I can't believe no one is talking about this on Nairaland. This is the single most important news story this year.

Why did the Republicans torpedo the bill? This is completely irresponsible. The markets are starving. $1.2 trillion was lost just yesterday alone. The greatest single day fall on Wall Street ever. Shit is gonna hit the fan in a big way if they don't pass this bill.

Now the Republicans are blaming Nancy Pelosi because she apparently hurt their feelings so they sold the American economy down the river.

More glaringly, we have seen a civil war in the Republican party between South and West vs Midwest and Northeast. Those disciples of Newt Gingrich are determined to sell America down the river in support of some ideology or other.

We will see the effect play out on Main Street very soon. Even Newt Gingrich changed his mind when he saw the loss that Wall Street took yesterday.

Funny how they tried to shift everything to the Democrats when the facts obviously speak for themselves. They torpedoed the bill - no one else! The Democrats rallied to support an unpopular decision even though they have no political capital to gain from it. The Republicans however are playing politics with people's lives.

On top of this, John McCain released a flurry of press statements trying to link Barrack Obama to the mess yesterday. How dumb does he think we are? He is the one that went to Washington claiming he is gonna fix things and bla bla bla. He better not make mention of his credentials for bipartizanship again cos he went to Washington and the whole thing degenerated into a farce. So much for "working across the aisles".

Look, the Republicans have no reason to win this election anymore. If they do, then lets just say America have a long way to go.

On a side note, if they do pass the bill in time to avert the damage, watch out for Jp Morgan, Lloyds TSB and Goldman Sachs cos they are primed to do well out of this crisis.

Why did the Republicans torpedo the bill? This is completely irresponsible. The markets are starving. $1.2 trillion was lost just yesterday alone. The greatest single day fall on Wall Street ever. Shit is going to hit the fan in a big way if they don't pass this bill.

The WEST always tell the AFRICAN countries to privatise and respect market forces.

Now that they find themselves in same shit like the poor africans, what do we have:

not privatisation but nationalisation

not market forces but bail-out

Believe IMF/WORLDBANK/WEST at your own peril.

Thats not the point sha. This is not an ideological discussion. Rather, what do we have to do to stabilise the economy?

Thats why I always believe in the common sense moderate approach, not the ideological approach. Ideology torpedoed the bill.

Well, John McCain can not even lead his own damn party. So much for being a Party Leader.

They are probably gonna have to come to a quick resolution.

Ibime:

Thats not the point sha. This is not an ideological discussion. Rather, what do we have to do to stabilise the economy?

Thats why I always believe in the common sense moderate approach, not the ideological approach. Ideology torpedoed the bill.

hahaha. when it comes to AFRICA = it is about ideology

hahaha. when it comes to WEST/IMF = it is about stabilise the economy(so pension is paid, mortgage is secured etc)

what good for AFRICANS is good for WEST.

Well, they must take their own 'pill':

Allow MARKET FORCES to prevail!!

What's this i hear, capitalism is in trouble? Castro and the 'axis of evil' must be having a feel day with this, LOL . It would really be a shame if all of this just degenerates into Obama vs McCain, Republicans vs Democrats and hence partisian politics as it seems to be moving towards, surprisingly (perhaps not so surprising  ) on Nairaland for that matter. I can see this quickly turning into another "all hail Obama" thread already. Let us not speak as if we are not able to understand why people might not be for the bail out. Inspite of what the poster might think, not everyone i.e the ordinary folk are in support of a bail out. Why? Why should tax payers pay for the bail out of bad businesses? Is that so difficult to comprehend? If you open a business and run it wrecklessly are you also going to expect a government bail out? Sure arguements can be made that the circumstances are "special" because it puts the ordinary people at risk of financial crises. But to speak as if only an idiot would not support a government bail out seems to me to be nothing short of being condescending.

arguements can be made that the circumstances are "special" because it puts the ordinary people at risk of financial crises.

YES but never thought of that when they force AFRICAN countries through WORLDBANK/IMF.

They must go way of 'FREE MARKET', just like everyone else.

Otherwise, nobody will believe them with their economic advice to poor but resource-rich countries.

landis:

YES but never thought of that when they force AFRICAN countries through WORLDBANK/IMF.

They must go way of 'FREE MARKET', just like everyone else.

Otherwise, nobody will believe them with their economic advice to poor but resource-rich countries.

What exactly are we arguing about here? 

Sky Blue:

What's this i hear, capitalism is in trouble? Castro and the 'axis of evil' of evil must be having a feel day with this, LOL . It would really be a shame if all of this just degenerates into Obama vs McCain, Republicans vs Democrats and hence partisian politics as it seems to be moving towards, surprisingly (perhaps not so surprising ) on Nairaland for that matter. I can see this quickly turning into another "all hail Obama" thread already. Let us not speak as if we are not able to understand why people might not be for the bail out. Inspite of what the poster might think, not everyone i.e the ordinary folk are in support of a bail out. Why? Why should tax payers pay for the bail out of bad businesses? Is that so difficult to comprehend? If you open a business and run it wrecklessly are you also going to expect a government bail out? Sure arguements can be made that the circumstances are "special" because it puts the ordinary people at risk of financial crises. But to speak as if only an idiot would not support a government bail out seems to me to be nothing short of being condescending.

