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Published on September 25, 2008 By Jedmonds24 In Everything Else

Anyone been keeping up with the news about the $700,000,000,000 buyout plan?

First I want to say, OMG.

Next, if we actualy go through with it then I want to see the CEOs of the companies outside mowing my lawn. As a citizen I sure the hell don't expect for us to hand over $700 BILLION without them having the feeling of being seriously in debt to the people.


Comments (Page 4)
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on Sep 29, 2008

whiteknight321
The current plan only treats the problem but dosen't cure it. I suggest that they take that money and distribute it evenly to every lower middle class and poor person. Not the wall street elite.

 

I am new to these forums but saw this and had to chime in.

 

If you are a small to medium sized business owner you probably got a few phonecalls today from your NET 45 distributors,  which is an exact reflection of WHY this bailout will work.

 

Let me explain in layman's terms.

 

The "Bailout" isn't really a bailout, it should not be called that,  it should be called an economic stability act or something similar.  What it is doing is not giving money to rich people, its buying up all these sub-prime morgage securities that nobody will touch with a 9 foot pole right now and is what is causing everyone to scurry.

 

Since nobody will buy them, banks no longer have any liquid assets.  Without liquid assets banks cannot borrow from other banks, and therefore can't loan money.  In order to be able to loan X ammount of dollars, an FDIC insured financial institution must have at least 10% of X in a viable liquid asset.  Since Fannie and friends went down the tube these banks which have been coheresed by housing acts in 1977 and 1996 have been taking subprime loans on guarantees from the government sponsored companies.  

The most recent housing act in 1996 lowered regulations and gave postive re-enforcement of Alt-A loans for homes.  These are known as Liar Loans or more common, NINJA loans, meaning No Income No Job no Asset Loans.  These were given to mainly povertly level home buyers but also to real estate speculators.  Of course, before that act in 1996 nobody would have touched any of these people's poor credit and now asset's loans, but with Freddie and co. buying them up why not?

 

Since the banks could sell the loans they figured the best way to get the people in is show them the low monthly payments and not the balloon of the adjustments.  Uneducated people who were the majority purchasers fell for the bait and defaulted on the loans.  Comes to Economics 101, READ THE FINE PRINT.

 

Now to his credit, Bush did recognize this as well as McCain.  Bush asked for legistation, McCain put the bill together, and the legislature said "hell no."  Why you ask?  Who want's to be the one who told a low income family they can't get a home?  You lose votes?  Add to the fact nobody wants to be kissing homeless babies, so Washington just turned its head.

Now that this is clear, what will this do to fix it?

Buying out all these mortgage securities would give the banks some liquidity.  That means they will be able to loan money again.  Back to the small-mid businesses,  if you deal with the finances of one you have had creditors calling to see if you can pay early, moreso if they are on a NET 45 status with you.  Why?  Because banks are refusing to loan them the money to buy the raw product they need to sell to you.  Our entire economy works on credit now.  

Take the paper industry, you run a kinkos.   Dunder-Mifflin just called you because they need you to pay your bill early, you don't see this as a problem since it was just mid-terms and you made a good profit this month.  You ask why... Well Dunder-Mifflin hasa contract with Georgia Pacific.  In-order to keep the contracted prices with GP, they have to buy 2 million in paper every month.  They usually go through say, Chase to get a 2 mil loan every month since they do not have that kind of cash laying around, and buy the paper, and with the profit over 2 mil, they pay the employees and such.

Now Chase doesn't have as much liquidity since nobody is buying up these loans, so they can only loan Dunder-Mifflin 1 millon dollars.  Well now Dunder-Mifflin is screwed. Since they can only buy 1/2 their paper they ask customers to pay early in hopes this "bailout" gets passed so they can get a loan.  Even then they only get about 25% back so they have to make due with 75% of normal inventory, hence, lower sales.  They have to fire people, you don't get all the paper you need, so you have to buy from other places.  These places won't even take NET 30 with the current economic status, so you have pay up front, you can only do that for a while before you have to lay off people, since you can't get the credit to buy the paper.

Now you have unemployed people at the papermill since they cannot sell any paper, then you have Jim and Dwight laid off at Dunder-Mifflin because they aren't selling enough since there isn't enough inventory, and you go out of buisness because you cannot afford to pay your employees.

