Congress, Bush team OK bailout terms; Stocks sink

AP ^ | 9/22/1008 | Julie Hirschfeld Davis

[politicket]

...other additions the Democrats are asking to the administration package, according to a draft of the plan ...
-- Judges could rewrite mortgages to lower bankrupt homeowners' monthly payments.

[P-Marlowe]

Here is what is scary to me. If the Government can borrow a trillion dollars from the masses to end a crisis caused by the masses borrowing trillions of dollars, then where does all the money come from. I mean really!

WHERE IN THE HELL DOES ALL THIS MONEY COME FROM?

Apparently money does grow on trees.

And crime pays.

The whole modern economic system is based upon people having confidence in the economic system. Once that confidence is gone, money becomes a worthless commodity.

Someday (soon) a degree from Harvard Business School and a trillion dollars will buy you a cup of coffee at Dunkin Donuts.*

*(Starbucks will be gone by then)

[RockinRight]

Very rare situation.

[Marie]

I’m just thinking: The stimulus package was about $152 billion this year, or about one percent of GDP.

So this huge bailout that we’re freaking out over (yes, that includes me) is about 4.6 of our GDP. That’s a lot, but it’s not as big of a chink as we’re being lead to believe.

There are three obvious dangers that could tip us over the edge at this point:

1. The gov’t uses this as an excuse to raise taxes on the most productive of us, lowering our GDP, slowing growth and screwing up employment.
2. People panic and the stock market crashes.
3. We don’t cut back on Federal Spending and get this under control and we dig ourselves in deeper into debt. (At some point the chickens have to come home to roost.)

Basically, we can survive this if we have strong leadership. If managed properly, we can come out of this just fine.

Right now I don’t have the highest confidence in McCain. Palin could get us through this, but she won’t be the one driving the boat. I don’t know how much influence she’s really going to carry.

If Obama wins, it’s game over.

[politicket]

So this huge bailout that we’re freaking out over (yes, that includes me) is about 4.6 of our GDP. That’s a lot, but it’s not as big of a chink as we’re being lead to believe.

There's only one problem with your analysis, and to see it you will need to take a second look at the draft text of the bailout plan.

It states that the Treasury Secretary is limited to $700 Billion dollars at any one time.

Here is what will happen when the bill passes:

Secretary Paulson will buy $700 Billion dollars of bad debt off the books of some company (let's say Fannie Mae for the sake of discussion). He will then separate that debt out into $50 Billion dollar tranches ("pots of money") and sell each tranche to the bond market. Every tranche will be rated Aaa since it is backed by the U.S. government, but many, if not most, of them will still contain toxic waste.

Each time Secretary Paulson sells a tranche it will free up $50 Billion dollar from the $700 Billion dollar cap, so he will go buy another $50 Billion dollars of debt.

Using this method, he will be able to move trillions and trillions of bad debt through the $700 Billion dollar facility and the public will be none the wiser. He will be able to remove toxic debt from every institution that he decides to and let the others falter. After all, he will be the financial dictator.

Reread the text if you don't believe me. I bet they didn't tell you this on CBS news...

[Marie]

I believe you. I’ll read the text tomorrow. This is a bad dream. Paulson is our new overlord.

We need PALIN in charge. She’ll gut the whole lot.

[LiberalsSpendYourMoney]

President Bush prodded Congress during the day to pass the rescue plan quickly, declaring, "The whole world is watching." Did the President steal this line from the leftists? ;-)

"The whole world is watching"

"Hey, hey, LBJ, how many kids did you kill today?"

etc.

[LiberalsSpendYourMoney]

Blah- only the first line should be in italics. The rest is my actual words.

[cmurphy]

There are some interesting comments and ideas posted. After doing a bit of reading on this issue, I'm really not sure what the best answer is. The bailout seems like a necessary evil at this point. However, Newt made some really good points tonight on Fox about why the bailout is a horrendous idea.

How we got in this mess appears to me to be a lot more clear than what the media is making it out to be, while the solution is a bit fuzzy. Unless I'm not getting this, my understanding is that HUD and like programs are the problem, with noncredit-worthy people getting home loans. The housing boom of the past 12 years or so, was not as great as it seemed. House values were artificially increased because of a demand that shouldn't have existed (thanks to HUD and loans given to people with poor credit). If you look at the Median income of most states and then house values, there's just no way people can actually afford their mortgages. A mortgage should be no more than 20 to 30 percent of your overall budget.

So in Oregon (the state I'm living in, so I'll use it as an example), the median income for a family of four is $61,945. The average cost of a home in Oregon is $317,000. So a 30 year mortgage at 5.75% would be $1,849.93 a month. That's over 35 percent of a families monthly budget, making it extremely difficult for people to meet their budgets. Yet, people keep buying homes, because banks keep giving loans despite people's inability to pay back those loans.

The really good solution that I've heard is promoted by Newt and that is returning to a "Regan-Thatcher" policy of economic growth through fundamental reforms. I'm all for it, but if only a small portion of the reform that he is talking about is adopted, and everything else keeps moving in the same direction without the bailout, I could see us in a much worse situation than we are in now.

