The "Bailout" - Do You Support the $700B - $1.1Tr Package

[Gawain 0]

I heard some quotes on the radio from Rep. Barney Frank (D-MA), and was disgusted (I believe they were from an interview with Charlie Rose, but I've not confirmed it), the interview is here: http://www.charlierose.com/shows/2008/09/17/1/a-conversation-with-barney-frank

So many have been saying it's the result of too little regulation, and that more oversight is required. However, I want to also discuss this idea: What if it is, in fact, the result of too much intervention from "Uncle Sam", what if the real solution is to loosen regulations even more?

I firmly believe that all players involved in this (from John Doe buying a $300K house with a $40K income to Congress to investment houses turning themselves into speculation brokers to banks becoming real estate money warehouses) are to blame to some extent.

What boils my blood in all this is that the banks with guidance from the Fed didn't simply restructure their debt. They could've created a whole new way to manage the debt without going into "government buyout/rescue mode". If WaMu (who was definitely one of the zealous lenders out there) finds itself short because of notes they wrote, why can't regulations be loosened to allow the bank to adjust the maturity of the debt. The homeowner benefits because, they keep the house, their ARM gets refinanced to an new extended 30 year fixed, the bank then readjusts this on the bond market. No new infusions of cash needed, that contains inflation and keeps the houses out of the banks books, as well as the government's hands.

I for one, don't like this bailout.

So I try and I scream and I beg and I sigh
Just to prove I'm alive, and it's alright
'Cause tonight there's a way I'll make light of my treacherous life
Make light!

[Lucky... 0]

Get used to it, we willbe having a lot more gov reg...if you think we can trust your beloved corps to do what's best for the country, look at the debt, the deficit, the stock market, the foreclosure/BK rate, etc.... We are the kid that has shown he can't handle the car responsibly, so we lose the priv to use it.

[JackC 0]

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What boils my blood in all this is that the banks with guidance from the Fed didn't simply restructure their debt.

I think the fact that the banks have restructured their debt over and over using ever more complex instruments is part of the reason we are in this mess. Ironically, these hedging methods are part of the reason why the western world has enjoyed such sustained economic growth in recent years. But banks, insurance companies, hedge funds and the like are so intertwined with the economy and society in general that they can't be allowed to fail en mass to the extent that the financial industry is essentially underwritten by government. I don't like bailouts, I really don't, and I think it just sweeps the problem under the carpet and it will probably come back to haunt us, but I can see why it happens. Hopefully, it will give the financial markets and the economy enough breathing room to stabilise before the next shit storm hits. But I have a feeling that the next shit storm isn't far away.

[nerdgirl 0]

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So many have been saying it's the result of too little regulation, and that more oversight is required. However, I want to also discuss this idea: What if it is, in fact, the result of too much intervention from "Uncle Sam", what if the real solution is to loosen regulations even more?

Fabulous - a counter hypothesis!

On what basis (evidence) are you making the argument?

And on what basis are you discounting the explanations offered by folks like Joe Stiglitz?

How do you disentangle regulation from enforcement? A poignant and timely example of how the latter is crucial can be seen in the melamine-caused deaths and illness of a reported 53,000 infants in Asia. Regulation without enforcement is not effective whether it be the US financial system or Chinese dairy system.

Back in March, Alan Greenspan had a short and relatively transparent (for him) piece in the Financial Times "We will never have a perfect model of risk, in which he noted the inherant difficulty regulating things that don't yet exist or that are very new -- like those "innovative new ways" of securitizing risk that Stiglitz & others have spoke. (It's not much different than regulating things that don't exist technologically - the policy options are very limited.)

If one innovates and generates products beneficial to the economy & the nation (good risky behavior), there is commensurate reward, often very large. Those are individual consequences.

I doubt very many people "like" the proposed bailout. Most people don't like getting painful (economic or otherwise) procedures like immunizations. A lingering question that I haven't seen addressed -- it may have been, I just haven't seen it -- is what are the negative consequences for those who engaged in the bad risky behavior & 'creative' accounting practices (e.g., disclosures by Frank Raines under oath & OFHEO charges of accounting manipulation that were dismissed by the SEC)? (Folks at the bottom and in the middle who took out 2nd loans on 'McMansions' are suffering consequences - they're losing their homes. The top city for foreclosures is Modesto CA, 2nd Merced - these are hardly all 'inner city neighborhoods.)