Its long, its detailed, but I hope the bube-toob references help explain it.  Sure its a little socailism.  It stinks, and we all hate paying off other people's debit (re-distribution of wealth anyone?) Its just something we have to do if we want to avoid a depression.  A recession is enevetable, its up to the government to quit pointing fingers and making dumb comments like Pelosi did (and ruined the bill) and just get it done.

The problem is this is an election year, and with a congress with its worst approval rating in 80 years scared for their jobs, everyone is going to be pointing fingers and nothing is going to get done.  We will be wishing for the good ol' Jimmy Carter days.

on Sep 29, 2008

O man capital hill just shot down the bailout, now its gonna be like survivor with banks.

Who is gonna be gone next week?

on Sep 29, 2008

Bailout defeated 228-205.... Citigroup is absorbing Wachovia, Dutch-Belgian bank Fortis NV gets 11.2 billion Euro bailout...

Banks won't even lend to each other now.

on Sep 29, 2008

I'm glad the bailout failed - I must say I'm shocked it happened. There just might be some sane people left in DC after all.

Now we need to get rid of the FRB and contrary to popular belief it is NOT a government agency. It is in fact a for profit privately owned corporation. It is the big secret hand pulling the strings that caused all the market messes in the first place going back many decades.

On the issue of the need for tighter credit, there is an even stronger need for tighter controls on interest rates. What with the average American paying well over 20% interest on credit cards it is no wonder people can't get out of debt.

Regarding the notion that my cousin was "living beyond his means" it is patently false. He had over six months living expenses saved up prior to losing his job.

BTW: I must pay taxes in two countries out of my meager $80k income. How is that for a slap in face.

 

 

on Sep 29, 2008

The fact it got shot down is not a bad thing.  Congress got off there butt and did something.  Which in this case is nothing.  And nothing is what they need to do.

The market goes up and down (yes its the biggest drop in years).  Its needs to rebound on its own. If the goverment jumped in it would acutlly hurt is in the long wrong.  All these banks would be in the same place again. Because they did not have to take the fall. 

Look at this as a weeding out of the weak.

on Sep 29, 2008

I am absolutely ecstatic that this so called bail out vote failed. This mess was directly created by the Federal government in the 1st place and now they're proposing to be the ones who are going to fix it? Again? There are a lot of elected officials that need to be thrown out of office and criminal charges instigated. You know darn well $700 billion is not the real figure that we the people will have to pay. Also, this plan was to be directly managed by the treasury secretary Mr. Paulson. Show me where in the Constitution that the Secretary of the Treasury is delineated such powers? I also really enjoyed the comment over the weekend by Senator Reid where he more or less said that he had heard from his constituents that they were opposed to this plan but that they were going to do what was good for the stock market!!! Excuse me but the people elected him and he's ignoring their wishes. Once again, I am extremely glad that this panicked cobbled together plan failed. Or as Dennis Miller says" it's just my thoughts, I could be wrong".

on Sep 29, 2008

On the issue of the need for tighter credit, there is an even stronger need for tighter controls on interest rates. What with the average American paying well over 20% interest on credit cards it is no wonder people can't get out of debt.

Regarding the notion that my cousin was "living beyond his means" it is patently false. He had over six months living expenses saved up prior to losing his job.

BTW: I must pay taxes in two countries out of my meager $80k income. How is that for a slap in face.

 

First question, wtf are you paying taxes in two countries for?

Second question, wtf are you calling $80k meager for?

 

On your cousin.  He need not be living beyond his means before he lost his job to be living beyond his means after he lost his job.  Life is not static, everything else on earth has to adapt to changes or die, people aren't the exception.  It's a harsh reality, but even if you're behaving in a completely responsible manner and get thrown a curve ball, it's still your fault when you go under while trying to hold onto everything you can no longer afford.

on Sep 29, 2008

Either we get out and hate the government more, or we all go poor and a 2nd Great depression will occur and we hate the Government even more!

on Sep 29, 2008

EmperorThrawn
 

Some thing that no one seams to know is that there WAS government regulation slash over sight for these companies but they were complacent to there duties 

What we should be looking in to is why the regulator were so incompetent in there over site. Their there for a reason to keep this sort of thing from happing 



 

 

Do what?!

 

A) They were not complacent in their duties, the bulk of Government regulation over these companies ended with the GLB Act in the late 90s.