Let me draw an analogy here. . . . let us say a foreign country attacked Nigeria - and then Nigerian citizens refuse to support the Nigerian Army because the Nigerian Army always oppressed them in the past - who go suffer? The citizens will suffer. This thing is too serious to play the game of "let the fat cats carry their own losses" - cos in the long run, all of us go suffer.

Republicans like to act as if they know it all. They (Bush) messed up the economy and even Greenspan predicted this a couple of years or so back and Obama had been calling for some form of regulation then. They opposed the bill because of their egos and they also don't want to be seen as going against the ideals they've advocated for so long.

While it's annoying to have to give money to the very people who messed up in the first place, it's a necessary thing that has to be done. I couldn't believe my eyes the way the DOW 30 was just dropping points yesterday after the annoucement (over 700 down. I pity all those investors who put their life savings in there. I still remember when the DOW hit 14000 points just under a year or so ago.

On a domestic note, I hope CBN is taking note of what is going on. These banks need to be reigned in and regulated properly and customers need to be better protected. They most annoying thing they all seem to be coming up with recently is this thing about not allowing withdrawals in the bank for amounts less than 100,000.

Funny how Fox News is using the Dow's 450+ point gain today to justify the fact that the bill was unnecessary. Let me shoot that argument dead in the water right now.

Firstly, in all my years of watching the stock market, almost every big daily crash is followed by a resurgence the next day in the absence of bad news. That is just the market correcting itself. Investors decided overnight that they took 'fear' too far yesterday and would naturally correct themselves the next day. There is nothing better for a trader than volatility, therefore the market encourages huge swings in either direction. Whichever way the market swings, traders make money from it and it is in their interests to have a huge swing. Hence the market 'overswung' yesterday and must swing back today.

Secondly, the market only went up so much today in hope that the bill was not dead in the water as reports surfaced overnight that congress would get back together on Thursday to sort out a bill. Also, since the margin of error is small (only 20 votes or so), investors are confident that the bill will go through, hence the upturn today.

If the bill doesn't go through again, we will see the same scenario repeat itself. A huge crash, followed by an upturn and then followed by steady, more measured downturns as each floundering financial institution falls on its sword. More than 120 banks are seriously affected by the crisis and historically, 13% of these will fail. Make no mistake, bailout or no bailout, the market is determined to root out the weak ones from amongst it so more banks will fail. Certain banks like Barclays, JP Morgan, Santander and even Citigroup see this as an opportunity to grab more market share and carry out more horizontal and vertical integration by taking over failed banks.

What really bothers me in this issue is that a bill prepared and supported by a republican president, a republican appointed secretary of treasury and even the Chairman of the Fed was still defeated by a majorly Republican vote.

Now they are blaming Nancy Pelossi. If Nancy's speech was able to make most of the republican change the direction of thier voes, then I wonder what kind of ideologies they lay claim to. Ideologies that could be thrown out because of a passionate and sentimental speech

The burning question that I have, maybe Ibime might help me out, is that what other options are left ?

The other option is to let them go bankrupt, which some people believe is the (morally) right thing to do.

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

Let them wait till they can't get no small loans, then they'd know this bailout is seriously needed!

Economics is not really my thing so indulge my ignorance.

So what happens to the situation at Lehman's brothers I thot the Govt had to come in and aid them from totally sinking

Well Lehman went into Chapter 11 bankruptcy (there are different bankruptcy types in US) recently so it's too late for the government to bail them out from my understanding. As for the proposed bailout bill, companies that need funds would have to apply and be bound by the contents of the bill which could involve the government owning part of the companies and they would later sell what they own to get back taxpayers money. The question some people are asking amongst others is that would the companies perform well enough for the government to recoup its funds when it sells?

What happens next to Lehman? Well this is what Chapter 11 is about:

In Chapter 11, the debtor retains ownership and control of its assets and is retermed a debtor in possession ("DIP". The debtor in possession runs the day to day operations of the business while creditors and the debtor work with the Bankruptcy Court in order to negotiate and complete a plan. Upon meeting certain requirements (e.g. fairness among creditors, priority of certain creditors) creditors are permitted to vote on the proposed plan. If a plan is confirmed the debtor will continue to operate and pay its debts under the terms of the confirmed plan. If a specified majority of creditors do not vote to confirm a plan, additional requirements may be imposed by the court in order to confirm the plan.

Source: http://en.wikipedia.org/wiki/Bankruptcy#United_States

subice:

The other option is to let them go bankrupt, which some people believe is the (morally) right thing to do.

