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Now that the government has proposed bold solutions to the financial meltdown, and also rejected them, I am digging my underground bunker and hoarding canned goods. I call that "doing my part."

I wasn't truly scared until I saw on the Internet that Michael Moore has waded into the economic discussion. When citizens start getting their economic guidance from Michael Moore, well, that is a harbinger of doom. But the worst part is that I'm not entirely sure he's wrong. Stay with me on this.

There is a growing school of thought - let's call it the Michael Moore school - that the $700 billion dollar so-called bailout is intended primarily to enrich the already rich. To me, that sounds like a cartoon characterization of a complex situation that couldn't possibly be accurate. On the other hand, a year ago if you told me the entire economy depended on making loans to people who couldn't repay them, I would have dismissed that too. So I am reluctant to dismiss ideas just because they sound crazy.

Let's pause here to acknowledge that any governmental action to maintain the health of big banks, and the economy in general, will benefit rich people the most, simply because they have more money on the line. That's how capitalism is constructed. The relevant question is whether lower income people also gain by the $700 billion bailout.

Viewed in terms of suffering, it seems obvious that rescuing the economy helps low income people the most. A billionaire who becomes only a half-billionaire doesn't suffer as much as a factory worker who loses his job, or has to pay more taxes, or gets devoured by inflation. So if the price of helping the factory worker is that some rich people get richer, that's unavoidable under capitalism.

Lately I have been hearing that the $700 billion should go directly to help the people who need it, not to help the greedy corporations. In other words, the government should borrow $700 billion from the taxpayers and then give it back to them. I think that is the kind of thinking that caused the problem in the first place. Unless this is just another way of saying the government should transfer a huge amount of money from the rich to the poor in one fell swoop. If that's the plan, let's call it what it is, and debate it clearly.

What seems missing in all the discussions of the bailout is some sort of description of what is likely to happen if we do nothing. Personally, I am not persuaded by hand waving and vague pronouncements of doom. I'd like to see the risk illuminated a bit.

For example, is the risk primarily to a number of big financial institutions that wouldn't be missed by anyone but the stockholders and employees who signed on for the risk? Or is the failure of those companies just the start of a process that would inevitably cause a great depression? I have no idea.

Does anyone have a link that describes what probably happens if the free market sorts out things on its own?
 
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Sep 30, 2008
After reading the T. J. Birkenmeier plan, one word comes to mind...


... "doomed".
 
 
Sep 30, 2008
this doesn't address you exact ? but IMO it's a must read on the topic:

http://www.moneyandmarkets.com/files/documents/Final-Bailout-White-Paper.pdf

basically these guys (with pretty good credentials) argue (with lots of compelling data) that the problem is __WAYYY__ bigger than $700B but that it's more than enough to tank the bond market and spike inflation. their basic reccomendation is to shore up FDIC (which is woefully underfunded) to protect the responsible (people w/insured liquid assets) and let nature take its course with the irresponsible
 
 
Sep 30, 2008
Here's a Wikipedia page of a book that explains how free market sorts itself out.

http://en.wikipedia.org/wiki/The_Shock_Doctrine

I have no idea if it's !$%*!$%* or not, but I find the idea that greedy people are willing to cause unlimited amount of suffering very easy to believe.
 
 
Sep 30, 2008
This was sent to me as a forward by my niece. I have no idea who T. J. Birkenmeier is, but I am very interested in what you think of his proposal. I don't think it's taking from the rich to give to the poor, as all taxpayers have contributed, and every adult, no matter what his or her income, get the same slice.