Where are negative consequences -- ones that actually affect them directly -- for those who orchestrated and benefited on Wall St and across the US? I don't like the message being sent that if they innovate another bad risky economic scheme and mechanisms that are integrated into the economy, the USG will come behind and bail them out.

VR/Marg

Act as if everything you do matters, while laughing at yourself for thinking anything you do matters.
Tibetan Buddhist saying

[Darius11 12]

I agree with you.

There is so much wrong with not only the bail out but the way I am afraid the bail out will happen.


I find it extremely frustrating that there is such a huge wave that’s anti united health cared for every citizen yet I don’t feel the same out rage for our tax dollars helping out CEOs.
I just don’t get it anymore.

I'd rather be hated for who I am, than loved for who I am not." - Kurt Cobain

[billvon 2,402]

>what if the real solution is to loosen regulations even more?

While it's an interesting thought experiment, the Enrons of the world have demonstrated what happens when companies realize they can game the system to make massive short-term profits.

So the literal answer is that we would have a country of Enrons, companies that pop into existence, make incredible amounts of money, have a handful of smarter executives bail out with millions, then have the company collapse into bankruptcy taking a chunk of the economy with it. I can't see that as being preferable.

[skydyvr 0]

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So the literal answer is that we would have a country of Enrons, companies that pop into existence, make incredible amounts of money, have a handful of smarter executives bail out with millions, then have the company collapse into bankruptcy taking a chunk of the economy with it. I can't see that as being preferable.

You left off the end of the story -- Enron execs get sentenced to years in prison. I doubt anyone's suggesting we relax the penalties for cooking books.

. . =(_8^(1)

[livendive 8]

I don't know enough about it to say definitively one way or the other, but my gut feeling is to not like it. I think some sort of response is probably necessary, but I'm not getting the impression that this is the right one. The people and companies who decided to take on such risk should bear the biggest brunt of this. The taxpayers should, at worst, appease the risk of future losses, along with sharing the potential for future rewards. The present day losses should be the responsibility of the gamblers.

Blues,
Dave

"I AM A PROFESSIONAL EXTREME ATHLETE!"
(drink Mountain Dew)

[jcd11235 0]

Do I like it? Not a bit. Do I support it? Yes. As expensive as the bailouts might be, that cost is small compared to the cost of not bailing them out.

It's a bit like having to choose between getting punched in the face by George Foreman, or hit by a Mack truck traveling at 70 mph. Foreman's punch might kill me. The Mack track will almost certainly kill me. I'd rather take my chances with George.

Math tutoring available. Only $6! per hour! First lesson: Factorials!

[SpeedRacer 1]

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Get used to it, we willbe having a lot more gov reg...if you think we can trust your beloved corps to do what's best for the country, look at the debt, the deficit, the stock market, the foreclosure/BK rate, etc.... We are the kid that has shown he can't handle the car responsibly, so we lose the priv to use it.

Right, because the government is SO much more responsible about money than we are.

Speed Racer
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[SpeedRacer 1]

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>what if the real solution is to loosen regulations even more?

While it's an interesting thought experiment, the Enrons of the world have demonstrated what happens when companies realize they can game the system to make massive short-term profits.

So the literal answer is that we would have a country of Enrons, companies that pop into existence, make incredible amounts of money, have a handful of smarter executives bail out with millions, then have the company collapse into bankruptcy taking a chunk of the economy with it. I can't see that as being preferable.

OK, but could it be that the reason the shit has hit the fan is because of arbitrary policy of the Federal Reserve, lending out government currency at unsustainable rates by setting interest rates at unsustainably low levels? Granted, if they hadn't done that, corporations would not have been able to grow so fast, since capital would be more expensive.

But maybe the shit wouldn't be hitting the fan right now. That is, if our currency was actually based on something besides government planning. Yes, it would have meant higher interest rates, but then that would have discouraged unsustainable loans. Which is exactly what got us into the shit we're in now.

Speed Racer
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[Gawain 0]

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>what if the real solution is to loosen regulations even more?

While it's an interesting thought experiment, the Enrons of the world have demonstrated what happens when companies realize they can game the system to make massive short-term profits.