Unfortunately, people have increasingly tuned out politics all together and the will to get these things done doesn't seem to be there. So sticking a big ole bandaid on this at the moment makes sense to me somewhat, and then going back and helping people see how we got so sick so we can persuade people of the changes that we really need, without our economy completely collapsing. If the talk of the market crashing is mostly hype (and I really don't know), then I'd be say skip the bailout all together. Anyhow, the key principles of that reform, according to Newt (paraphrased by me) is:

1. The Federal Reserve should return to protecting the dollar against inflation.
2. Return to a fiscal policy of controlled spending.
3. "A method of orderly receivership and sound return to market disciplines is essential." Companies that are 'too big to fail' need to be broken-up into smaller companies.
4. The institutions in receivership should be barred from hiring lobbyists or encouraging political contributions.
5. End instantaneous measures of the current mark-to-market system and replace it with a rolling three year average mark-to-market system.
6. Reform the tax code to encourage investment, savings and job and productivity growth. Eliminate the capital gains tax.
7. Repeal Sarbanes-Oxley.
8. Adopt an 'all sources, all of the above' American energy policy with combines drilling for oil and gas, oil shale, clean coal, biofuels, flexfuel cars, wind, solar, hydrogen and nuculear power...
9. Adopt a science driven research and development budget.
10. Replace "No Child Left Behind" with "Every American Gets Ahead" which would put children first.
11. Extend the 21st Century Budget Act for Investment to include new approaches to rebuilding our infrastructure.
12. Create a space based air traffic control system which increases the air travel in the Northeast by 40% with no delays and cuts the airline use of aviation fuel by 10%...
13. Create a health based health reform which identifies every best practice in the country and incentivizes federal health spending to migrate the weak practices to best practices, also create a National Defense Electronic Health System with every American in a paperless modern system by December 2012.
14. Reform the litigation system so it is no more expensive or destructive than our global competitors.
15. Pass a substantial increase in H1b visas.
16. Secure the border.
17. Pass a 21st Century Social Security system (privatized?).

[OldArmy52]

Me! Me! I want a bailout too! I lost money in stocks. Bail me out!

Oh, wait, I’m not a rich fat cat. Just a peon. No bailouts for other than the super rich bankers.

Bailout: Reverse Robin Hood: Steal from the poor, give to the rich.

[happygrl]

As long as we're making requests on this thread, I want what the Armegeddeon hot shots wanted.

"Yeah one more thing, um... none of them wanna pay taxes again. [pauses] ... Ever. "

[jwparkerjr]

What really pisses me off is that so far NO ONE seems to be going to take the fall for this. Guys like Raines who made over $90 million dollars during times of ‘accounting scandals’ and cooked books, or people Gorelick who has become a boil on the butt of America seem to be avoiding any heat at all.

And I am just so tired of the place we've come to where there is no such thing as truth. No matter what evidence you bring to the table the other side just denies it and the MSM takes their limp denial over the reams of evidence.

To me it all started with Bill Clinton and his lies that were allowed to go unchallenged and his constant attitude of “so what are you going to do about it”?

I would take a good, hard, deep, long depression if it meant returning to the days when truth was truth and was worth something.

[publiusF27]

Great analysis, great sigline.

[Freedom_Is_Not_Free]

I sincerely appreciate your specific reply. Detailed answers on this forum are in short supply, usually being two-line sound bites or emotional rants.

I agree that the intended action by Paulson and Bernanke free of most of what Congress wants is the best chance for us to avoid financial collapse and that time is critical. The window of opportunity is small and screwing around will cause us to miss it.

Thank you very much for your analysis and clear insight.

Your point is well taken that firms should not be made to sign over their upside. What is the point of trying to stay solvent by dealing with the Treasury, if they take your profit and make you insolvent anyway. This is a "damned if you do and damned if you don't." I agree.

The Congress is insane to try to add housing rescue to this bill. This is about saving the financial system, not saving homeowners -- at this point. If the finaciacl system collapses, Congress is going to find the number of foreclosures rising sharply, and it won't just be the troubled owners they are trying to save today. VERY STUPID!

Understand, there is no way wall street pays these losses. It isn't there.

I KNOW! You can't get blood from a turnip. These banks are insolvent. THEY DON'T HAVE THE MONEY. People can get mad and want to punish them, but it is like getting mad at your daughter's husband who committed murder suicide with her. He's already dead. There not much more you can do to punish him.

Your sample costs are very telling. If we the taxpayers refuse to hold our nose and pay the extortion we must to keep the world fiancial system from collapse, we will find that the costs in money, blood and trauma only soar from there. People are emotional and they are thinking with their heart and not their head. People are acting like a person who unjustly loses a court case and has a $1,000 lien put on his house, then burns down his own house. It may feel great to have found a way to keep from paying the unjust winner of the court case, but is destroying your $300,000 home the best way to get out of paying that fraudulent $1,000 lien? I think not.

