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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
To the commenters complaining about how they run their house-hold budget in a balance manner and don't use credit and mortgages and such: You really need to take some economics. All of these loans and situations allow for more efficient use of assets. Using the value of your home to participate in the economy makes sense, provided that the mortgage rate is lower than what you can get investing elsewhere (which is almost always is). Overly restricting credit would be a huge drain on the economy.
Also, just because you can buy groceries and gas on a balanced budget from a salary, that doesn't mean that it would be easy or even logical for an investment bank to do the same thing.

As for the bad things that can happen without a bailout is primarily the risk of a market crash. If people believe that their investments are risky (as many of them have turned out to be), they could withdraw their funds, stalling the economy as companies can't get the money required to grow.
 
 
Sep 30, 2008
Ali Velshi, Senior Business Analyst at CNN did a pretty good job of explaining how the stock market crisis will affect Joe Schmoe (below is the imbed url to a video):

<iframe src="http://www.cnn.com/video/savp/evp/?loc=dom&vid=/video/business/2008/09/30/dcl.velshi.bailout.breakdown.cnn" height="393" width="406" allowtransparency="true" frameborder="0" scrolling="no"></iframe>

 
 
-2 Rank Up Rank Down
Sep 30, 2008
http://www.time.com/time/business/article/0,8599,1845209,00.html?cnn=yes

A different university professor that agrees with one of the above ones from a different university.

A world without easy credit sounds like the way it should be. Is it so horrible if people have to save money before buying something? Isn't that the way it should be?
 
 
Sep 30, 2008
I logged in only to give a thumbs up to the comment by MysteriousNerdyGuy! Do check out the link he's so desperate to share.

Scott, I don't have a link. But I guess we can take a hint from what I considered to be a useless bit of trivia till just a moment back - Do you know what was World War I called in the intervening years between the World war I and World War II?

It was called the great war. They didn't add the (roman) number "I" till World War II had come and gone. I guess the same thing will be done with The great depression too :)
 
 
Sep 30, 2008
Here's a link of who will pay for a bailout, by income level:

http://www.safehaven.com/images/shaw/11409_large.png
 
 
Sep 30, 2008
correct me if i'm wrong, but the big business short term credit market is essential for large corporations to function. I heard a great interview on NBR saying that if it doesn't loosen up soon, big businesses will have trouble making payroll, financing supply chains, and paying the bills. Leading to sluggish retail markets, leading to job cuts, leading to less spending, and a downward spiral from there. That is not to say the market will not come up with a way around all this, after all nature abhors a vacuum, so the doomsayers are probably overstating the case.
 
 
+3 Rank Up Rank Down
Sep 30, 2008
I would recommend this commentary:

http://edition.cnn.com/2008/POLITICS/09/29/miron.bailout/index.html

 
 
-1 Rank Up Rank Down
Sep 30, 2008
I'm pretty sure that the picture painted by Paulson to the administration and congress in the closed door meeting that prompted this whole thing centered around the fact that most of the administration and congress are at or near retirement age already, and it's a bad time for them to be losing money in their investments. Paulson's 1/2 Billion dollar worth is probably mostly tied up in wall street as well.

This is simply a scare tactic to get the public to be afraid so our "leaders" can "fix" things for us, and help themselves out at the same time. What's going to happen if they don't do the bailout is about the same as what is going to happen if they do the bailout. The problem is people buying houses at terms they can't afford, there's no way to correct this without house prices falling and people defaulting. The bailout will just postpone or temporarily slow the inevitable further collapse in the housing market. Either way, it's gotta hit bottom before it can start going up again.

What really annoys me about this whole thing is that those of use who don't live on credit and live within our means buy buying a house we can afford get to pay for all the other idiots who are !$%*!$%* up, instead of the people who are !$%*!$%* up paying for it.
 
 
Sep 30, 2008
There's been a lot of talk about the market "purging" itself lately. Personally, I think it's an excellent idea. The banks are not failing because of some mysterious accident - they are failing because they did not follow sound business practices and got greedy.

It boggles the mind to think that there are businesses all over America taking out short-term loans to meet their PAYROLL. What? If your business survives on influxes of cash from credit sources, then you are always playing catch up. All the businesses that post profits. . . did they really make a profit? How much do they actually owe?

What happened to businesses operating in the black?

Maybe I'm over-simplifying, but, my budget balances, without the use of credit cards or short-term loans - every month.

Excellent explanation of market purge here: http://ryanmoran.org/

And scary consequences if we continue down the path the government is trying to lead us down.
 
 
Sep 30, 2008
As one of the first to comment, I'd like to kick off with somehting completely unrelated and (having not read comments to any previous posts) perhaps already common knowledge.

http://www.time.com/time/quotes/0,26174,1844737,00.html

You're a pension and investment analyst??
 
 
 
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