You're comparing one company to what is now dozen's of companies that followed the letter of regulation and allowed themselves to go under...not an apples to apples comparison. Enron was breaking the law left and right. Freddie/Fannie/AIG/et al are being investigated for fraud...the difference is that with this many companies, it's a systemic issue of regulation in my view.

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So the literal answer is that we would have a country of Enrons, companies that pop into existence, make incredible amounts of money, have a handful of smarter executives bail out with millions, then have the company collapse into bankruptcy taking a chunk of the economy with it. I can't see that as being preferable.

That's happening now, without Enron.

So I try and I scream and I beg and I sigh
Just to prove I'm alive, and it's alright
'Cause tonight there's a way I'll make light of my treacherous life
Make light!

[pirana 0]

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So the literal answer is that we would have a country of Enrons, companies that pop into existence, make incredible amounts of money, have a handful of smarter executives bail out with millions, then have the company collapse into bankruptcy taking a chunk of the economy with it. I can't see that as being preferable.

Another way of putting it is that the economy "collapses" into their pocket. They use creative compensation and accounting systems to suck assets out of the industry and into their bank account, then bail under the protection of being incorporated.

It really is a sanctioned form of theft.

" . . . the lust for power can be just as completely satisfied by suggesting people into loving their servitude as by flogging them and kicking them into obedience." -- Aldous Huxley

[Ron 7]

Like it? No.

Realize that something might need to be done? Yes.

People keep claiming that free markets do not work. Well, a bail out is not a free market.

"No free man shall ever be debarred the use of arms." -- Thomas Jefferson, Thomas Jefferson Papers, 334

[normiss 622]

you think THAT is sanctioned theft???
wait till we see what all they tagged onto the entire multi-trillion dollar bail out bill!!!!

[Casurf1978 0]

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Get used to it, we willbe having a lot more gov reg...if you think we can trust your beloved corps to do what's best for the country, look at the debt, the deficit, the stock market, the foreclosure/BK rate, etc.... We are the kid that has shown he can't handle the car responsibly, so we lose the priv to use it.

Exactly. I agree with Frank that some regulation is needed. Did the OP know that Margon and Goldman had leverages in excess of 30:1, so for every dollar in the books they would invest or lend out 30. These investment banks loved leverage/risk and it came back and bit them in the ass. Whats wrong with with subjecting these investment banks to the same or modified regulation to capital resever, risk and management practices that commercial banks have to abide by. Look at the currenet situation if some sort of regulation was in place we would not be in this mess. Just look the at the pay checks of the top execs of the former investment banks. In 2007 the five investment bank firms paid out $39 biliion in bonuses to themselves. Frank nailed it when he said they rewarded risk with huge paychecks and even if the firm did poorly they still go their bonuses. FYI did you know that while those execs were cashing in their bonuses the 5 firms lost over $74 billion that same year.

[skybytch 259]

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The people and companies who decided to take on such risk should bear the biggest brunt of this.

+1

If only I'd bought a house I couldn't afford, then I could get the government to bail me out too!! But no, I blew all my money and credit on skydiving and beer, dammit...

[riddler 0]

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What if it is, in fact, the result of too much intervention from "Uncle Sam", what if the real solution is to loosen regulations even more?

You could run for president yourself on that platform, considering both Obama and McCain have said the opposite, as well as the top economists in the country, and most of Congress. You really would be a maverick.

Personally, I think the Japanese and Chinese should bail us out. If the next great depression starts, it will be global, not just in the US. Other countries have a vested interest in making sure our economy stays shored up. Good thing we've been pushing for a global economy

Trapped on the surface of a sphere. XKCD

[billvon 2,402]

> Enron was breaking the law left and right.

Not really. The most egregious scams that Enron pulled (i.e. Death Star, Fat Boy, Ricochet) were perfectly legal at the time. Most of the executives who went to jail went to jail for insider trading, not for the creative market manipulations that eventually destroyed the company.

> it's a systemic issue of regulation in my view.

Yep. And in the case of energy markets, Enron was simply the pioneer.

[billvon 2,402]

>OK, but could it be that the reason the shit has hit the fan is because of
>arbitrary policy of the Federal Reserve, lending out government currency at
>unsustainable rates by setting interest rates at unsustainably low levels?

That is definitely another factor in all of this.

> That is, if our currency was actually based on something besides
>government planning.

And that's a whole different discussion.