Financial bailout bill does not pass

[neesek]

Our school for the afternoon - watching the vote on C-Span. It looks like it has failed for now. 227-206.

[Renee in NC]

Oh my...

 

On one hand, I am GLAD that it didn't pass.

 

On the other, I am SICK that it didn't pass.

 

:001_huh:

[Wendi]

[hsmamainva]

Buckle your seatbelts, ladies and gentlemen! It's gonna be a wild ride!!!

 

The stock market is already down 600 points.

[Remudamom]

I don't want it to pass. Ducking and running.

[Marie in Oh]

Oh my...

 

On one hand, I am GLAD that it didn't pass.

 

On the other, I am SICK that it didn't pass.

 

:001_huh:

 

I don't want it, but I think the economy is going to realy tank without it. The NYSE is down over 500 points. I think it is all going to pot despite what the government does.

[laylamcb]

Woohoo! Democracy triumphs!

 

Now I'm :leaving: and joining Remudamom for drinks. :auto:

[Renee in NC]

 

I don't want it, but I think the economy is going to realy tank without it. The NYSE is down over 500 points. I think it is all going to pot despite what the government does.

 

I agree. We stand to lose our business if something doesn't change in the housing market, BUT I am not willing to save my business on the futures of my children!

[laylamcb]

 

I don't want it, but I think the economy is going to realy tank without it. The NYSE is down over 500 points. I think it is all going to pot despite what the government does.

 

There's a lot more to the economy than the stock market (and this is from someone with a hefty nest egg invested in stocks).

 

I agree completely with your second sentence, unfortunately. But at least we won't be throwing good money after bad if the bailout goes down in flames.

[Remudamom]

Woohoo! Democracy triumphs!

 

Now I'm :leaving: and joining Remudamom for drinks. :auto:

 

How do you feel about riding and rum? Not at the same time, of course!

[Vida Winter]

It may be a good thing that it didn't pass. I don't know. We may be in for a lot of "short term pain" for "long term gain" instead.

 

One thing is for sure though - both Democrats and Republicans did not want its passage to be pinned on themselves.

 

~Dana

[HRAAB]

I feel relieved, nervous and scared all at the same time. Depending on who I listen to, I'm convinced we need a bailout package or convinced we don't. I wish I knew more or had a crystal ball. My first instinct is to say, "Good!"

 

Then I think about our retirement and feel like crying.

 

Janet

[Vida Winter]

How do you feel about riding and rum? Not at the same time, of course!

 

Can I join you? :D

 

~Dana

[Jane in NC]

 

Then I think about our retirement and feel like crying.

 

Janet

 

And college savings accounts as well. CDs cannot outspace inflation, stocks are going down the toilet.

 

Glad we don't have a home equity loan (which should probably called a home inequity loan these days!)

 

No easy solutions.

 

Jane (watching it all from the sidelines)

Edited September 29, 2008 by Jane in NC
typing too fast...

[hsmamainva]

Then I think about our retirement and feel like crying.

 

Janet

 

I hear ya!!!

 

My hubby's like..."I always wondered what it would be like to work until I'm 80. Guess I'm going to find out..."

 

I'm worried about our oldest, who'll be going to college next year -- she's already filled out her applications -- wonder if there will be any financial aid for her??

 

Guess I should practice my line: "Would you like fries with that?" ;)

[Marie in Oh]

There's a lot more to the economy than the stock market (and this is from someone with a hefty nest egg invested in stocks).

 

I agree completely with your second sentence, unfortunately. But at least we won't be throwing good money after bad if the bailout goes down in flames.

 

I think the stock market has been inflated for years and was due for a correction-- though I think this is going to be more of a correction. The dollar is weak and the government's answer of printing more money when they run out makes it weaker. So does borrowing money from foreign sources.

 

However, the bailout would have "stablized the dollar" in the world's mind (not really, but that is what it would have appeared to have happened short term if it had passed) for a long enough period of time for us to make some serious changes in our portfolio. We were hoping for a quick upswing in the market so we could get our ducks in a row. We have alot invested and I think it will not correct in the near future. The only chance for an upswing we have now is from election results.

 

So, it was my hope for a reactionary upswing. I thought it was going to pass. I don't agree with it in theory at all. I don't agree in governments buying out the private sector. That's socialism.