If the regulators that were over-watching the company were complacent, then how do you explain this:  (Note, the video is intended as a dig on Democrats, but it also shows how attempts at more regulation to deal with an identified problem was shot down)

http://www.youtube.com/watch?v=_MGT_cSi7Rs&eurl=http://noquarterusa.net/blog/2008/09/27/baracks-fannie-mae-buddies/

on Sep 29, 2008

psychoak


First question, wtf are you paying taxes in two countries for?

Second question, wtf are you calling $80k meager for?
 

On your cousin.  He need not be living beyond his means before he lost his job to be living beyond his means after he lost his job.  Life is not static, everything else on earth has to adapt to changes or die, people aren't the exception.  It's a harsh reality, but even if you're behaving in a completely responsible manner and get thrown a curve ball, it's still your fault when you go under while trying to hold onto everything you can no longer afford.

First question: Since I am a US Citizen I'm compelled to pay taxes in the US despite the fact I dont live there anymore.

 

Second question: compared to most of my clients I make a pittance. Then I have to pay unbelievable rent for my office and rabbit hutch called a home. You see since I'm not a "native" and not rich I can't get a mortgage from the local banks in this country and US banks are prohibited from lending to me. My 700+ credit rating means nothing in this county but I digress...

 

We will have to agree to disagree on the topic related to my cousin and his father as far as I'm concerned. Using your logic it is the same situation with these 100+ year old banks now going under.

 

on Sep 30, 2008

EmperorThrawn
 

On the capital gains tax if you what to raise it fine but know this, every it is raised income from this tax drops why? Well because the wealthy can wait  two, three, five years tells it is lowered again (or find some other tax shelter)  And what happens when it is lowered? can any one guess, why yes revenue from it rises 

You if you want it to be “fair” fine go ahead raise it but it will mean nothing, It will only to make you feel better nothing more 

Now if you want a “fair” tax system then try a consumption tax (and as with the currant system -food and maybe medical)

 

Oh, that beautiful Chicago School theory, raising the tax rate lowers tax revenues and vice versa. Wouldn't it be a wonderful thing if there was some beautiful point where lower taxes meant higher revenue!

The problem is that it is historically untrue - by all means, track the capital gains tax versus the revenue from the capital gains tax, and it's pretty much a one to one ratio (accounting for GDP changes).

Presumably if the wealthy all got it together and said "We're not gonna invest till they lower capital gains!", it would work that way. The problem with that is simple - if 99% of the wealthy don't invest, that leaves 1% that do - and they *still* make more money from investing than not investing. So they get richer than the ones that don't invest, and the stubborn ones get poorer in relation.

So no, raising it has never lowered income historically. Sure, they *could* hold out, but they only have two ways of making money - investment, and *gasp* working for a living. They're still going to invest. And historically, they always have done exactly that.

Which places it in the 'another beautiful theory killed by a cold remorseless fact' range.

Jonnan

on Sep 30, 2008

Incorrect.  What statistics did you see that said such?  Capital gains were cut by more than half from 86 to 87 in anticipation of a move from 20% back to 28%.  That wishful 26% hike in revenue turned into a massive loss as it dropped from over 400 billion to under 200.  People bail fast when they start trying to pass increase.   Revenue as a percentage of GDP is historically about double at 20% as well.

 

Also, only smart investors make more money investing.  Stupid ones lose their shirts.  When land prices weren't batshit insane, you could make 10% just buying up cattle farms and hiring a decent ranch manager to run them.

 

Spartan, you do take tax credits right?  Your income taxes in country x should be direct credits against your US taxes.  Also, you could renounce your citizenship.

 

We will have to agree to disagree on the topic related to my cousin and his father as far as I'm concerned. Using your logic it is the same situation with these 100+ year old banks now going under.

 

Exactly!  Now you just need to realize it, the logical processes are all there inside your brain.  People do stupid shit, stupid shit has consequences.  Regardless of whether an individual bank is culpable in making the bad mortgages, they are still responsible for purchasing and continuing to hold mortgage securities when it is a known fact that better than a quarter of all mortgages are subprime, and the housing market is showing signs of instability.  They are paying the price of being stagnant, holding too many of their assets in single, risky sources, without the capital to back them when they go south.  As with nature, the market kills any business that can't adapt to it.

on Sep 30, 2008

Umm... So how is it you are for the bailout and seem to be of the opinion that if the average guy gets screwed to damn bad - his fault for not planning properly for the end of the world regardless of likelihood, possibility or probability? I guess by your logic, you already have enough money and resources saved up to survive the next world war and beyond. It must be nice to be so wealthy.

