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Sparky
Posts:143
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| 10/02/2008 9:04 AM |
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I am repeating my views here and have some questions at the end for those of you who oppose the bailout:
I view the bailout as the lesser of 2 evils. Without it, from what I've read the effects on our society would be catastrophic. Yes, the bailout seems unfair to some, but many can argue that other parts of the US tax structure are unfair as well. For instance, consider the funding of public education using proceeds collected from property taxes. There are many homeowners (singles, gay couples, hetero couples, the retired) who do not have children in public schools, yet the property they own is taxed to pay for the education of their neighbor's children. It is of the belief that public education benefits society. And I hope that the bailout will somehow benefit society by averting a crisis beyond what we have ever witnessed before.
I wish we could isolate the wrong-doers and allow them to fail one by one. They <b>DO</b> need to learn a valuable lesson that can only be taught by experiencing adversity. But the economy is too intertwined, the scope too massive, that their failing could end up crippling our society in the end, much worse than the increase in taxes for us, our children, and our grandchildren.
Lets not bite off our nose to spite our face.
<i>Posted By BigTrace on 10/01/2008 8:36 PM
Sparky, exactly how "catastophic" do you think things will be without it? The media, the President, congress, the banks will ALL have you believe a catastophe is eminent. But is it really?? When AIG went under and congress rushed to give them 85 billion, did that affect you?? Fannie, Freddie ?? They want you to drink this cool-aid because they want you, your kids, your grandkids and your grandkids kids to be OK with eventually paying for it.</i>
BigTrace - In response to your quesions, I am quoting tpc from the "house bailout defeated" thread. I respect tpc's opinions because of her intelligent posts and vast experience in the financial/real estate fields. There are many respected financial analysts that also see it the same way. Since I don't want to clutter up this thread, you can GOOGLE the topic yourself. I think tpc said it best though, short and sweet.
<i>tpc wrote - Failure to pass this bailout will mean thousands of viable businesses, big and small, will not be able to borrow short term or long term money. The commercial paper market alone is huge and allows companies like JC Penney (and many, many others) to pay their bills and meet payroll. If JC can't pay bills, then 1,000s of their suppliers won't be able to pay bills and meet payrolls. The smowball effect is going to have some very adverse effects across all segments of this economy. Expect car dealerships, boat dealerships, retail operations, small companies, etc to fail.</i>
If innocent, viable companies are unable to survive, then it goes without saying that jobs will be lost. Innocent people will lose their paychecks; money that could have been pumped back into the economy. This vicious cycle would spiral downward. I don't claim to know where or how it will end, I can only speak from my experience. Our 401k is down 10% in just 3 months. We are invested in conservative and appropriate investments for our age. The value of our 25 year-old, mortgage-free house has dropped dramatically. We own and operate a small business in the health-care field. Our gross income is down 10% from the same period last year. We consider ourselves fortunate as people will always need health-care, but a significant part of our business is for discretionary services. Recently, we have witnessed many local businesses already fail in our town.
This could all be Kool-aid as you suggest, however we already have been feeling the effects of non-action. What would you propose to stop the bleeding?
<i>Posted By XBoxBoy on 10/01/2008 10:37 PM
It seems that what you are doing is relying on experts to tell you whether or not this bailout is needed. I'd suggest that is a very poor strategy.... What's the difference between a liquidity problem and a solvency problem? Which are we facing? Will buying pools of loans fix a liquidity problem? Will buying pools of loans fix a solvency problem? If the immediate bank problems are fixed, will the banks go back to lending standards of 2006? If not, how will this bailout fix the deflating housing bubble? If this doesn't pass, just how bad could it get? If the bill does pass, would it still get just as bad? </i>
I have already seen the effects of inaction. They are right here, right now. Take a look at your retirement accounts, your house values, your drops in wages and benefits, your increases in everyday expenses. Will these get better with inaction? I think not. I agree that there is a large cost to the current bailout plan, no one is disputing that. But what is the cost to us if we do not act? Experts say that the cost to us as a society will be much greater if we do nothing. (and yes, I rely on experts in areas where I have limited knowledge. Don't we all rely on experts such as CPA's, doctors, lawyers? How else do you form an intelligent opinion unless you get the advice of experts on complex topics?)