[Mom to Aly]

I've been so upset and angry about this, and now I'm upset and frightened. There just doesn't seem to be a good way out of this, actually, not an easy way, and I keep hoping they'll find the best way--I don't know that they have done that.

 

Where is the Magic 8 ball when you need it?

[Moxie]

Please forgive my ignorance, I've not looked into this much. Who was going to get the money? Where was the money going to come from (taxes, I assume, but maybe I'm wrong)?

[laylamcb]

 

I think the stock market has been inflated for years and was due for a correction-- though I think this is going to be more of a correction. The dollar is weak and the government's answer of printing more money when they run out makes it weaker. So does borrowing money from foreign sources.

 

However, the bailout would have "stablized the dollar" in the world's mind (not really, but that is what it would have appeared to have happened short term if it had passed) for a long enough period of time for us to make some serious changes in our portfolio. We were hoping for a quick upswing in the market so we could get our ducks in a row. We have alot invested and I think it will not correct in the near future. The only chance for an upswing we have now is from election results.

 

So, it was my hope for a reactionary upswing. I thought it was going to pass. I don't agree with it in theory at all. I don't agree in governments buying out the private sector. That's socialism.

 

Agree with you totally, Marie--which is why I don't think it would've worked at all. DH and I would've done the same thing, only by "ducks in a row" I would mean "pull all investments from stocks and convert to bonds." :D And everyone else would've done the same. And why? Because we all know that this doesn't solve a thing. It takes all that we have left and throws it right down the toilet with the worthless mortgage-backed securities.

 

We've lived so well for so long--and now comes the hangover that follows our drunken binge. And it's gonna hurt all of us. My DH is in his 25th year with the fire department--this was it! Out in August 2009!

 

Psych! Not so fast! Back to work he goes.

 

It does hurt, doesn't it? Ugh. Why don't you join us at Remudamom's for riding and rum?! ;)

[Soph the vet]

How do you feel about riding and rum? Not at the same time, of course!

I'm joining you! I don't like rum, I'll bring some wine. None for the horses though, not good for them:001_smile:.

 

It is an uncertain economic time but I am glad it did not pass. Like Culberson ® from Texas said, "it's a choice between bankrupting our children or bankrupting some businesses on Wall St."

 

I think about our profit-sharing, our college investments. Thankfully, God is not uncertain and He will provide for what we need. I truly believe that. We never planned on retiring anyway...that would be boring.

[Aubrey]

You know, we may be headed for something awful. In fact, I don't know how we can avoid it.

 

But I'm sure glad to be doing it in a democracy, & the plan they were voting on, had it passed, had lost that democratic feel, imo.

[Marie in Oh]

Agree with you totally, Marie--which is why I don't think it would've worked at all. DH and I would've done the same thing, only by "ducks in a row" I would mean "pull all investments from stocks and convert to bonds." :D And everyone else would've done the same. And why? Because we all know that this doesn't solve a thing. It takes all that we have left and throws it right down the toilet with the worthless mortgage-backed securities.

 

We've lived so well for so long--and now comes the hangover that follows our drunken binge. And it's gonna hurt all of us. My DH is in his 25th year with the fire department--this was it! Out in August 2009!

 

Psych! Not so fast! Back to work he goes.

 

It does hurt, doesn't it? Ugh. Why don't you join us at Remudamom's for riding and rum?! ;)

 

A little rum might dull the pain, although it might cause a little trouble for 36 week baby in utero. The riding though, that might make baby's arrival come a little sooner. :lol:

 

Yes, our ducks in a row would be to pull out investments (all but IRA's), open a foreign securities account (read the equivalent of a Swiss bank account but they have other currancies as well), and pay off half our mortgage. We were just hoping to recoup some of our losses before we did all that, but this is our plan.

[Moxie]

You know, we may be headed for something awful. In fact, I don't know how we can avoid it.

 

 

 

What does that mean? Not being snarky, I'm just very ignorant about the economy beyond my own house.