The Birk Economic Recovery Plan:
I'm against the $85,000,000,000.00 bailout of AIG. Instead, I'm in favor of giving $85,000,000,000 to America in a 'We Deserve It Dividend'.
To make the math simple, let's assume there are 200,000,000 bona fide U.S. Citizens 18 . Our population is about 301,000,000 /- counting every man, woman and child. So 200,000,000 might be a fair stab at adults 18 and up. So divide 200 million adults 18 into $85 billion that equals $425,000.00.
My plan is to give $425,000 to every person 18 as a We Deserve It Dividend.
Of course, it would NOT be tax free. So let's assume a tax rate of 30%. Every individual 18 has to pay $127,500.00 in taxes. That sends $25,500,000,000 right back to Uncle Sam. But it means that every adult 18 has $297,500.00 in their pocket. A husband and wife has $595,000.00.
What would you do with $297,500.00 to $595,000.00 in your family?
...Pay off your mortgage - housing crisis solved.
...Repay college loans - what a great boost to new grads
...Put away money for college - it'll be there
...Save in a bank - create money to loan to entrepreneurs.
...Buy a new car - create jobs
...Invest in the market - capital drives growth
...Pay for your parent's medical insurance - health care improves
...Enable Deadbeat Dads to come clean - or else
Remember, this is for every adult U S Citizen 18 including the folks who lost their jobs at Lehman Brothers and every other company that is cutting back. And of course, for those serving in our Armed Forces.
If we're going to re-distribute wealth let's really do it...instead of trickling out a puny $1000.00 ( 'vote buy' ) economic incentive that is being proposed by one of our candidates for President.
If we're going to do an $85 billion bailout, let's bail out every adult U S Citizen 18 !
As for AIG - liquidate it. Sell off its parts.
Let American General go back to being American General. Sell off the real estate.
Let the private sector bargain hunters cut it up and clean it up.
Sell off the expensive buildings of Lehman Bros.
Here's my rationale. We deserve it and AIG, Lehman Bros, Goldman Sachs don't.
Sure it's a crazy idea that can 'never work.' But can you imagine the Coast-To-Coast Block Party!
How do you spell Economic Boom?
I trust my fellow adult Americans to know how to use the $85 Billion. We Deserve It Dividend MORE than I do the 'geniuses?' at AIG, Lehman Bros., Goldman Sachs, or in Washington DC. We know where they 'brought us' and their companies.
And remember, The 'BIRK PLAN' only really costs $59.5 Billion because $25.5
billion is returned instantly in taxes to Uncle Sam.
Ahhh...I feel so much better getting that off my chest.
Kindest personal regards,
Birk

T. J. Birkenmeier, A Creative Guy & Citizen of the Republic
PS: Feel free to pass this along to your pals as it's either good for a laugh or a tear or a very sobering thought on how to best use $85 Billion!!
PPS: Even if the number is 250 million adults, the share is $340,000 gross each!!!
($238,000 net after that estimated 30% federal tax rate)
Your state and local governments will want 'their share' too, but think of all the pre-financed public works projects that could get done. More jobs! Repave streets and upgrade utilities--that needs labor, and equipment and materials.
This is way better than 'trickle-down' economics--it would be 'tidal wave' economics!
Make sure the $25 billion that goes right back to Uncle Sam gets used for debt reduction.
PPPS: I heard on the radio that the total of all recent and potential near-term bailouts may reach $500 billion. Put another way, half-a-trillion dollars. Or 500,000 million!



 
 
Sep 30, 2008
You said "A billionaire who becomes only a half-billionaire doesn't suffer as much as a factory worker who loses his job, or has to pay more taxes, or gets devoured by inflation."

Inflation will actually be worse if the bailout plan goes through. Borrowing/printing more money decreases the value of the dollar, which increases the cost of oil and other commodities (which are traded in dollars), and also increases the cost of imports. As it is, most American workers are not going to get raises high enough to keep pace with inflation that reached 5.6% this summer.

Our default position should be to not listen to the Bush administration. Waiting 4 months until the next president is in office and makes an informed decision, rather than just doing what's best for the corporations, is almost definitely a better move.
 
 
+2 Rank Up Rank Down
Sep 30, 2008
Is this true?

From TMQ, a writer. http://sports.espn.go.com/espn/page2/story?page=easterbrook/080930

"Just One Bailout Thought: As Congress continues to debate whether they are going to hand over $700 billion of your money to the wealthy who screwed up Wall Street and the banking industry, you will be relieved to learn that top executives of the bailed-out firms temporarily will be limited to a strict $500,000 a year in tax-subsidized income. Surely you receive $500,000 a year in tax-subsidized income, don't you? Anyway, supposing we assume the bailout is required, here is what bothers me about the plan so far: Taxpayers don't get stock, what they get is warrants that can be exchanged for stock, and nonvoting stock to boot. This means that once media attention switches to the next crisis that everyone will claim in retrospect to have seen coming, the Wall Street rich can quietly lobby to have the warrants never called, thus keeping the entire bag of gold for themselves. Even if the warrants are called, taxpayers get no voting positions -- meaning the boards of directors of the bailed-out firms can do anything they damn please with taxpayers' money.