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

Let them wait till they can't get no small loans, then they'D know this bailout is seriously needed!

Here is my take on the bailout:


On the positive side, the bailout will:

(a.) Ease up credit which is the lifeblood of capitalism. You can take the term 'lifeblood' literally. No other explanation is needed.

(b.) Keep jobs


On the negative side, the bailout will:


(a.) Increase the National Debt which will lead to a weakening of the dollar, lesser spending power and increased inflation.

(b.) Keep property prices artificially high.

(c.) Incur losses for those who are hedged on puts against the financial indices. This is false economics. The puts bring efficiency to the markets and reflect the real state of the economy.


Under the proposal in your link, the market will correct itself and other institutions will fill the need for loan creation - but most Americans will lose the value of their homes. This is because the new institutions will reflect the reality that most people in America cannot afford the loans they would wish to have. American and European wages have been going sideways and backwards for the last 30 years when you account for inflation. The fact is this - Most Americans are invested in the property market, whether they think they are or not.  Demand for property has been artificially inflated by loans which have no bearing on people's income. Naturally, as demand falls, House prices will fall. If property prices crash, then half of America would have lost their investments.


@ Uche2Nna

Most economists would struggle to think of a plan to ease this crisis. The Paulson plan may not even work - but it will make the fall less steep. The Republican plan is to insure 'toxic assets' and suspend capital Gains Tax for 2 years. The only thing is there is no Capital Gains tax to be had from these 'toxic assets' since the assets have depreciated in value anyway. The plan to 'insure toxic mortgages' sounds nice - but no one has asked what will be the premium on these Mortgages? The premium will be so high because of the risk involved. The question is whether the already credit-strained markets can afford such premiums and whether the Government will get a fair price. On top of that, Government has no chance to recoup their investment if as we assume, the premiums on the mortgages are not actuarially fair and do not represent the real risk involved.

The Republican strategy sounds fair - but this is the most important point - it will create a lot of short-term casualties who will not survive this period due to a lack of credit. That is, more and more banks will fail in the short term, leading to a loss of confidence and disinvestment in the markets due to 'fear' and 'moral hazard'. Many jobs will also be lost in the short term. Strictly speaking, the Republicans plan is better in the long term but the question is whether the economy will survive this rocky period to even see that long term. Guru's such as warren Buffet, NYSE chairman etc do not think so. In addition, the Republicans plan will bring down the price of Housing which will cause heartbreak for homeowners.

On top of that, the Republican plan does not solve the problem because Insurance itself is a derivative. The main problem in the markets now is derivatives which have been taken out on Houses (underlying assets). This will just create another market for Credit Swap Defaults which was what killed Lehman Brothers. Paulson's plan takes away the underlying assets and allows banks to unwind their derivative positions with each other and disentangle the mess.

If like me, you have not bought your first home, you may warm to the Republican plan - the question is whether you will still have a job to be able to afford the lower rates. If you already own a home, the Republican plan is bad news for you because your home will lose value.

@Post,

Wealth and management of wealth demands discipline and accountability.

If you have a restaurant, proper accounting discipline demands that when you bring your family and or your friends in to eat and you are footing the bill, that you pay the cashier. True its your restaurant and the money is coming back to your pocket anyway but when your subordinates notice that you are very disciplined in the way you run your business, then it becomes easy for them to toe the line and when the money does not tally up at the end of the day you will have a voice to ask questions and you will have the will to face your staff and demand accountability. Nobody will say the money is coming short because Oga family don come chop lunch everyday of the week. Thats your leadership over your workstaff, laying good example.

Over the years, Bush and Cheney had systemically dodged accountability. When questioned on issues that demand public transparency they shrug it off as executive privilege to avoid public scrutiny. Over the years, when business, security and administrative leaders are seated in front of a congressional investigation and on public camera, instead of telling the truth, they dismiss their guilt to inability to recall or forgetfullness or loss of material evidence.

Congress is a balance for the White House and also has power of prosecution to demand accountability for public interest and to uphold the power of the people to seek fairness and justice whenever the rights of the people have been violated. On both accounts it has failed. The Republican led congress failed, the Democrat led congress failed.

Business leaders have followed in the footsteps of Bush/Cheney and became prodigal with the assets entrusted and invested in their corporations. They started to modify their quarterly and annual profit margins. They will release their audit reports and then turn around and withdraw it as incorrect and modify the numbers and re-release it with a far worse performance than it was in the initial release. The auditor, instead of being fired for incompetence got paid millions of dollars for a job well done. The CFO, instead of being demoted for incompetence got rewarded a fat end of year bonus check. The CEO, instead of getting the boot, got a fat bonus check and an enormous stock option. At the Annual General Meeting, the shareholders were told that the company performed below expectation and so the dividends will be reinvested for capital growth, so no payout. On each table at the meeting, there is gift baskets containing goodies and maybe at most, a wrist watch, token of appreciation from the CEO thanking the shareholders for their loyalty and dedication to American greatness. Sometimes these gift baskets are not enough to go around and the attendees have to fight over it. Total value of the basket and all the goodies in it, less than $1,000.