[Pammy]

work in the financial services industry for a global bank that manages over two trillion dollars. Currently my days are spent researching and studying the ever expanding crisis we find ourselves in. Having read emails and listened to arguments against the $700 billion dollar rescue plan proposed by Secretary Paulson and supported by Federal Reserve Bank Chairman Bernanke, I thought I’d weigh in with some important facts regarding our banking system and credit:

 

 

 

While we may certainly oppose the actions of some Wall Street banks and their leadership, banking is the heart of our financial system. If the heart stops, the body dies. We all depend on credit either directly through mortgages, car loans, students, credit cards, etc., or indirectly through the companies we work for. The vast majority of businesses in the U.S. depend on readily available credit to finance their daily operations. The reason is quite simple. Businesses borrow at rates that are lower than what they can earn in their operations. For example, a company borrows $1 million dollars at an interest rate of 5% and uses the money to hire employees, buy machinery and advertise. As a result, the business generates revenues and makes 12% on the $1 million. The employees are paid, the business grows and our economy expands. While that is an oversimplified analogy, it is the process. If the business can’t borrow, it slowly ceases to function. Employees are then laid off. If the employees can’t find work elsewhere because other businesses are failing, he/she can’t pay the mortgage and finally defaults. With enough defaults and bank runs, the lending bank collapses. This is in part a description of what happened in the Great Depression. It is critical to remember that the financial system is built entirely on confidence. We deposit money into our local banks because we’re confident it will be there when we need it. The money does not sit in a vault; it is lent to the bank’s private and business consumers. If we don’t trust the bank, we’ll withdraw our money until the bank cannot lend and must close.

 

 

 

The entire banking system is in jeopardy because so many banks, large and small, have mortgage-backed assets on their balance sheets. These assets continue to decline in value as the housing market deteriorates. Because banks constantly lend to each other, a high level of confidence among them is crucial. As homeowners default on their loans, the assets lose additional value and threaten the security of the banks which hold them. As we’ve already seen, the banks are in trouble. In the last six months, Bear Sterns, Lehman Brothers, Merrill Lynch and now Washington Mutual have all either gone under or been purchased. We may not like Wall Street and the ridiculously large bonuses paid, but if it fails, our economy goes with it. The bailout of AIG and Freddie/Fannie was absolutely essential due to the billions of dollars in bonds sold by them to governments, businesses and individuals around the world. Had those three companies been allowed to fail, and their bonds defaulted, a financial meltdown would have ensued.

 

 

 

Think of it this way: Wall Street is like an enormous **** above a sprawling city. The dam regulates the flow of water (money) and holds back the flooding reservoir. As a result of five years of easy credit (home loans with no money down, and no ability to repay), the assumption that home prices would always rise (even though homes were being built at a breakneck pace and oversupplying the market), too much water went over the spillway. Now, the flow of water is in jeopardy because banks are hoarding cash, fearful of lending and not seeing the money again. In essence, the dam is cutting off the flow because it previously pumped into the system far more than the economy could realistically repay. The solution is to restore the flow by unclogging the dam and restoring confidence. What the Treasury proposes is just that: unclogging the works. It is not a bailout but rather a buyout of the mortgages held on the banks’ balance sheets so that they can resume normal lending, and keep the flow going. The U.S. government will buy the assets from the banks at a discount; say 65 cents on the dollar, and then hold them until the housing market stabilizes. At that point, the mortgages will be resold into a market that can absorb them. The U.S. Treasury is the only entity that has the cash and the time to buy and hold these assets; for which there is currently no market. We most definitely need the buyout to occur. The taxpayer will benefit from a normalized banking system, and the eventual resale of the mortgages at a profit.

 

 

 

I do agree that strict oversight must be in place, and that the banks that sell assets to the Treasury must abide by CEO compensation limitations. Please take the time to better understand the crisis we are in, and then call or write your Congressional representative with an informed opinion. This affects all of us.

[HRAAB]

However, the bailout would have "stablized the dollar" in the world's mind (not really, but that is what it would have appeared to have happened short term if it had passed) for a long enough period of time for us to make some serious changes in our portfolio. We were hoping for a quick upswing in the market so we could get our ducks in a row. We have alot invested and I think it will not correct in the near future. The only chance for an upswing we have now is from election results.

 

This is the exact conversation dh and I had last night on our walk. Yeah, finances have been the topic of conversation during our evening strolls. We've been hoping for a couple of stocks to go up so we could sell. For us, it's a considerable sum. Now I'm starting to feel ill.