How are we able to isolate the wrong-doers to let them fail alone? I agree they need to learn a lesson so as not to repeat the mistakes again. But their failure doesn't just affect them, it has the capacity to severely impact us - all of us!
We are fortunate and can ride out most storms since we are debt-free. Countless millions of other people are not so lucky. It won't take much to bring them over the edge if things continue the way they are now without some action. If Ma and Pa Mainstreet go down, we all go down.
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Sparky
Posts:143
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| 10/02/2008 9:04 AM |
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So help us understand. If not the bailout, What do you propose instead? And how will your proposal affect the economy in the areas mentioned below?
Retirement accounts have lost at least 20% of value since last year, where will that go if we do nothing?
House values have declined 26% in SD county since last year, where will that go if we do nothing?
Wages and benefits have stagnated/decreased, where will that go if we do nothing?
Gas prices on average are over $4/gallon, where with that go if we do nothing?
Inflation is on the rise, where will that go if we do nothing?
Large businesses are currently failing, where will that go if we do nothing?
Small businesses are currently failing, where will that go if we do nothing?
Unemployment claims are currently at 7-year highs. Where will that go if we do nothing?
How much worse can it get if we do nothing?
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ElPato
Posts:350
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| 10/02/2008 9:11 AM |
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Sparky:
There are more intelligent ways to recapitalize the banking system. This bailout tosses $700 billion in the wrong place. There is no need to rush right now, we could easily hold Congressional Hearings with professional economists and get a better plan.
This is clearly a back room deal in the closing hours of a congressional session designed to screw taxpayers. Remember, $700 billion is more than we spend on Social Security in a year. And since no one is going to lend the US any more money, there is only 1 way to pay this back - INFLATION.
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sd 2010
Posts:15
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| 10/02/2008 9:31 AM |
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ElPato, what economics training do you have?
Simply put, either the bailout comes and America has a chance, or it doesn't and our free market will fail taking most free markets with it. We will then see a new dominant philosophy in the world, probably coming from China in the form of a dictator/socialist regime. Maybe not the worst thing in the world, but any true American wouldn't want that. |
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sd 2010
Posts:15
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| 10/02/2008 9:46 AM |
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My public service for the day
Commercial paper in record drop as more firms purged from marketFont size: A | A | A12:36 PM ET 10/2/08 | Marketwatch
SAN FRANCISCO (MarketWatch) -- The amount of commercial paper in circulation dropped by almost $95 billion in the past week -- a record decline -- as more companies struggled to refinance short-term debt in this crucial market.
Outstanding volumes of commercial paper fell by 5.6%, or a record $94.9 billion, to $1.62 trillion in the past week, the Federal Reserve reported Thursday. The short-term debt issued by the financial-services industry plunged by $64.9 billion, or 8.7%, in the last week and fell by $120.6 billion in September.
The commercial paper market is used by companies to borrow money over short periods, such as 60 days, to help them pay day-to-day expenses and run their businesses more smoothly. The market peaked in July 2007 at more than $2 trillion, but then plunged as companies and other entities with big mortgage exposure were purged.
The latest contraction in the market is more worrying, said Tony Crescenzi, chief bond market strategist for Miller Tabak & Co.
"This time the purge is broad and is impacting issuers with far more predictable cash flows -- regular run-of-the-mill companies in need of working capital," he wrote in a note to clients on Thursday.
"A continuation of this trend would be problematic for the economy," he added. "The declines add to the urgency for fixes to the credit crisis and bolster the case for a Fed rate cut."
Problems in the market have been partly fueled by the bankruptcy of Lehman Brothers (LEHMQ). That collapse hit several large money-market funds hard. These types of investors have been big holders of commercial paper, but they swarmed to the perceived safety of Treasury bonds after Lehman's demise.