A week ago, Warren Buffett rescued Goldman Sachs by injecting $5 billion in capital. Did Buffett bargain for warrants that can be exchanged at an unknown later date for nonvoting shares? No: He is not a fool. Buffett gave Goldman Sachs $5 billion in return for senior preferred stock, the kind that votes and also is more valuable than ordinary shares. That is to say, he used his money to buy something. Goldman can now employ the cash to fix its liquidity problems. The United States Congress and the White House should use the public's $700 billion to buy something, namely senior preferred shares. Why are Congress and George W. Bush not simply following the road map laid out on this problem by the smartest investor of our era? Either Congress and the president are a bunch of blithering fools -- or what they actually want is to insure the public's money is never seen by the public again. "

 
 
Sep 30, 2008
IF the free market was legal in America we would see the problem correct itself quickly with a minimum of harm. The market would come through this stronger and better than before. As it is, who knows, since the government will undoubtedly meddle at every step of the process.
 
 
Sep 30, 2008
This <a href="http://www.latimes.com/news/opinion/la-oew-kuttner-foster29-2008sep29,0,412930.story">LA Times</a> article gives two different opinions on the bailout and the consequences if it fails to pass.
 
 
Sep 30, 2008
This is sort of off to the side, but I love how populists consistently frame the debate in terms of 'needy poor' vs 'greedy rich'. As if poor people are any less greedy than rich people. The poor are actually probably greedier than the rich - at least the rich pay taxes. Greed is a universal human drive, the rich are just better at it.

Maybe the right way to think about things is: should we bail out the greedy-but-competent or the greedy-but-stupid? My vote is to give it to people who have shown *some* indication (despite some recent blunders) that they know what to do with it.
 
 
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Sep 30, 2008
Here's the fluffy version from the media. I post this because I'm quite sure a large segment of the general population saw this versus reading some of the more indepth and complicated articles that are out there:

http://www.msnbc.msn.com/id/21134540/vp/26954793#26954793

Also, this is the first piece I've seen in the media about potential fallout if the government does nothing. (You know, besides the many Bush speeches that fail to illuminate exactly what Doom and Gloom mean.)
 
 
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Sep 30, 2008
You should conduct a poll of 75% rich people that have stock in the large corporations and 25% poor people who can barely afford their next meal and see what the outcome is. That information would be useful in making up my mind on what is right and what is wrong.
 
 
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Sep 30, 2008
I don't have an answer, but I have a question. If the problem is that a lot of people took out mortgages that they now can't repay, and banks gave them loans that they shouldn't have, it seems like there are three solutions. 1. Do nothing. 2. Bail out the banks. 3. Bail out the homeowners.

Solutions 1 and 2 have been discussed ad nauseum. 2 seems most likely in some form, but is morally repugnant whether you are on the left or right or middle. You either don't like the socialization of the banks, or the socialization of the risks.

No one has discussed option 3. If the problem is people not paying their mortgages, put that money in escrow in the bank and let it only be used to pay off the mortgage. You could even do it in lotto fashion, i.e., you don't need all the money at once, it can be paid out over 30 years. Then people don't lose their homes, banks don't go under, factories don't fail. The banking system is rescued from the bottom up rather than top down. Morally it's equivalent. You're either helping rich people who made bad decisions or helping not-so-rich people who made bad decisions. For my money, I prefer the latter. Personally I would prefer not donating money to anyone who made bad decisions, but Option 1 seems to be frowned upon by serious Economists.

Why is no one discussing this option?

 
 
Sep 30, 2008
I don't understand why not doing a bailout, and then having a lot of foreclosures as a result, is a bad thing.

If one family has to leave their house, the bank doesn't bulldoze the house. They sell or rent it to someone else. So allowing these foreclosures would mean that lots of people who currently don't have houses would be able to get houses for less money.

Wouldn't that be a good thing? Wouldn't it, in fact, be exactly what the bailout is supposed to accomplish?
 
 
+1 Rank Up Rank Down
Sep 30, 2008
John Maldin is definitely one of the smartest guys out there:

http://www.frontlinethoughts.com/printarticle.asp?id=mwo092608
 
 
Sep 30, 2008
Here's another one for the link parade: !$%*!$%*!$%*!$%*!$%*!$%*!$%*!$%*!$%*!$%*!$%*!$%*!$%*!$%*!$%*!$% was also a good piece on NPR Friday that did a decent job of explaining it, if you can find a podcast or transcript.
 