 

 

We've lived so well for so long--and now comes the hangover that follows our drunken binge. And it's gonna hurt all of us. My DH is in his 25th year with the fire department--this was it! Out in August 2009!

 

It does hurt, doesn't it? Ugh. Why don't you join us at Remudamom's for riding and rum?! ;)

 

And this is the part that just makes me angry. We have never been on a financial drunken binge. Our investments were earned by hard work, we never took on debt we couldn't afford, we pay our bills on time. We're financially responsible. We've scrimped and saved for our retirement. I want to scream, "It's not fair." Then I remember what I'm always telling my kids when they say that: "Life ain't fair." Boy, it sure isn't.

 

Janet

[Marie in Oh]

[QUOTE=MelissaD;562697]What does that mean? Not being snarky, I'm just very ignorant about the economy beyond my own house.[/quote]

 

Let's see. The dollar is not worth what it is printed on, millions of people own houses that are worth less than what their mortgage is for, the stock market is tanking, the FDIC may not have the money to back our accounts, the government is in debt up to their earlobes, as well as most Americans. Foreign countries now have the upper hand because we own them money (including our not so loving ally, China), we are the laughing stock of the world market, and cost of goods and oil are sky rocketing. This is more than an economic downturn.

 

It is a good thing I believe in a Sovereign God who holds my future in His hands or I would be very despondant right now.

[Amy loves Bud]

I don't want it to pass. Ducking and running.

 

A lot of us didn't want it to. But most of us want rum. Can I sit and watch you ride? While I drink my rum?

[Aubrey]

What does that mean? Not being snarky, I'm just very ignorant about the economy beyond my own house.

 

Well, I'm pretty ignorant, too, lol, so...you might want to ask someone else.

 

But here's what I see: foreclosures everywhere, houses won't sell, prices dropping. Now banks are closing, mortgage companies are in crisis. We're at war, & we're borrowing billions of dollars from China already. Food & gas prices have been up for a while now while wages have kind-of stagnated.

 

The unemployment immediately following 9/11 seems to have improved, but...that may just be for the people around me. And not all of them are as well-employed as they were before 9/11. Whatever the situation, though, I expect there will be more job losses as banks close & reorganize, etc. As credit becomes harder to get, people have more trouble buying, & there will be less need for retail employees as well as manufacturing employees. That would extend to shipping employees... it's like throwing a stone in a pond. The ripples reach far out across the water.

 

Or maybe it's like poisoning the pond? Anyway, not good.

 

But the gov't coming in & trying to help...well... historically, I don't think that's worked out so well for the countries that have tried it.

[Renee in NC]

We need to remember to that we all have a part in this, even the responsible ones!;)

 

Our economy has been continuing to grow based on nothing but credit - think of it as a bubble. We no longer have a manufacturing base and a huge amount of our regular spending goes out of country (for imported goods and oil.) The stock market is overvalued.

 

You can't just point a finger at any one place - there are so many different factors that came into play.

[shell in SC]

A lot of us didn't want it to. But most of us want rum. Can I sit and watch you ride? While I drink my rum?

 

 

I'm with Amy on this one. . .I don't know about drinking and riding (for myself that is). . .I'm afraid I'd fall (slide) out of the saddle, but I'd love to come watch those of you who wouldn't make fools of themselves!!!!

[Marie in Oh]

We need to remember to that we all have a part in this, even the responsible ones!;)

 

Our economy has been continuing to grow based on nothing but credit - think of it as a bubble. We no longer have a manufacturing base and a huge amount of our regular spending goes out of country (for imported goods and oil.) The stock market is overvalued.

 

You can't just point a finger at any one place - there are so many different factors that came into play.

 

This is so true. :iagree:

[Aubrey]

A lot of us didn't want it to. But most of us want rum. Can I sit and watch you ride? While I drink my rum?

 

:iagree:

[Ria]

I still think that if we sit tight we'll be okay in the end. Yes, stocks are falling, but they'll come up again. They always do. If you hang onto your investments it will work out in time.

 

I am angry that my tax dollars might be spent bailing corporations that made poor choices. I also don't agree with bailing people out of foreclosure. I'm sorry if people made poor choices when getting mortgages, but they were big boys and girls. If someone gets a mortgage they can't afford, they lose. It's tough, but it's life. If I miss enough car payments someone will take my Honda away. I wouldn't look to the government to help me keep my car...personal responsibility fixes that.