This was exacerbated on Monday, when the government's $700 billion plan to buy bad debts from struggling financial firms was voted down in the House of Representatives.
The legislation has come to be viewed as a bailout for the Wall Street firms and executives who helped create the credit crisis in the first place. But now other types of companies are finding it difficult or at least more expensive to borrow money.
General Electric (GE) raised $3 billion in capital from Warren Buffett's Berkshire Hathaway (BRKA)(BRKB) on Wednesday and sold $12 billion in new stock Thursday.
If the bailout doesn't pass and the commercial paper market dries up, that money may be used to repay GE's outstanding commercial paper debts or for other liquidity needs, the company said a regulatory filing on Wednesday. See full story.
GE Capital, the company's finance business, taps the commercial-paper market as a source of short-term funding. At the end of the second quarter, the unit had $97 billion of commercial paper outstanding and that debt matured in 61 days on average, according to CreditSights, an independent fixed-income research firm.
But GE Capital has been hit hard by the mortgage-fueled credit crisis and concerns mounted on Wednesday that the unit might struggle to refinance its short-term debt, CreditSights said in a note to clients.
Interest rates on commercial paper have surged recently, reflecting how credit is drying up for companies. The seven-day rate for asset-backed commercial paper jumped to 4.5% from roughly 2.5% over the past few months, Crescenzi noted.
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BGinRB
Posts:67
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| 10/02/2008 9:57 AM |
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Sparky, some retirement accounts have lost 20%. To lose 20% you had to be rather aggressive. And if you were aggressive for years your 'loss' is just an adjustment. At the same time, I would rather lose 20% of nominal value on part of my portfolio than preserve the nominal value, but suffer equivalent real loss due to inflation.
Does anybody think the bailout money will boost production (as opposed to consumption) of goods? People need to be aware that there is no magic wand. There is no big industrial breakthrough akin to transportation or information revolution waiting for credit so it can happen and boost overall productivity.
So, what happens if
1. we consume more than what we produce, and
2. we cannot augment production?
Rich Toscano @ voiceofsandiego had a really nice writeup a couple of days ago.
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tpc
Posts:498
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| 10/02/2008 9:58 AM |
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[quote]But GE Capital has been hit hard by the mortgage-fueled credit crisis and concerns mounted on Wednesday that the unit might struggle to refinance its short-term debt, CreditSights said in a note to clients.[/quote]
sd-great post. Because companies like GE are having trouble funding with commercial paper, seems likely that other lesser companies are also having trouble. Maybe warren buffet can bail out every business in the country. |
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tpc
Posts:498
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| 10/02/2008 10:01 AM |
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[quote]Does anybody think the bailout money will boost production (as opposed to consumption) of goods?[/quote]
bg-they are not trying to boost production. They are trying to keep company's in business to maintain current production levels and eliminate job losses and increases in unemployment benefits. |
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TotoMMB66
Posts:98
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| 10/02/2008 10:02 AM |
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| Buffett himself just said $700B isn't enough. |
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Sparky
Posts:143
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| 10/02/2008 10:20 AM |
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<i>Posted By BGinRB on 10/02/2008 9:57 AM
Sparky, some retirement accounts have lost 20%. To lose 20% you had to be rather aggressive.
</i>
We are invested in target date retirement funds - I would not call that rather aggressive.
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pepsi
Posts:3
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| 10/02/2008 10:26 AM |
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When people committed crime, serious crime, we have death penalty.
So when corp. did it, we should let them fail, too, however, since these companies are import to our society (and we need them),
we should just own them, and then fire the top management and BOD. For the original shareholders, they should not get even a penny,
because they didn't do their job. (invest in good company)
And for the debet holders, all of the interest rate should be reset to federal discount rate.
