Why do we need a bailout?

I agree, you think this could just be a scare tactic also? They say credit will dry up but I try not t use it anyway.

 

Our entire countries economy requires available credit. If that dried up things could become catastrophic. While not ideal, the best answer is for the government to help out at this point.

A couple of things to remember. Despite the number being thrown around (seven hundred billion), while large is still relatively small considering the size of our overall economy, which I believe is somewhere around fourteen trillion (don't quote me on that going by memory off the top of my head). Second, there is no reason to believe that even of the government buys up or guarantees all those loans that they are going to all default. Most will be fine and pay off, so in reality it might not cost near as much as what is being reported. Providing of course that the government does it right and doesn't pile one the pork with the bail out.

 

Credit is one thing and I can see taking the bad debt off the banks books as away to bail this situation out. But why give the money to wallstreet? Investment has risk and it appears this investment didn't pay off.

 

The alternative is what? Another revolution? OK with me.

During the Great Depression half the population lived on the land and could do some scrounging, jacklighting deer, whatever. Now 90% live in the cities. Instead of picking berries we scrounge garbage cans?

Next year lots of people going to tearing up the lawns and planting veggies.

 

It is to help the big bankers and money people dump non-performing mortgage backed securities and make the citizenry more the indentured servant when they can start lending more debt. Look we have an 11 TRILLION dollar deficit (thanks Democratic House and Senate) so we need MORE debt.

 

I don't know that that number is right about the deficit.

Now, I'm as Free Market as anyone. So there's a huge part of me that wants to let the market correct. I'm as Adam Smith and Milton Friedman as they come. I'm darn near von Mises. But here's the argument for the "bail out":

The present market environment will not adequately absorb the losses without serious losses in the markets, rampant failures of banks, and insurers and others going under. If we had, say, a 30-40% drop in the market, think about how many workers would lose huge amounts (of unrealized dollars) in their retirement accounts. Think about what would happen if a major life/health insurer went under. Millions more without life/health coverage. A catastrophe without insurance coverage would mean individuals along the east coast would be homeless if their insurer couldn't make good on their policies. Loss of personal worth means no purchasing power. So say goodbye to your local walmart and its hundreds of jobs...and the jobs of the people who supplied the walmart with fruits and bread and tvs and t-shirts. Credit would be unavailable..not just tight. So homes presently on the market would flop. No mortgages means no home owners and no refridgerator purchases (So the truck driver who delivers the trucks from the now empty factory to the now empty furniture store) is out of work. The only good news? Soup kitchen volunteers get plenty of work.

That's the argument for the bailout. The govt wants a credit card to be able to purchase the CMOs and CDOs, and the bad paper, commercial paper, and b/c paper that is part of this mess. They are hedging their bets that someone will come along and eventually buy this back when all the dust settles. Thus there will be no real effect on the taxpayer. Heck, the Treasury could even make a buck or two.

So goes the argument. More or less.

 

See TomVols' excellent summary above. Because the ripple effects on the people around you will be very bad without an appropriate plan to ease this situation.

 

Why do we need a bailout

Because the democrats initiated the CRA...
Then banks became greedy...
Fannie and Freddie gave money to Obama, Clinton, and Kerry, and others...
Fannie and Freddie lied...and fell...
Making Money Markets bust a dollar last Monday...
Which made inverstors nervous... and they pulled out their money...
Which then slowed down credit and commercial paper....
Which then led to where we are today....

It all started with Carter.. then Clinton gave CRA a steroid shot...
And Obama and his friends supported it...

Thank a Democrat today for our financial mess..

 

Some things that also hurt:

* Clinton's EO allowing negative amortization and directing Federal underwriting of Subprimes, negative amorts, and "upside down" originations (loans where borrowers can borrow more than the value of thehome, in some cases up to 125%LTV, even in mfg housing).

* Sarbanes/Oxley, which needs overhauling or repealing. Typical example of govt overreaction to the Enron/WorldCom failures. Notably, the Mark to Market rule could use some attention and has gotten quite a bit in professional circles but none by the empty heads in Washington, save for very few.