 

Sigh. It's so easy to sit here and complain. I don't know what the solution is. I just know that I don't see why I have to help bail people out if they made the poor choices, not me. :confused:

 

Ria

[RoughCollie]

It sounds to me like the inmates were running the asylum and got caught in a preventable, reasonably foreseeable crisis which they caused.

 

The banking system caused the problem by allowing easy credit terms and by assuming home prices would always rise, if what you say is true.

 

I've been worried about this happening for years -- and I'm just a lowly accountant and attorney -- not a big shot.

 

Whoever let this happen got rich from it, mark my words. Otherwise it would not have occurred. I think the banking industry, as a whole, needs a lot more regulation and oversight than it has. People are getting screwed by the banks and not all of these people, indeed not the majority of them, have college educations and an I.Q. above average.

 

l

 

The entire banking system is in jeopardy because so many banks, large and small, have mortgage-backed assets on their balance sheets. These assets continue to decline in value as the housing market deteriorates. the world. Had those three companies been allowed to fail, and their bonds defaulted, a financial meltdown would have ensued.

...

 

Think of it this way: Wall Street is like an enormous **** above a sprawling city. The dam regulates the flow of water (money) and holds back the flooding reservoir. As a result of five years of easy credit (home loans with no money down, and no ability to repay), the assumption that home prices would always rise (even though homes were being built at a breakneck pace and oversupplying the market), too much water went over the spillway.

[Sara R]

Please forgive my ignorance, I've not looked into this much. Who was going to get the money? Where was the money going to come from (taxes, I assume, but maybe I'm wrong)?

 

The money is coming from the Treasury by increasing the national debt, which was already at nearly catastrophic levels before all of these bailouts started. That means that the money is going to come from future taxes (unlikely) or hyperinflation (likely).

 

It's going to banks. I'm not sure of the details, but I think it's to buy derivatives based on bad assets, not only mortgages, but derivatives based on credit card debt and student loans as well.

 

Paulson was looking for $700 billion for this. That's not $700 billion total, but $700 billion at any one time. In other words, if the gov't bought a certain number of mortgages with the $700 billion, and the houses were sold and they got a certain (smaller) amount of money from the sale of the houses, they could then lend out the money they had gotten from the sale of the houses to buy other bad debt.

 

In the wording of the bill there's a line that there can be no judicial review for this bill. Scary unconstitutional stuff.

[Spy Car]

To my mind this is very bad news.

 

The bailout is a bitter pill to swallow, but the alternative, I fear, will be catastrophic.

 

What a mess.

 

Bill

[Sara R]

This particular bailout doesn't bail out people in foreclosure. It bails out the banks who were stupid enough to make the bad loans in the first place. They really should have known better. You expect the general public to be stupid if you let them, but the people lending out the money should know better. Under this bailout, people still can get foreclosed on.

[Amy loves Bud]

You expect the general public to be stupid if you let them, but the people lending out the money should know better. Under this bailout, people still can get foreclosed on.

 

I absolutely do not expect the general public to be stupid. I am responsible for myself, and my children, and I fully expect others to be the same. Why would we expect grown adults, who grew up in a country with more opportunity than anywhere else in the world, to be stupid?

 

I don't want to bail out the corporations, they decided to play dirty and they lost. Let them be a lesson to the other corps. who are still standing. But why does that give the general population a pass? I don't get it.

[Marie in Oh]

This particular bailout doesn't bail out people in foreclosure. It bails out the banks who were stupid enough to make the bad loans in the first place. They really should have known better. You expect the general public to be stupid if you let them, but the people lending out the money should know better. Under this bailout, people still can get foreclosed on.

 

More rep worthy posting. :iagree:

[Renee in NC]

I don't want to bail out the corporations, they decided to play dirty and they lost. Let them be a lesson to the other corps. who are still standing. But why does that give the general population a pass? I don't get it.

 

In the short term, though, it is the little people that are going to feel the pain. This is much bigger than individuals losing their houses. Our economy has become nothing more than a credit clearing house where people are paid with credit, buy stuff with credit, and pay back credit. It always seemed to me like a great big Ponzi scheme!:D

[Spy Car]

With no credit to go around, more firms will fail, more jobs will be lost, more homes will go into foreclosure, with home-loans almost unavailable and a glut of foreclosed homes on the market home values will fall, securities and other investment instruments backed by mortgages will further collapse sending out more shock-waves, and failures, thereby initiating a downward spiral that could very well bring the whole economy down.