(this would be the best way to punish the bond holder without causing more panic in the credit market)
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tpc
Posts:498
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| 10/02/2008 10:41 AM |
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[quote]Buffett himself just said $700B isn't enough.[/quote]
Toto-nobody really knows what the final number will be. All we know is that the number is getting larger by the second. |
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TotoMMB66
Posts:98
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| 10/02/2008 11:10 AM |
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tpc, that's the problem. What kind of solution is this where we're rushing to implement something that's not fully understood? Suppose you rush to Best Buy to buy a TV that was advertised at $400. But the second you step in the door, the price goes up to $500. Now, the salesperson wheels one out from the back, oh, and by the way, it now costs $650. The cashier rings it up at $900. You run your credit card, the charge is now $1,200.
You probably wouldn't go for this would you? I am opposed to a bailout. I am not opposed to regulations. Well thought-out, seriously discussed and researched solutions. Knee-jerk reactions rarely are the best option. In less than one week, they've identified a long-developing problem as well as tried to create and implement a solution. I have tremendous problems w/ the timing.
Imagine if Obama and McCain weren't nominated...Pretend that any and all Presidential candidates announced themselves today and we were supposed to vote on Monday. Not very many people would go for that either, right? |
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Brian
Posts:2210
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| 10/02/2008 11:15 AM |
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As airplanedad said, It's a good oppotunity for America to "reboot" and rethink out priorities.
Deleveraging is painful. It's like a household living the good life on credit cards. It's time to cut back and not spend so much.
What's so bad with living in a 2000sf house instead of 4000sf? What's wrong with having 1 child instead of 2 children? We just need to reevaluate what we can afford and only buy what we can pay for.
The consumer culture of the past 30 years is collapsing under it's own weight because consumers are tapped out. |
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XBoxBoy
Posts:27
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| 10/02/2008 11:18 AM |
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Sparky,
You say that you have already seen the effects of inaction, but I think all those effects are not the result of inaction, they are the result of actions already previously taken. You're going to need to establish a legitimate argument why the current crisis is the result of government inaction before your argument is going to make logical sense. Many people have already put forth very good arguments about why this fiscal crisis happened, and most of them center around irresponsible actions of the fed, and the government, and wall street. Not around inaction.
You keep asking how much worse will it get if we don't act. Let me ask, how much worse will it get if you turn to the same people that got us into this mess and encourage them to take more actions? In my mind, when a drunk driver crashes into a bunch of parked cars, you don't tell him, "Quick drive faster!" you tell him to turn the car off and get out from behind the wheel!
IMHO, the issue is not a banking liquidity problem. The issue runs much deeper. Yes, bank liquidity is now a serious issue, with it's own consequences. But, failing to address the issue that we have built an economy around consumerism and debt without increasing productivity means to me that we will continue to see things get worse despite the government's actions. And to me it seems just incredible that we would take on hundreds of billions, if not trillions of dollars in new debt for a plan that will not really improve the core issue. From my perspective, this new debt will probably only make addressing the core issues much more difficult in the future. And if you think "fixing" things means getting the stock market to rally so you haven't lost money and having house prices go back up to unaffordable levels, well Sparky... fasten your seat belt, cause I don't think you're gonna like this ride.
XBoxBoy |
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jpinpb
Posts:1450
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| 10/02/2008 11:28 AM |
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tot - Buffet is Mr. Potter. "General Electric Co said Wednesday it would sell $3 billion of preferred shares to Warren Buffett's Berkshire Hathaway "
XBoxBoy - Thank you. Again. |
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BGinRB
Posts:67
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| 10/02/2008 11:37 AM |
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[quote]Posted By Sparky on 10/02/2008 10:20 AM
We are invested in target date retirement funds - I would not call that rather aggressive.
[/quote]
It is either aggressive or incompetent (not you, but the fund manager).
What is the annualized return over the past 5 years?
Here are the averages for the classes available through my 401k.
Government bonds: 3% (YRD)/ 3% (5Y)
Commercial bonds: -3% / 4%
Short-term bonds: 2% / 2%
International stock: - 19% / 10%
Large cap: -12% / 5%
Mid cap: -12% / 8%
Small cap: -5% / 8%
Clearly, the available funds suck (each class under-performs the corresponding index).