Congress sat there and never questioned these business leaders on this bad practice of modifying and correcting and falsifying the account records. If they were brought to the chambers for probe they got away free under the advise of lawyers to claim that they cannot recall events or that the damaging email memo in evidence was not a policy or an action tem but rather a reminder note.

Business leaders on Wall street played hide and seek with congress over gross mismanagement of billions of dollars of invested life savings in 401k, in bonds, stocks,, etc. To make matters worse, the business leaders pumped a lot of money into lobbying. They paid ex-congress members, relatives of congress members and their close allies, big money for sponsorship and endorsements. While these business leaders stole and mismanage trillions of dollars, the lobbyists massaged congress with fat privileges and sealed their voice from speaking against wall street.

Wall street is not dead. Wall street is playing one of its hide and seek game with congress again and its a false alarm to be crying for help or the worst will happen. I bet you if congress hands-off, Wall street will readjust and regain its strength. Democrat led Congress, for all their accusations against Republican led congress have not done anything different to bring about accountability in the business sector.

So now, they will take this $700b and give it to Wall street. Meanwhile, the mindset of Wall street has not changed from what it was when it mismanaged trillions of its own money. Suddenly we expect them to now change in their ways and manage public money put in their trust. What measures are in place to effect this new expectation in accountability?

Now, lets look at another thing totally different but even worse in its nature, if it were to happen. Let us assume that Wall street and Banks are bailed out for credit solvency. What would happen if next week the Telecomms companies cry that they are in financial problem? You definitely cannot let telecomms go belly up can you? What happens if airlines come the upper week and say they are in financial problem and are ready to pack it in? What happens if the food supply industry or the hospitals say they are in financial problems?

You let the telecomms go belly up, then you have lost all ability to secure the country or communicate. You let the airlines go belly up then you will choke trade and commerce and increase traffic on the interstate, demand for gas will go up, with insufficient supply price will go up, accident rate will jump up, more vehicles will get stuck on interstate, hotels will be highly in demand shooting up rates for lodging. If you let the food supply industry go belly up, food prices will jump, families will seek alternatives thereby increasing gap in the food safety chain and resulting in increased disease and illness. If the hospitals go belly up, dramatic results to millions of patients that are on frequent medical watch and attention, this will shootup cost of medicine, leading to underground practices in unsafe and uncontrolled enviroments, deaths and more spread of illnesses and diseases.

The best thing for congress to do at this point, . . leave Wall street alone, it will readjust. If the situation is so dire that it must get a lifeline, go to the fucking World Bank or IMF and get some guarantees. Leave public funds alone.

Sky Blue:

What's this i hear, capitalism is in trouble? Castro and the 'axis of evil' of evil must be having a feel day with this, LOL . It would really be a shame if all of this just degenerates into Obama vs McCain, Republicans vs Democrats and hence partisian politics as it seems to be moving towards, surprisingly (perhaps not so surprising ) on Nairaland for that matter. I[b] can see this quickly turning into another "all hail Obama" thread already. Let us not speak as if we are not able to understand why people might not be for the bail out. Inspite of what the poster might think, not everyone i.e the ordinary folk are in support of a bail out. Why? Why should tax payers pay for the bail out of bad businesses? Is that so difficult to comprehend?[/b] If you open a business and run it wrecklessly are you also going to expect a government bail out? Sure arguements can be made that the circumstances are "special" because it puts the ordinary people at risk of financial crises. But to speak as if only an idiot would not support a government bail out seems to me to be nothing short of being condescending.

Thank you!!

Majority of America remains against the "BAILOUT". Over 100 Harvard, MIT and other Ivey League Economics have written letters stating their position AGAINST the plan.

Ibime:

Let me draw an analogy here. . . . let us say a foreign country attacked Nigeria - and then Nigerian citizens refuse to support the Nigerian Army because the Nigerian Army always oppressed them in the past - who go suffer? The citizens will suffer. This thing is too serious to play the game of "let the fat cats carry their own losses" - because in the long run, all of us go suffer.

? ? ? You want to make a comparison between the Nigerian army (a national and hence government run institution that even gets its budgets from the legislative arm) and the free market (the private business and finance sector)? And then use this as basis to why tax payers should bail out the free market and private sector from mismanagement and self inflicted woes? So the whole ideal of a "free market" which a lot of people were once upon a time enjoying the fruits off, such an ideal or value of "it is business" should be abandoned and the people of a country should all chip in and save companies because business happened? I am sure there are much more convincing arguements to support a bail out that you can come up with than that. Anyway, i am beginning to get a feel for where this thread is going and i am not interested.