 

While it might (on some level) feel good to say "let's stick it to the banks", this is a very dangerous and naive position to take. We need an orderly and well executed intervention by the Federal government immediately.

 

My Congressperson Brad Sherman (D) vote against the bailout, and to say I;m unhappy about this is an understatement.

 

Bill (D)

[Marie in Oh]

I absolutely do not expect the general public to be stupid. I am responsible for myself, and my children, and I fully expect others to be the same. Why would we expect grown adults, who grew up in a country with more opportunity than anywhere else in the world, to be stupid?

 

I don't want to bail out the corporations, they decided to play dirty and they lost. Let them be a lesson to the other corps. who are still standing. But why does that give the general population a pass? I don't get it.

 

the general population is in debt up to their earlobes, maybe their eye sockets., just like the government. The general population doesn't make choices based on what is responsible. They want what they want- NOW! The majority of people getting a mortgage these days don't understand the terms of their loan, what an ARM is, what the ramifications of a no interest loan is. They just understand, "I can make those payments." I don't know. . . it all sounds pretty stupid to me.

[Jennifer in NH]

Woohoo! Democracy triumphs!

 

Now I'm :leaving: and joining Remudamom for drinks. :auto:

:iagree: me too! And I'll join you for drinks too! We had on C Span and I was thrilled...just not a good bill.

[JennifersLost]

You know what, Spy Car - this isn't just about "sticking it" to the big corporations - this is about EVERYONE learning the lesson that needs to be learned; you can't live on credit.

 

We are all responsible for our own actions. It is not the govt's, nor my responsibility to bail anyone else out for their own mistakes. If you are buying a house or running a business, you are a GROWN UP. If you lose your shirt, you start over!

 

We have become this nation of babies, thinking that things like homeownership, cars, education, and retirement are entitlements - they're NOT. They're things you get if you work really hard and make good choices.

 

You know what's going to happen if this bailout goes through? Inflation is going to go through the roof! You think things are expensive today....you ain't seen nothing yet. Anyone who has money put by for retirement....fugetaboutit! Inflation will outstrip interest so fast it will make your head spin.

 

The only way our children are ever going to afford houses is if prices drop to a reasonable level and the only way that's going to happen is if we step back and allow it to happen. If the amount of your mortgage becomes more than your house is worth, you have two choices. If you can keep making the payments and can stay there for 5 - 10 years, stick it out and your house may very well increase in value again. If you can't make those payments, walk the heck away from it and start over with a rental.

 

Life is tough. So many of us on this board know it. So many of us have gone through horrendous times and lived to tell the tale. Everyone involved in the current snafu will get through it, too, and they'll be a whole heck of a lot wiser afterwards.

 

How do I know this bail out is wrong? Because my government is telling me it has to pass TODAY without any real amount of time to think it over carefully. That's when my Bull**** meter starts ringing off the hook, ya know?

 

Five years ago dh and I were sitting in California predicting this very thing and neither one of us are financial experts. Don't tell me that thousands and thousands of those experts didn't know this day was coming and yet went ahead and made it happen anyway. God, I don't know who I'm more ashamed of; our government, our financial institutions or the people in this country.

[neesek]

Donald Trump is now saying that the "silver lining" is that he thinks that the price of oil will drop as a result of all of this. I don't quite understand all of it (I hated economics in college, even though I was an accounting major :001_smile:), but I am glad that the bill was defeated. I just don't think that the government should be intervening to this extent. The bill was flawed, it was pushed through too quickly, and I just don't think it was the right solution.

