BAILOUT: Yes or No?

[Jolt]

Curiously, the option "Let the Market work" has led us to where we are now. :P

[Lemur]

As it stands I'm against it. If Congress wants to take its time, do it right, and really work on the problem, then I could be persuaded. But we have a history of panicked, rushed legislation under the Bush Admin., and I'm done with it. If prominent Washington jerks are screaming that the sky is falling, I say let it fall unless you can show me you're going to prop it up responsibly.

This seems like a perfect moment to not panic and not rush into things.

I'd like to know some opinions from economic scholars who are not directly involved.

The Economist has a big, long story on the bailout which you can read here.

[Crazed Rabbit]

Jolt -no, it hasn't.

Fannie an Freddie were created (in the 1930s) by the government and privatized, but with extensive privileges, in the 1960s (Or 1970s? Not sure).

They were not free market institutions, but large government intrusions into the market. They were encouraged by the government to encourage bad lending policies and so they encouraged this huge mess of sub-prime loans by buying up just about any crap loans.

Democrats defeated measures in 2005 that would have curtailed those inherently risky activities.

Even now, we see the free market buying up failed firms.

CR

[Jolt]

Jolt -no, it hasn't.

Fannie an Freddie were created (in the 1930s) by the government and privatized, but with extensive privileges, in the 1960s (Or 1970s? Not sure).

They were not free market institutions, but large government intrusions into the market. They were encouraged by the government to encourage bad lending policies and so they encouraged this huge mess of sub-prime loans by buying up just about any crap loans.

Democrats defeated measures in 2005 that would have curtailed those inherently risky activities.

Even now, we see the free market buying up failed firms.

CR

Wait. Two banks singlehandedly created the biggest crisis since the Great Depression? Wow, this is new.

[Xiahou]

Wait. Two banks singlehandedly created the biggest crisis since the Great Depression? Wow, this is new.

Read about what the GSEs are and what they did and you'll begin to get the picture.

[Ironside]

Read about what the GSEs are and what they did and you'll begin to get the picture.

So if I got it right, they've problematic by making a bubble safer earlier on and then by being "too big to fall", they made the investor think that if/when the fecal matter hits the fan the goverment will bail it out.

While I can see that it's enforced the problem, but it also operates on the basic premise that the investors would gladly make a profit by creating a damaging economic situation and risking an economic failure.

You really got low expectations of how an economic system should be run if you consider it the best option to get those people free reins.

As for the bailout, a reluctant yes, if done properly it would keep the economy up, mostly repay itself back and give the investors a nasty burn aswell.

Of course, this is the Bush administration so it's probably the other reason. Short term benefits to keep the econmy up is better than potential long terms, as this debacle is dragging our own economy down atm. Long term downsides is easier to prepare against

In no other advanced country would people work under the same conditions as in the US... why do they do it? Because they believe in the american dream.... Never mind the american dream will never come to you ;)

IMHO the american dream is partly directly responsible.

Isn't one part of that dream to own your own house?

Spoiler Alert, click show to read: 

Of course, compared to the "outsmarting a bubble" syndrome it's small potato.

[drone]

Here's a good plan from the ex-FDIC chairman. Looks much more palatable than free cash to Wall Street.
http://www.washingtonpost.com/wp-dyn...l?hpid=topnews

Spoiler Alert, click show to read: 

I have doubts that the $700 billion bailout will work if enacted. Will banks really be willing to part with the loans, and will the government be able to sell them in the marketplace on terms that the taxpayers would find acceptable?

To get banks to sell the loans, the government would need to buy them at a price greater than what the private sector would pay today. Many investors are open to purchasing the loans now, but the financial institutions and investors cannot agree on price. Thus private money is sitting on the sidelines until there is clear evidence that we are at the floor in real estate.

Having financial institutions sell the loans to the government at inflated prices so the government can turn around and sell the loans to well-heeled investors at lower prices strikes me as a very good deal for everyone but U.S. taxpayers. Surely we can do better.