I see three Republicans talking here but only Negro Ntns is articulating his point properly. Kobojunkie is playing her usual tacit game of not saying very much in order to look rational - but lacking any substance. Kobo, if you want to talk about who supports Paulson's plan or not, I think you will find most of the great and good are in favour of Paulson's plan. As for SkyBlue, if you believe the Republicans plan is better, why not tell us why instead of prevaricating over whether the Nigerian Army is a valid comparison for the situation or not. Analogies can be loose analogies, you know. I have drawn out the negative  points of the bailout and the positive points of the Republicans plans as well, so that everyone can see the whole picture as I see it. Negro, I will address your point later when I have time.

Ibime:

I see three Republicans talking here but only Negro Ntns is articulating his point properly. Kobojunkie is playing her usual tacit game of not saying very much in order to look rational - but lacking any substance. Kobo, if you want to talk about who supports Paulson's plan or not, I think you will find most of the great and good are in favour of Paulson's plan. As for SkyBlue, if you believe the Republicans plan is better, why not tell us why instead of prevaricating over whether the Nigerian Army is a valid comparison for the situation or not. Analogies can be loose analogies, you know. I have drawn out the negative  points of the bailout and the positive points of the Republicans plans as well, so that everyone can see the whole picture as I see it. Negro, I will address your point later when I have time. 

WOW    . At least i cannot be shot down for being presumptious, a thread to discuss the whole issue of the bail out, and it quickly degenerates into partisian discourse? For someone who seems to see a bail out as such an important thing it is quite dissappointing that you turn such an "important" issue into Republican vs Democrats, Obama vs McCain, etc. And then to further try and conveniently put anyone who has a view different to yours or does not agree with you into little convenient boxes of "Republican", "Democrat"? Quite amusing, especially when you consider you don't even know who i am, where i am, or if i am legible to vote. But because i disagree with you i MUST be a republican  . So those 90 "democrats" that voted against the bill, what was wrong with them? They were not "democrat" enough? LOOL. Sorry but i feel classifying myself by such terms as "republicans" and "democrats", "obamamaniacs" and "mccainanites" would be an insult to my person. You may see such as adequate means to state who you are but i don't, I see myself as being too whole a person to fall into such.  You created an analogy to,  i guess explain your position better and for an analogy that was meant to be the buffer or support to your arguement i would say it was important that the analogy held water and in my view it didn't for the situation at hand. I think all i need to say i have said. I was not redressing your analogy just to be a pain but simply because for something that was meant to paint a clearer picture of your view, it was fundamentally flawed and hence left me without understanding your arguement any better. I just knew where this thread was going and i think i am about done with it because as i said, such doesn't interest me. 

Ibime,

I'm not a Republican nor a Democrat. As I have stated numerous times before I vote issues, not party. Stop identifying me as a Republican.


On the bailout point, Obama's campaign is running on a "Change" platform, how is injecting public fund to further create and expand corruption a CHANGE?

By supporting and voting for the bailout, Obama in effect, is endorsing the top wealth bracket of America and putting them under the umbrella of promised tax breaks that he has touted for middle income and low income earners. So where is the CHANGE?

If he becomes President and his government owns, say 20% of Wall street in diversified holdings, then he cannot claim tax-free profit earnings for the government but assess tax liabilities on corporations with 10% and 15% of ownership in those net holdings. Now, that's a turn around from his tax promises. If he tax those corporations the he opens a loop for worse corruptions to happen.

If government pumps in money to Wall street, then they will also have to regulate these banks and limit foreign ownership to a very minimum. For example; If Argentina has 15% equity, with voting rights in XYZ bank and American government owns 25% of it but on the diplomatic front is putting sanction on Venezuela, Argentina, by virtue of treaties with Venezuela could turn around and frustrate America's interest in XYZ bank.

The best option for moving forward is to slow down, glance back, clean up bad elements in Wall street, change mindset, reassess the political trends around the world and use the report to formulate a concise vision that will resucitate Wall street. As I said earlier, if the situation is so bad that something needs to be done immediately, then that something should be a negotiations for short term guarantees from the World Bank or the IMF.

The current proposal for government bailout is a disaster waiting to happen and it could have an effect on USA like the aftermath of the Soviet breakdown in the 80s.


Campaignwise, the plan will be more devastating and defeating for Obama than it would for McCain. The reason is because Barack has put his horse ahead of the wagon by promising and raising too much expectations against practical principles that he is now heralding as the best practice in a stormy situation. He is unconsciously defeating his own platform agenda.


Wall street and his opponents will not miss that point, they will bash him with it repeatedly when he becomes President and frustrate his vision for all things benevolent in his speeches on American idealism.

Correction in second to last paragraph, make that "wagon ahead of the horse". Lol.

In this matter Barack need to wear his Harvard hat, but keep the Washington one in hand for quick switch.

Unfortunately, the man well respected for his academic scholarship is on this matter responding like McCain and his congressional peers that Obama is promising to sweep out of Washington.

Kobojunkie:


Thank you!!

Majority of America remains against the "BAILOUT". Over 100 Harvard, MIT and other Ivey League Economics have written letters stating their position AGAINST the plan.

