payroll.
The taxpayers have just shot each other in the foot. Why - because of a complete misunderstanding of how our economy works and because the media has fueled the fire of populist emotion without clearly explaining the logical conclusion of these bailouts - which are not nearly that bad. Lets just hope its not a fatal wound.
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5 comments:
Fatal? What would that do to our nation? What do you think will happen as a worst case scenario?
I work in a fairly in demand industry so I don't think my job is at risk, and if it were, I could go back on my medical training. I listened when they talked about "safe" careers.
I don't use credit, so I don't really care that much about it, so how is congress bailing out all these companies and corporations going to help me?
For my personal reasons, I think it'll hurt me more than help, and my son, so I'm against it and was glad when it didn't pass, and I hope it isn't passed at all.
Once again, well said. You really have a great sense of economics and are really one of the few bloggers on the web qualified to write posts on business and the economy.
The worst case scenario is that the financial markets around the world will plunge. This happens because of a lack of confidence that these bad mortgages will be taken off the market. If they are not taken off the market many gigantic banks will collapse. We're talking trillions.
This will lead to an enormous, perhaps unprecedented loss of wealth around the world. When people and businesses lose wealth they stop spending. When banks and institutions lose wealth, they stop lending and investing. The combination of no money available to borrow and no one willing to spend will cause massive business and personal bankruptcies. The great depression was caused by this, a sudden lack of confidence and panic to get money out of banks and investments. A panic like this can occur very rapidly - within a few days - everybody rushes to pull their money out of the system. I'm telling you we are on the edge if Congress does not approve the bailout.
It amazes me how many people just don't get it. Don't take it lightly. For your sake and your son's future, you'd better call your Congressman. Even if you think your job is protected, your friends and family may suffer. The depression lasted 11 years. 35% unemployment. A whole generation deprived of opportunity. Fatal.
Tushar
Thank you for the kind words.
I'm trying to get more visibility of my blog - but I'm an amateur.
I don't believe the media is not explaining the situation. People understand, basically the banks no longer do business as they did in the past. They remove themeselves from the risk by providing a mortgagae to someone who cannot really afford it, then they sell if off at a couple of percent to the market. The market bundles all the loans together and sells it off to national/international investors for 4-5% return. It's a ponzi scheme, which outside of banking, is illegal. Lenders have become unethical in their practices. Give the population some credit as far as understanding what is really happening.
How can you say for sure that a rushed policy with no oversight on how we spend the money is going to stop the death spiral. It will certainly help but you cannot definitively say what the outcome would be if they immediately approved. The knee jerk reactions of the past and lack of trust in our leaders is what has delayed this bill. It will not kill the economy to put some protections into the legislation instead of rubber stamping it. How long will it be before we see the return on our investment? By the time we see the benefit we are going to be even further in debt than we are today and the interest payments on our debt is going to far exceed any principal we may be paying down.
Yes it is the brink of the great depression all over again. The New Deal brought us Fannie Mae, and guess what, the fiscal pressures from the Vietnam war pushed the government to privatize them and make them a government sponsored enterprise. Now they enjoyed the benefits of exemption from taxes and oversight as well a being a monopoly. Then comes Freddie Mac, can't have a monopoly with Fannie Mae so another GSE is born. The warning signs were present back in 2003 when high level execs were fired from Fannie Mae because of improper accounting practices. It was up to the Republican dominated congress at that time to decide the fate of what was happening and their failure to act is inexcusable.
The fact of the matter is that the only administration from Regan to date that was heading towards a budget surplus was the Clinton administration. Regan was deficit spending then Bush Sr. stepped in and continued. Clinton slowed gov't spending and yes there were taxes, but overall as I remember I was living a good life. The thriving economy also helped put us in the right direction. All this was wasted when Bush Jr. stepped in and started us circling the drain again and now we are near to being flushed. The idea of "Socializing" losses and capitalizing gains is what the public is frustrated with when the population that is so ready to invest 700 billion are not willing to invest the money in "Socializing" healthcare. I guess healthcare is not considered an investment. Peoples entire life savings can be wiped out by ailing health and medical bills instead of being invested in the markets that make the economy go around.
What a mess!
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