 

Anyway, I like my citizenship thank you. I did not do nearly 10 years in the military for nothing.  [cheap plug] Rangers Lead the Way! [/cheap plug]

BTW: In fairness to Republicans, all those that voted against the bill earned some respect from me. Now I must go and hide my head knowing that the majority of Democrats voted for this crap. We need another viable damn political party. There seems to be no place for us die hard libertarians any more.

 

on Sep 30, 2008

Long and the short of it is you're going to have to provide references on that Psychoak, because I don't see anything in the stats to bear that out, and it would be pretty a pretty big footprint if it were true.

The 1986 Tax reform dropped the top income tax from 50% to 28%, while removing the Capital Gains from being exempt to being taxable, and was designed to be revenue neutral (i.e., balance the two of them out so that the gain in the one would balance out the loss in the other), so, given that the top brackets have 90+percent of the wealth and a slightly lower percentage of taxes, you would expect to see a major drop in tax revenues.

The actual statistic don't show that: (Numbers in Billions)

Year                     GDP       Personal  As %      Income            Capital Gains

                                           Taxes  of GDP     Tax Rate              Tax Rate

1985                   4,180.7       437.7   10.469%   50%                    0% (Exempt)

1986                   4,422.2       459.9   10.399%   28%                    28%

1987                   4,692.3       514.2   10.958%   28%                    28%

1988                   5,049.6       532.2   10.539%   28%                    28%

During the entire period from 1985 to 1988, the entire difference was under 0.5% of GDP, or ~5% of tax revenues.

Now, with numbers that big, 5% of revenue is a pretty big number - but less than the net worth of a Bill Gates or Warren Buffet and *lot* less than you would expect if there was a major drop in capital gains investment. Other stats for the period (Unemployment, the prime rate, CPI et al) are just as consistent.

I don't have a closer breakdown of the tax rate figures to break down into capital Gains and Income tax revenues, so it's feasible a closer look could support your thesis - but a first look just doesn't support it as being a valid statistical model.

Jonnan

on Sep 30, 2008

Spartan
Normal 0 false false false EN-US X-NONE X-NONE

Umm... So how is it you are for the bailout and seem to be of the opinion that if the average guy gets screwed to damn bad - his fault for not planning properly for the end of the world regardless of Normal 0 false false false EN-US X-NONE X-NONE likelihood, possibility or probability? I guess by your logic, you already have enough money and resources saved up to survive the next world war and beyond. It must be nice to be so wealthy.

 

Anyway, I like my citizenship thank you. I did not do nearly 10 years in the military for nothing.  [cheap plug] Rangers Lead the Way! [/cheap plug]

BTW: In fairness to Republicans, all those that voted against the bill earned some respect from me. Now I must go and hide my head knowing that the majority of Democrats voted for this crap. We need another viable damn political party. There seems to be no place for us die hard libertarians any more.

 

I have to disagree - the markets are in a freefall right now, and this isn't going to stay contained on Wall Street. The same liquidity problem that's hitting these big banks no one has sympathy for is cascading through the system.

Car companies need for this to be over fairly fast - because they need to arrange for their major loans to retool for next years models.

Farmers always need to borrow money to invest in seed, fertilizer, et al into the spring.

Companies need to borrow money to start up for the end of year production runs. The Thanksgiving weekend  -largest sales day of the year? Remember that? Hey - we're *there* Jack!

That's three incipient crises off the top of my head, and I'm sure there's more. - Sure, I would prefer a better solution than this, but the long and the short of it is we don't have the time for a perfect plan.

So, no, I don't respect the Republicans on this - they're supposed to be the party of business, and obviously none of them have enough familiarity with the business cycle to realize what the hell is waiting in the wings, they're busy being offended at a speech where Nancy Pelosi suggested that they might bear some responsibility?

No, they set the economy up for this mess, and they need to act like adults and get working on fixing it before the *real* catastrophes start coming.

Jonnan

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