U just stated those against the "Bailout". However, U chose to forget that there are also a sizeable number that support the Bailout.

I am still grappling with the concept and consequences of this Bailout thingy. Dont know much about it to really form an opinion here but going from Ibime's analysis , it seems the economy is screwed either way,,,,,,, Bailout or no Bailout! The question is now which option attracts the less casualty.

Negro_Ntns:




On the bailout point, Obama's campaign is running on a "Change" platform, how is injecting public fund to further create and expand corruption a CHANGE?

Once again, I have to beg U guys to indulge me (Gosh, I shoulda taken more economics classes ) . But why would the injection of public fund create more corruption. Why dont they inject more fund to save the situation (short term) and then gradually weed out those policies and probably person(s) that connived to cause this mess. I assume once public funds are used then the Govt would have a lot more say in whats going on in Wall Street.

Basically, what I am saying is injection of funds followed by a tighter regulation.

Ibime:

Here is my take on the bailout:


On the positive side, the bailout will:

(a.) Ease up credit which is the lifeblood of capitalism. You can take the term 'lifeblood' literally. No other explanation is needed.

(b.) Keep jobs


On the negative side, the bailout will:


(a.) Increase the National Debt which will lead to a weakening of the dollar, lesser spending power and increased inflation.

(b.) Keep property prices artificially high.

(c.) Incur losses for those who are hedged on puts against the financial indices. This is false economics. The puts bring efficiency to the markets and reflect the real state of the economy.


Under the proposal in your link, the market will correct itself and other institutions will fill the need for loan creation - but most Americans will lose the value of their homes. This is because the new institutions will reflect the reality that most people in America cannot afford the loans they would wish to have. American and European wages have been going sideways and backwards for the last 30 years when you account for inflation. The fact is this - Most Americans are invested in the property market, whether they think they are or not.  Demand for property has been artificially inflated by loans which have no bearing on people's income. Naturally, as demand falls, House prices will fall. If property prices crash, then half of America would have lost their investments.


@ Uche2Nna

Most economists would struggle to think of a plan to ease this crisis. The Paulson plan may not even work - but it will make the fall less steep. The Republican plan is to insure 'toxic assets' and suspend capital Gains Tax for 2 years. The only thing is there is no Capital Gains tax to be had from these 'toxic assets' since the assets have depreciated in value anyway. The plan to 'insure toxic mortgages' sounds nice - but no one has asked what will be the premium on these Mortgages? The premium will be so high because of the risk involved. The question is whether the already credit-strained markets can afford such premiums and whether the Government will get a fair price. On top of that, Government has no chance to recoup their investment if as we assume, the premiums on the mortgages are not actuarially fair and do not represent the real risk involved.

The Republican strategy sounds fair - but this is the most important point - it will create a lot of short-term casualties who will not survive this period due to a lack of credit. That is, more and more banks will fail in the short term, leading to a loss of confidence and disinvestment in the markets due to 'fear' and 'moral hazard'. Many jobs will also be lost in the short term. Strictly speaking, the Republicans plan is better in the long term but the question is whether the economy will survive this rocky period to even see that long term. Guru's such as warren Buffet, NYSE chairman etc do not think so. In addition, the Republicans plan will bring down the price of Housing which will cause heartbreak for homeowners.

On top of that, the Republican plan does not solve the problem because Insurance itself is a derivative. The main problem in the markets now is derivatives which have been taken out on Houses (underlying assets). This will just create another market for Credit Swap Defaults which was what killed Lehman Brothers. Paulson's plan takes away the underlying assets and allows banks to unwind their derivative positions with each other and disentangle the mess.

If like me, you have not bought your first home, you may warm to the Republican plan - the question is whether you will still have a job to be able to afford the lower rates. If you already own a home, the Republican plan is bad news for you because your home will lose value.

Above is all I have to say about the bailout. If anybody wishes, they can pick over it and discuss the points. Skyblue's tactics of crying over my supposed "partizanship" is irrelevant. He is starting to adopt Kobojunkie's tactics of passing moral edicts without actually making a factual point. We are discussing economics, not ideology or populism. What is relevant is whether the Paulson plan will alleviate some of the problems in the market. Nothing else.