 

I understood what Tom had said, my suggestion in another thread was to have the government buy the actual bad loans which would allow the banks to write that money off their books and free up credit. We could then put the homeowner in a new loan at a decent interest rate even if it means stretching it out 100 years. We could then sell the new loans back to the banks.

Sure, this won't work 100% and it will dump more foreclosures on HUD but I believe this method would;

1. Not give an actual nickel to Wallstreet
2. Keep a maximum amount of homeowners in their homes
3. Assure the banks don't get this money plus the foreclosed property (that would be double dipping)

 

Fairly good summary except for the one in red. You left a lot of names off that list to include McCain's campaign director.

 

Three questions:

1. will the bailout save any homeowner who is on the line?

2. will the bailout help any homeless person to get a roof?

3. How much will property taxes be raised?

All these properties are now on the county tax rolls. The Federal Govt does not pay taxes. How much will my tax rate be raised?

 

Depending on what the bailout looks like,

1. Yes.
2. I hope not. They need to get a job first.
3. I wouldn't think property taxed would be affected by re-introducing liquidity into the markets.

 

My questions:
1. What is going to be done to punish the greedy folks who caused this mess?
2. When everything is over, how much of America is going to be owned by foreigners, like China?

 

I would say

1. No
2. No
3. Because federal money given to local municipalities will be cut I would say a lot.

 

1. In five years they may have to pay a penalty if we don't get our money back (if they are alive, not broke or don't have a good tax man)

2. Hard to tell at this point but I would suggest brushing up on your chop stick technique.

 

Am I the only one who thinks this whole mess is a planned tool to control the country? This looks like an easy set up for the mark of the beast, or at least the destruction of the American dollar and intro to the new Amero. It all seems suspicious, especially since this is an election year.

 

Sorry. I don't buy that this was some rouse. ​

Not directly.

Well, given that property values are in decline, I'd have my property reappraised and take that to your local assessor's office. You might see your taxes lowered. But on point, one does not have much to do with the other directly again. All property tax rates are local matters, and each market is a bit of an island when it comes to the actual dirt value. ​

Depends on who you blame. The politicians who enacted laws and such are off scot free. The business leaders are likely out of work.

Depends. If foreign investors buy these investments, then there you are. However, you have a situation like with Wachovia right now. Wells Fargo and Citi are slugging it out to get the right to buy them out, and rightfully so. If Wells ever wants a presence east of the Mississippi, now's their chance. If Citi buys them, then you have the biggest bank in America suddenly getting monstrous. ​

I don't think this would work at all. ​

1. The banks would be selling this bad paper to the govt at pennies on the dollar. The write-offs would not free up credit as a result. If you just took a 90% loss, you're going to hedge to make up for it. So credit remains tight.​

2. How are we "putting" homeowners in low rate, century amortizing loans? Who is underwriting this? Besides, that would require enormous suspension of bank and HUD regulations to do.

3. The whole "wall street" making out like bandits thing is not reality.

4. Banks getting foreclosed property right now is no prize. Banks are getting properties they are having to buy back, pay fees, pay to rehab, then take a 20-40% loss in market value (more in soft markets). Trust me...there's no double dip there. Banks lose a tremendous amount in foreclosure in normal circumstances.
5. I have to question if federal subsidization of already bad mortgages by making more bad mortgages is the answer. Yes, it might keep someone in their present home, but for how long? That got us in this mess to begin with. ​

​

 

What if the Gov took the loans from the banks at the balance owed on the loan? Once the banks write that bad debt off their book, it should free up some credit at the strong institutions.

Refinance the mortgages. The gov is underwriting with the $700 Bil. It would mean including a one time exception for these loans.

If the loans are paid by the government and the banks still get the foreclosed properties then it is a prize. They will get the money and the property so it doesn't matter what they sell the house for. This will drive down the market value of paying homeowners if this happens.

This is open to opinion. I believe a lot of these people took their loans in good faith, intending to pay them back. Either because of bad credit they took ARM's or Balloon loans or some lost their jobs and were economically impacted otherwise. I'm not saying this is 100% but I would like to see these people get a new loan with a good interest rate and payments they can afford. The more houses we can refinance to the current owner the more value your house retains so I think it's a good risk.