 
+3 Rank Up Rank Down
Sep 30, 2008
Scott, no one has a link. Because the 'let the free market work itself out' idea isn't popular. It will cause some people to suffer and causing people to suffer is sadistic and objectionable, so no one would think like that. That is why the government thinks they need to step in and save our people from suffering.

My personal take is this is a golden opportunity that has presented itself to generate some outrage over executive compensation. The main objection most people have to the bailout plan is that the big wigs take millions and run, and I agree that would suck. So, here's how to really drive home the point. Let the companies in question fail and the big wigs have their dough. Then the little guy will hate the big wigs enough to wage some effective shareholder revolts that eliminate the financial payouts to guys who fail at their job, creating shareholder wealth.

Isn't it ironic that CEOs who fail at creating shareholder wealth impose a tax (in the form of golden parachutes)on shareholders further impoverishing them in the process?
 
 
Sep 30, 2008
Wow, a lot of the posters here really know nothing about the financial markets. The reason that all these big companies have to issue commercial paper (get short term loans) is not because they aren't profittable, but that they are expanding their businesses. They take large capital expenses up front and finance themselves through a variety of short and long term credit. Their cash flow goes to repaying both time spans. By not waiting around for enough cash to expand, they take preemptive steps, which helps the economy. If the credit markets freeze up, not only can large companies not repay their current obligations, but companies can't borrow to help the economy. No this won't stop all economic activity, but say activity decreases by 15%, that's going to create armageddon.

I completely agree with the Paulson plan, it's a good plan that would be effective in stopping the major damage in the economy. It is only the first step as after that private capital would be encouraged to buy up the same type of assets. Jim Cramer, just last night, siad he'd go in with the government on these assets if the deal happens. Warren Buffet, last week, said he wish he was in the government's position and could buy up all these assets, because he sees them as having great value. Generally speaking, ideologically I'd probably not want this type of plan under normal !$%*!$%*!$%*! as most of the time the economy can correct itself fairly quickly in a free market. However, the government helped contribute to this problem so now it needs to take steps to relieve the pressure. This is not a bail-out, but an investment program. This plan would actually probably earn money for all of us and reduce debt if it is implemented correctly. It is so tiring hearing idiots rant about bailing out wall street. None of these people really know anything and don't understand how bad things could become. This plan really would help out the poorest people most, as it would keep them above water. Even if a plan does happen, there will still be a short recession, but still much better than a depression.

Example of speech that standard person who listens to Michael Moore uses:
"Bush liar devil cheat bush steal bush bush hitler bush terrorist conspiracy bush halliburton bush... slobber slobber"

It's gotten to the point with Michael Moore that you can generally count on the opposite of whatever he says as being true.
 
 
-1 Rank Up Rank Down
Sep 30, 2008
Agree with M. Moore about giving money to the wealthy with the failed bailout plan. This is the same administration who awarded billion of $ worth of no-bid contracts to their friends before the start of the Iraq war. This administration put into the original bill wording that would have given Paulson the way of bailing out all the friends of the administration without anyone being able to stop him, things like buying out the loan on their homes, private jets and yachts. Bush demanded no oversight by congressional or judicial review. The Bush administration tried to defend their position of no oversight in closed door meetings with congress and fought to allow top executives to keep their golden parachutes that would have cost taxpayers over a billion $ just so we could fire executives of failed businesses.

Even with the final bill there were no clear guidelines for doling out the money. Who gets bailed out first and to what percentage. CEO friend of bush 100% bailout. Friend of other party gets leftovers.
 
 
Sep 30, 2008
If the real problem is, as they say, lack of liquidity in the credit markets, then the proposed solution is like trying to cure your cat of the mange by treating your dog for worms. What's needed is a solution that deals directly with the problem, not one that hopes for a secondary effect that might or might not occur.
 
 
0 Rank Up Rank Down
Sep 30, 2008
My go-to site for economics issues in general, and this crisis specifically, is www.MarginalRevolution.com. There's a whole slew of posts, but a good best case/worst case summary is here: http://www.marginalrevolution.com/marginalrevolution/2008/09/the-best-and-wo.html
 
 
 
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