Negro, this is not an ideological discussion. The bailout is morally wrong as everyone accepts. However, we should not cut off our nose to spite our face. Everyone is invested in Wall Street. From Pensions to 401k's to jobs to payroll, we all have a stake in the success of Wall Street. If you think the markets are playing hide and seek, think again. To understand the scope of the problem, consider this - Goldman Sachs lost no money from subprime mortgages. Infact, they made a lot of money cos they bet on Mortgage defaults. Yet, the credit crunch almost brought them to their knees. If Warren Buffet had not stepped in last week, they would be facing serious problems. JP Morgan also didn't lose much from subprime but their shareprice is down a whole heap from last year. According to your argument, those who took the risk should suffer the consequences - but what risk did Goldman Sachs take? They are suffering the consequence of the credit crunch, not their subprime mistakes. Airlines are closing down, Car dealerships are closing down - all these people had nothing to do with the subprime crisis. It is the credit freeze which is affecting tham - and soon, it will affect all of us. Like I said before, credit is the lifeblood of the economy and you can take that literally. Just two years ago, Lehmann, Merill lynch, Bear Stearns and such were the pillars of our economy. Where are they now? Wachovia, Franny, Freddie, IndyMac, Washington Mutual - this shit is no joke. The last time we saw something like this was the Great Depression when people were almost starving. Caterpillar tried to get a loan to keep operations going and couldn't. Even McDonalds couldn't get a loan. Another 120+ banks are tetering on the edge. On monday, the market lost $1.2 trillion and only recovered some of that on Tuesday because fresh hope emerged of a deal.

In the end, congress will pass this deal. You can talk all you want now, but your theories will never be tested because the deal will be passed. I hate to tell you the consequences if it is not passed. Fortunately, you will never have the chance to be proved wrong.

Now, as many analysts have said, the decision not to pass the bill is irresponsible. Do the American public even understand the fundamentals? So why is their opinion valid? More and more of them are starting to support the bill. Those Senators who voted against were putting politics over practicality because their constituents complained so much.

As for those talking about 'free market', there is no such thing. Government has been giving Banks credit lines since last year.

Uche2nna:

U just stated those against the "Bailout". However, U chose to forget that there are also a sizeable number that support the Bailout.

I did not CHOOSE to FORGET those in Support. The response was posted in response to the fact that there are plenty of people out there, top economists who oppose the idea and continue to call for it to be aborted. 

Uche2nna:

I am still grappling with the concept and consequences of this Bailout thingy. don't know much about it to really form an opinion here but going from Ibime's analysis , it seems the economy is screwed either way,,,,,,, Bailout or no Bailout! The question is now which option attracts the less casualty.

The Bailout is not being offered as a guarantee against catastrophy. If you listen carefully to what the politicians and those in support are saying about it. It is simply a supposed cushion should things slip into dangerous areas(closer to a depression). So, this nullifies the argument that those who are against it as IDIOTS and those who are for it as THE BRILLIANT ones. There is no guarantee that the bailout will secure the American tax payer in any way from heavier burdens in the future.

Uche2nna:

Once again, I have to beg U guys to indulge me (Gosh, I shoulda taken more economics classes ) . But why would the injection of public fund create more corruption. Why don't they inject more fund to save the situation (short term) and then gradually weed out those policies and probably person(s) that connived to cause this mess. I assume once public funds are used then the Govt would have a lot more say in whats going on in Wall Street.

Basically, what I am saying is injection of funds followed by a tighter regulation.

I am not for the idea that it injecting funds in creates more corruption. So am in no way addressing that claim. I do have questions for you in response. Why not allow the companies that have not been able to better manage their affairs fail,so future enterprises can learn to better handle their financials and make better decisions? Why not allow the rules of capitalism to play out instead of coming in to bend the rules with no guarantee that you are going to save it for the future generation? Why inject funds to save them SHORT term, when allowing them to crash now can provide for better decisions being made to secure the future for the long term?


Why not allow those who made bad decisions deal with the consequences of their action so they learn from the experience, rather than coming in to rescue the nation and then risking creating a bigger bubble for the next generation to have to deal with?

I never said the decision to inject money into Wall street is morally wrong. I did say immoral and unethical practices contributed to the mess _ viz false accounting practices that became prevalent on Wall street. Someone should have questioned that but no one did.

I am not against a bailout idea but I am against the manner in which it is being carried out.

Credit is not tangible, it is speculative and tied to a collateral. Where was Paulson and Bush and congress when homeowners were being gradually fleeced of their collaterals by banks that flooded the market with equity refinance loans? These were not subprime, I'm talking about prime loans with 20% or more down payment and equities at the inception of closing.

I have three reasons for opposing the plan.

1. The root cause of the problem has not been isolated and removed. Therefore the problem will repeat itself.

2. Government is entering into an area where it becomes too easy for them to violate citizen rights.

3. This is a gobal economy, the banks should seek global means for recovery.

What i just don't get is why people speak of a bail out as if its actually going to fundamentally solve anything rather than cushion the reality of the situation. Experts? For the past month and beyond, every week after yet another "catastrophe" occured some supposed "expert" normally turned up to say the worst was past, only to have to eat his words the next week when something else happened, quite amusing in a sick way. So what is the reality of the situation and what is a bail out actually going to fix? The reality of the situation is that the era of low priced crude oil and hence fuel (till it ceases to beused as such) is over. Why is this so? Is it just a phase? Was it because of the actions of MEND ( )? The US doesn't have monopoly on development anymore, China also needs energy, so does india, for their rapidly expanding economy and behemot sized population who also want "the good life" of industrialisation, energy, economical growth, indutries, etc; all which in on way or another rely on an energy source of which crude oil has become the most widely used and technologically at this point in time the most accessible. Hence, market forces at play.