 

It's still scary though. :confused:

[H.S. Burrow]

work in the financial services industry for a global bank that manages over two trillion dollars. Currently my days are spent researching and studying the ever expanding crisis we find ourselves in. Having read emails and listened to arguments against the $700 billion dollar rescue plan proposed by Secretary Paulson and supported by Federal Reserve Bank Chairman Bernanke, I thought I’d weigh in with some important facts regarding our banking system and credit:

 

 

 

While we may certainly oppose the actions of some Wall Street banks and their leadership, banking is the heart of our financial system. If the heart stops, the body dies. We all depend on credit either directly through mortgages, car loans, students, credit cards, etc., or indirectly through the companies we work for. The vast majority of businesses in the U.S. depend on readily available credit to finance their daily operations. The reason is quite simple. Businesses borrow at rates that are lower than what they can earn in their operations. For example, a company borrows $1 million dollars at an interest rate of 5% and uses the money to hire employees, buy machinery and advertise. As a result, the business generates revenues and makes 12% on the $1 million. The employees are paid, the business grows and our economy expands. While that is an oversimplified analogy, it is the process. If the business can’t borrow, it slowly ceases to function. Employees are then laid off. If the employees can’t find work elsewhere because other businesses are failing, he/she can’t pay the mortgage and finally defaults. With enough defaults and bank runs, the lending bank collapses. This is in part a description of what happened in the Great Depression. It is critical to remember that the financial system is built entirely on confidence. We deposit money into our local banks because we’re confident it will be there when we need it. The money does not sit in a vault; it is lent to the bank’s private and business consumers. If we don’t trust the bank, we’ll withdraw our money until the bank cannot lend and must close.

 

 

 

The entire banking system is in jeopardy because so many banks, large and small, have mortgage-backed assets on their balance sheets. These assets continue to decline in value as the housing market deteriorates. Because banks constantly lend to each other, a high level of confidence among them is crucial. As homeowners default on their loans, the assets lose additional value and threaten the security of the banks which hold them. As we’ve already seen, the banks are in trouble. In the last six months, Bear Sterns, Lehman Brothers, Merrill Lynch and now Washington Mutual have all either gone under or been purchased. We may not like Wall Street and the ridiculously large bonuses paid, but if it fails, our economy goes with it. The bailout of AIG and Freddie/Fannie was absolutely essential due to the billions of dollars in bonds sold by them to governments, businesses and individuals around the world. Had those three companies been allowed to fail, and their bonds defaulted, a financial meltdown would have ensued.

 

 

 

Think of it this way: Wall Street is like an enormous **** above a sprawling city. The dam regulates the flow of water (money) and holds back the flooding reservoir. As a result of five years of easy credit (home loans with no money down, and no ability to repay), the assumption that home prices would always rise (even though homes were being built at a breakneck pace and oversupplying the market), too much water went over the spillway. Now, the flow of water is in jeopardy because banks are hoarding cash, fearful of lending and not seeing the money again. In essence, the dam is cutting off the flow because it previously pumped into the system far more than the economy could realistically repay. The solution is to restore the flow by unclogging the dam and restoring confidence. What the Treasury proposes is just that: unclogging the works. It is not a bailout but rather a buyout of the mortgages held on the banks’ balance sheets so that they can resume normal lending, and keep the flow going. The U.S. government will buy the assets from the banks at a discount; say 65 cents on the dollar, and then hold them until the housing market stabilizes. At that point, the mortgages will be resold into a market that can absorb them. The U.S. Treasury is the only entity that has the cash and the time to buy and hold these assets; for which there is currently no market. We most definitely need the buyout to occur. The taxpayer will benefit from a normalized banking system, and the eventual resale of the mortgages at a profit.

 

 

 

I do agree that strict oversight must be in place, and that the banks that sell assets to the Treasury must abide by CEO compensation limitations. Please take the time to better understand the crisis we are in, and then call or write your Congressional representative with an informed opinion. This affects all of us.

 

Thank you for this post. While I agree with others that the banks that made bad decisions need to pay for them, I think that alot of folks are not thinking about the other businesses that depend on credit (right or wrong) to operate.

 

 

The big lenders are not the ones paying for their mistakes. Other companies are paying for the mistakes the big lenders have made because the big lenders are not extending credit to companies that need it to operate. A lot of the large companies employ tens of thousands of people. If those companies have to start cutting back their number of employees, we are talking about unemployment skyrocketing. If companies start closing plants because they can't meet payroll, then not only do we have unemployment, but we have reduced goods - at a higher price.

 

 

I don't like the bill. But I think we are in for a really scary time because it didn't pass.

[Amy loves Bud]

You know what, Spy Car - this isn't just about "sticking it" to the big corporations - this is about EVERYONE learning the lesson that needs to be learned; you can't live on credit.