Still, none is 20% down YTD and the one that comes near (international) still has the highest 5Y (10%/year for doing nothing sounds extremely well to me).
The real question is how does money borrowed from future helps the real return? That is what we were doing for years, borrowing from our future to maintain the current levels of nominal valuation.
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Sparky
Posts:143
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| 10/02/2008 11:41 AM |
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[quote]Posted By XBoxBoy on 10/02/2008 11:18 AM
Sparky,
You say that you have already seen the effects of inaction, but I think all those effects are not the result of inaction, they are the result of actions already previously taken. You're going to need to establish a legitimate argument why the current crisis is the result of government inaction before your argument is going to make logical sense. Many people have already put forth very good arguments about why this fiscal crisis happened, and most of them center around irresponsible actions of the fed, and the government, and wall street. Not around inaction.
You keep asking how much worse will it get if we don't act. Let me ask, how much worse will it get if you turn to the same people that got us into this mess and encourage them to take more actions? In my mind, when a drunk driver crashes into a bunch of parked cars, you don't tell him, "Quick drive faster!" you tell him to turn the car off and get out from behind the wheel!
IMHO, the issue is not a banking liquidity problem. The issue runs much deeper. Yes, bank liquidity is now a serious issue, with it's own consequences. But, failing to address the issue that we have built an economy around consumerism and debt without increasing productivity means to me that we will continue to see things get worse despite the government's actions. And to me it seems just incredible that we would take on hundreds of billions, if not trillions of dollars in new debt for a plan that will not really improve the core issue. From my perspective, this new debt will probably only make addressing the core issues much more difficult in the future. And if you think "fixing" things means getting the stock market to rally so you haven't lost money and having house prices go back up to unaffordable levels, well Sparky... fasten your seat belt, cause I don't think you're gonna like this ride.
XBoxBoy[/quote]
I do understand that we got into this mess because of the result of actions previously taken. I also understand that we will not get out of this mess without significant consequences to everyone if we choose to do nothing, and that's my point. Nothing more, nothing less.
Points have been made to vote out the politicians and allow the corporations to fail in order to send a strong message that the American people will not stand for this again. Points have been made that we need to have congressional hearings with top-level economists who aren't in bed with the politicians and Wall Street. I believe that we NEED to make time for that, but it doesn't appear that it will happen. I do believe that CHANGE is needed, and its needed sooner rather than later.
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Sparky
Posts:143
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| 10/02/2008 11:46 AM |
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[quote]Posted By BGinRB on 10/02/2008 11:37 AM
[quote]Posted By Sparky on 10/02/2008 10:20 AM
We are invested in target date retirement funds - I would not call that rather aggressive.
[/quote]
It is either aggressive or incompetent (not you, but the fund manager).
What is the annualized return over the past 5 years?
[/quote]
Here's a link to Vanguards returns for the Target Retirement funds, near the bottom of the page as you scroll down.
<a href=https://personal.vanguard.com/us/funds/vanguard/all?sort=name&sortorder=asc#hist::upperTB=perfTBI|lowerTB=avgAnnTBI/><br>Vanguard Target Date Mutual Fund Returns</a>
https://personal.vanguard.com/us/funds/vanguard/all?sort=name&sortorder=asc#hist::upperTB=perfTBI|lowerTB=avgAnnTBI
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Scooter
Posts:3
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| 10/02/2008 11:46 AM |
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[quote]Posted By Brian on 10/02/2008 11:15 AM
What's so bad with living in a 2000sf house instead of 4000sf? What's wrong with having 1 child instead of 2 children? We just need to reevaluate what we can afford and only buy what we can pay for.
The consumer culture of the past 30 years is collapsing under it's own weight because consumers are tapped out. [/quote]
Excellent ideas. We have re-evaluated what we can afford and agree with you. We can only afford 1 child.
How do you suggest we decide which one to keep ?
I was thinking we should keep the older one, because on an actuarial basis she has fewer years left as a dependent.
However, the younger one is just so darn cute and is quite smart, so she may end up getting scholarships resulting in less out-of-pocket costs in the long run.
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