This goes well beyond the whole mortgage fiasco and it started with rising energy costs. Such affected food prices, etc. What is required for the growth of industries and businesses? Well, America seems to believe it is credit and considering that a lot of businesses are leaving the states to asia due to cheaper labour, less stringent environmental laws, etc, what really could one expect? What is causing all this slow down in the American economy and threat of a recession? Is it really because of bad credit or the prospect that certain countries are not the absolute centre of development and economic growth anymore? Hence the need to share already limited resources? Should anyone really be surprised at how wall street reacted to the situation that preceded the subprime issue? Wall street historically due to its set up i guess, is quite easily phased by rumours and speculation. Whole companies can be brought down based on speculation and fear mongering. A healthy bank in the UK had to be rescued via a merger because of speculation and fear mongering which saw investors running for the exits and hence share prices plummeting. That just shows what effects such can have on the stock market.

So in all of this what is a "bail out" which is just basically providing more free cash into the credit sector as oppossed to "bad assets" (am i right or did i misread something), so what is such going to actually fundamentally achieve in a year's time when all of these other issues still remain? Shouldn't more work be put into repositioning the American economy to handle the shift in the status quo if America is to deal with this?

Kobojunkie:





I am not for the idea that it injecting funds in creates more corruption. So am in no way addressing that claim. I do have questions for you in response. Why not allow the companies that have not been able to better manage their affairs fail,so future enterprises can learn to better handle their financials and make better decisions? Why not allow the rules of capitalism to play out instead of coming in to bend the rules with no guarantee that you are going to save it for the future generation? Why inject funds to save them SHORT term, when allowing them to crash now can provide for better decisions being made to secure the future for the long term?

When U say them, I assume U mean those guys over @ Wall street starting from the CEO's. U make an argument on the assumption that them would suffer alone in the event of any crash. But I think that is far from the truth.

They created the mess but if left alone others would suffer ,,,,, this was pointed out Ibime.

Ibime:


Everyone is invested in Wall Street. From Pensions to 401k's to jobs to payroll, we all have a stake in the success of Wall Street. If you think the markets are playing hide and seek, think again.   

Negro_Ntns:

I never said the decision to inject money into Wall street is morally wrong. I did say immoral and unethical practices contributed to the mess _ viz false accounting practices that became prevalent on Wall street. S[b]omeone should have questioned that but no one did. [/b]

I don't think its fair to say that. Even staunch supporters of the bail out plan admits that something has gone awfully wrong . However, I can see their view point. Ameliorate the situation first , then ask questions later.

U can't afford to be chasing rodents while ur house is on fire.

Uche2nna:

When U say them, I assume U mean those guys over @ Wall street starting from the CEO's. U make an argument on the assumption that them would suffer alone in the event of any crash. But I think that is far from the truth.

That is not my assumption. This problem does not start and end with the CEO’s and the Washington big guns. The people of America played a major part and will also suffer the crash. Is it bad for them to suffer the crash? Or is it better we continue to push to ship the suffering off to people in other countries to suffer the majority of the impact while we continue to supply cushions for Americans, who had a hand in the genesis of the problem?

Uche2nna:

They created the mess but if left alone others would suffer ,,,,, this was pointed out Ibime.

They did not create the mess. They made the mess possible and fueled it. The American people, individuals like you are equally guilty.  If we do not learn that, at least, what is a cushion going to solve?

Uche2nna:

I don't think its fair to say that. Even staunch supporters of the bail out plan admits that something has gone awfully wrong . However, I can see their view point. Ameliorate the situation first , then ask questions later.

U can't afford to be chasing rodents while ur house is on fire.

Does dousing the fire with water work when you still have the gas lines leaking?

Does dousing the fire with water going to work when you still have the gas lines leaking?

Thank you.

The Bailout bill has been passed. The Dow Jones Industrial dropped 200 points from +260 to +50 for the day as soon as the bailout was passed by congress. What do you think about that? I await your comments. 


I see the Democrats are quick to pass the credit for the passing of the bill to Obama. They shouldn't. That is a politically risky manouvre. There is no guarantee that we will see the benefits of this bailout within the next 12 months. Certainly not before the elections. Come November 4th, we will still be flooded with bad news about the economy. Recent news is that unemployment has increased by 800,000 this year. Traders will soon be looking at earning figures for the third quarter of 2008 just finished to determine whether to buy or sell. They should not sell this bailout as the end of our problems because it will affect Obama in November when people see no immediate changes to their pocketbook. Obama and McCain should distance themselves from this bailout for now. That risk is somewhat less for McCain because more Republicans voted against. Like I said, Democrats need to chill and keep Obama's name out of this. This bailout is just to stop leaks, it is not gonna bear fruit on Main street level anytime soon.