No, not too many people here can play the game of intelligent compromise for the sake of solving genuine critical problems. It is understandable and it is why we have a representative Republic and not a raw Democracy. Could you imagine if this law had to pass a national vote and you had to get the approval of all these freepers in an election? We would be doomed. So we have representatives who can listen to the fury and rancor of diehard conservatives and libertarians who don't want a penny spent to help irresponsible people, and then ignore their constituents and wisely vote "yes" on the bill.

I understand how people feel here and understand why they spout off. You have seen me emotionally spout off as well and, to be sure, it won't be the last time. It feels good to emotionally spout off, especially when you have a built in feedback mechanism of kudos and attaboys. But at the end of the day, pragmatism has to take precedence over raw principle. I hate to say that, because in general you never want to compromise your principles. And so we see many Freepers sticking to their guns and their principles. Conservatives generally believe in personal responsiblity and have a high tolerance for excess reward when hard working people take a risk and earn that reward. Freepers also have NO tolerance for rewarding stupidity or bad behavior and demand that people take personal responsibility for it, and suffer the pains. I agree with those Freepers, but they are flat wrong in this case.

I think too many people in society today, and on this website, are clueless as to how close we are to total financial meltdown and how painful the consequences will be. Few seem overly worried about us being on a precipice. I think they just don't know. As they watch their Sunday games or tabloid shows or hit the malls or hurry from work to soccer to home, they seem to have no clue we are on the precipice. Ignorance is bliss, and I think that is being displayed here and elsewhere.

I think we have a lot of intelligent people here but too many here and nation wide are just too busy or too unconcerned to learn and study and understand this crisis. Look at how many think this is nothing but a normal cyclical downturn? A mere correction? But I do understand their cycnicism. It would not be hard for someone jaded enough with disgust of our leaders to imagine a scenario where the powerful elite of this nation know that there is no preventing a depression and create a $700 billion fund to dole out to all of them to cushion themselves during the inevitable depression. So they print now and make sure they all are multi-millionaires before the collapse, so they can ride it out in high style. You don't believe that. I don't believe that. But it is not a stretch for some to descend to that kind of thinking if you get cynical enough.

I can't thank you enough for the well thought out answer on the situation. Too few here do anything but shout "just because" or "Uh Huh, or Na, Nah!"

[Freedom_Is_Not_Free]

Far less than 7% understand the consequences of worldwide financial collapse. I’m so relieved that we are a Republic and not a democracy. If we always did what the idiot masses wanted to do, the USA would have ceased to exist long ago. Yes, representatives should listen to their constituents, but not always. Far too often the constituents are ill-informed. Why would you listen to people who don’t know what they are talking about.

How often do you see rabid football fans make the right call? Imagine after Brett Favre’s first two games that the coach cut him after “only 7% approve of Brett Favre’s play”.

An informed electorate should not be ignored. An ignorant electorate should not be considered. We have an ignorant electorate. People have no clue how deep a depression we are in for if this plan is scuttled.

[Freedom_Is_Not_Free]

Nice doomsday scenario. I’ll put it in my back pocket and keep studying. Hyper-inflation with crashing house prices sounds counterintuitive to me, but I’m going to chew on it a while before I discard it out of hand. I need to study.

I’ve said all along, that if this plan prevents a depression, then we must do it, while if it only delays a depression, we should take our hit now as delays only make things worse.

You have concluded a depression is inevitable as has apolitickit. I have not come to that conclusion. I’m still in the air and studying but you give me excellent food for thought.

Thanks.

[Freedom_Is_Not_Free]

These things should be done regardless.

[palmer]

I think too many people in society today, and on this website, are clueless as to how close we are to total financial meltdown and how painful the consequences will be. Few seem overly worried about us being on a precipice. I think they just don't know

Perhaps. But I had the consequences argument with JimRob on Sunday and lost. You can read it for yourself. I can see his point although I might express it differently.
http://www.freerepublic.com/focus/news/2086781/posts?page=192#192

[RockinRight]

I doubt that.

Lending standards are already scaled back to about 1999 standards.

Call any mortgage company or bank, and ask them if they can do a zero down loan with a 590 FICO score, and no assets.

In 2006 most would say yes. Now almost all would say no.

[CA Conservative]

The buyer should pay the 300,000. He was the one that bought the house for that price. Who doesn't know the mortgage bubble was going to burst.

But the scenario I posted was not related to the housing bubble, but was related to governmental actions that arbitrarily changed the available uses for the land after the buyer bought the land, and caused the value of the land to be significantly decreased through no fault of the buyer.

[iThinkBig]

Just be prepared. Ben Franklin said it was better to have it and not need it then need it and not have it. I tuck supplies away and go on with my life. Business will continue in America but the real truth is we have rotten leadership, specifically the House of Representatives. The fox is now eating the chickens and telling the henhouse (american citizens) that all is fine and well. Hell, many have not even admitted we are in recession while the entire economy is at risk of collapse, RIGHT NOW.