One alternative is a "net worth certificate" program along the lines of what Congress enacted in the 1980s for the savings and loan industry. It was a big success and could work in the current climate. The FDIC resolved a $100 billion insolvency in the savings banks (had they been marked to market) for a total cost of less than $2 billion.

The net worth certificate program was designed to shore up the capital of weak banks to give them more time to resolve their problems. The program involved no subsidy and no cash outlay.

The FDIC purchased net worth certificates (subordinated debentures, a commonly used form of capital in banks) in troubled banks that the agency determined could be viable if they were given more time. Banks entering the program had to agree to strict supervision from the FDIC, including oversight of compensation of top executives and removal of poor management.

The FDIC paid for the net worth certificates by issuing FDIC senior notes to the banks; there was no cash outlay. The interest rate on the net worth certificates and the FDIC notes was identical, so there was no subsidy.

If such a program were enacted today, the capital position of banks with real estate holdings would be bolstered, giving those banks the ability to sell and restructure assets and get on with their rehabilitation. No taxpayer money would be spent, and the asset sale transactions would remain in the private sector where they belong.

If we were to (1) implement a program to ease the fears of depositors and other general creditors of banks; (2) keep tight restrictions on short sellers of financial stocks; (3) suspend fair-value accounting (which has contributed mightily to our problems by marking assets to unrealistic fire-sale prices); and (4) authorize a net worth certificate program, we could settle the financial markets without significant expense to taxpayers.

[CountArach]

A bailout? Yes.

The Bailout? No.

Those who made the mistakes should pay for it.

[Kadagar_AV]

If it was in sweden I would say bail out...

In the US however, I think that in a long term it would be better not to bail out... To show the population that the idea of a free market does not work:)

There is no american dream, the american dream = a way to keep the big masses under the whip while a few people get the cash.

In no other advanced country would people work under the same conditions as in the US... why do they do it? Because they believe in the american dream.... Never mind the american dream will never come to you;)

For everyone who reach the american dream, there are a thousand people having two jobs to get enough cash to go around.

So yeah, in my oppinion... Let the big companies fall.

Start over, build from scratch:)

[Spino]

Curiously, the option "Let the Market work" has led us to where we are now. :P

Not entirely true. Check out Fragony's posts in the relevant thread for some background on past gov't legislation which helped fuel this disaster. The same generation that got the markets into this mess is running the government that is trying to fix the problem. Sort of like the blind leading the blind.

Better no bailout than a bailout using funny money. Tossing over $1 trillion dollars on this fire (I am taking into account the previous bailout bill passed a few months ago) is only going to contribute to the decline of the dollar and force foreign investors to exchange it for more stable currency. We have to show the world we're tough enough to endure and learn from our mistakes. But we all know that ain't gonna happen.

[Jolt]

Not entirely true. Check out Fragony's posts in the relevant thread for some background on past gov't legislation which helped fuel this disaster. The same generation that got the markets into this mess is running the government that is trying to fix the problem. Sort of like the blind leading the blind.

Better no bailout than a bailout using funny money. Tossing over $1 trillion dollars on this fire (I am taking into account the previous bailout bill passed a few months ago) is only going to contribute to the decline of the dollar and force foreign investors to exchange it for more stable currency. We have to show the world we're tough enough to endure and learn from our mistakes. But we all know that ain't gonna happen.

Of course, the American Government is anything but helpful, but the market is the main culprit of this situation. I like Interventionism more and Laissez-Faire less.

[Koga No Goshi]

A strong majority of the public is hopping mad (of every political stripe) and calling their representatives' offices against the bailout. There is no real argument that the American people, at least as a gut reaction, don't want this bailout.

But, we have to remember, I don't know-- and maybe most of you don't know, either- what the full ramifications of doing nothing would be. Myself? I feel that they would probably be bad but I still wish we could just suffer through them if only to teach wanna-be monopolist crybaby capitalists a lesson through all this. But, I do also believe that the people most responsible will not suffer AT ALL, and it will be most of us normal people who suffer, no matter what we do.

I freely admit I have no idea what would happen if we don't bail them out. I just get the vague sort of impression it would be bad, but very little hard facts about what exactly would happen.