 

We are all responsible for our own actions. It is not the govt's, nor my responsibility to bail anyone else out for their own mistakes. If you are buying a house or running a business, you are a GROWN UP. If you lose your shirt, you start over!

 

We have become this nation of babies, thinking that things like homeownership, cars, education, and retirement are entitlements - they're NOT. They're things you get if you work really hard and make good choices.

 

You know what's going to happen if this bailout goes through? Inflation is going to go through the roof! You think things are expensive today....you ain't seen nothing yet. Anyone who has money put by for retirement....fugetaboutit! Inflation will outstrip interest so fast it will make your head spin.

 

The only way our children are ever going to afford houses is if prices drop to a reasonable level and the only way that's going to happen is if we step back and allow it to happen. If the amount of your mortgage becomes more than your house is worth, you have two choices. If you can keep making the payments and can stay there for 5 - 10 years, stick it out and your house may very well increase in value again. If you can't make those payments, walk the heck away from it and start over with a rental.

 

Life is tough. So many of us on this board know it. So many of us have gone through horrendous times and lived to tell the tale. Everyone involved in the current snafu will get through it, too, and they'll be a whole heck of a lot wiser afterwards.

 

How do I know this bail out is wrong? Because my government is telling me it has to pass TODAY without any real amount of time to think it over carefully. That's when my Bull**** meter starts ringing off the hook, ya know?

 

Five years ago dh and I were sitting in California predicting this very thing and neither one of us are financial experts. Don't tell me that thousands and thousands of those experts didn't know this day was coming and yet went ahead and made it happen anyway. God, I don't know who I'm more ashamed of; our government, our financial institutions or the people in this country.

 

Oh lordy, if I could hug you right now, I would. :grouphug::grouphug:

[Amy loves Bud]

Thank you for this post. While I agree with others that the banks that made bad decisions need to pay for them, I think that alot of folks are not thinking about the other businesses that depend on credit (right or wrong) to operate.

 

We ARE thinking about it! We want it to change. If we keep artificially propping up an artificial system, it WILL fall, only harder. I think many of us who oppose the bailout oppose it because we are ready to face the consequences now rather than have our children and their children do it for us.

 

BTW, my husband's income, in great part, comes from businesses who rely on credit. This will hurt us. I'm not naive to that.

[CAMom]

Anyone have a link to how each member of Congress voted?

 

TIA,

[VaKim]

You know what, Spy Car - this isn't just about "sticking it" to the big corporations - this is about EVERYONE learning the lesson that needs to be learned; you can't live on credit.

 

We are all responsible for our own actions. It is not the govt's, nor my responsibility to bail anyone else out for their own mistakes. If you are buying a house or running a business, you are a GROWN UP. If you lose your shirt, you start over!

 

We have become this nation of babies, thinking that things like homeownership, cars, education, and retirement are entitlements - they're NOT. They're things you get if you work really hard and make good choices.

 

You know what's going to happen if this bailout goes through? Inflation is going to go through the roof! You think things are expensive today....you ain't seen nothing yet. Anyone who has money put by for retirement....fugetaboutit! Inflation will outstrip interest so fast it will make your head spin.

 

The only way our children are ever going to afford houses is if prices drop to a reasonable level and the only way that's going to happen is if we step back and allow it to happen. If the amount of your mortgage becomes more than your house is worth, you have two choices. If you can keep making the payments and can stay there for 5 - 10 years, stick it out and your house may very well increase in value again. If you can't make those payments, walk the heck away from it and start over with a rental.

 

Life is tough. So many of us on this board know it. So many of us have gone through horrendous times and lived to tell the tale. Everyone involved in the current snafu will get through it, too, and they'll be a whole heck of a lot wiser afterwards.

 

How do I know this bail out is wrong? Because my government is telling me it has to pass TODAY without any real amount of time to think it over carefully. That's when my Bull**** meter starts ringing off the hook, ya know?

 

Five years ago dh and I were sitting in California predicting this very thing and neither one of us are financial experts. Don't tell me that thousands and thousands of those experts didn't know this day was coming and yet went ahead and made it happen anyway. God, I don't know who I'm more ashamed of; our government, our financial institutions or the people in this country.

 

I wish we had smileys that made noise, because I'd put up one jumping up and down applauding loudly! Excellent post!!