Bail-out

[Drew_Kingsley]

Bailout bill rejected... stock market plummets.

This stuff terrifies me, but I don\'t know if understanding it better would scare me more or less.

[derickw]

man my 401K is taking a freak\'n hit..... i think i\'d rather cash out and pay the tax penalty rather than keep freak\'n loosing money to noone...... this is bullshit

[Spacey]

This country is fucked.

I for one have order me a company of the Rosetta Stone to learn Chinese.

Cancel your order. I have a free copy I\'ll burn for you.

Fair enough.

Order=canceled.

Toa chie!

man my 401K is taking a freak\'n hit..... i think i\'d rather cash out and pay the tax penalty rather than keep freak\'n loosing money to noone...... this is bullshit

You are young enough to have a rebound.

You will regret it when the Chinese come along later.

[SlimPickens]

man my 401K is taking a freak\'n hit..... i think i\'d rather cash out and pay the tax penalty rather than keep freak\'n loosing money to noone...... this is bullshit

You\'re too late for that.  Should made changes 8 months ago (not that I made them).

Right now, ya just gotta ride it out.

[Spacey]

man my 401K is taking a freak\'n hit..... i think i\'d rather cash out and pay the tax penalty rather than keep freak\'n loosing money to noone...... this is bullshit

You\'re too late for that.  Should made changes 8 months ago (not that I made them).

Right now, ya just gotta ride it out.

Honestly, does it even matter? You are going to work until you die, why do you need a retirement fund?

[derickw]

man my 401K is taking a freak\'n hit..... i think i\'d rather cash out and pay the tax penalty rather than keep freak\'n loosing money to noone...... this is bullshit

You\'re too late for that.  Should made changes 8 months ago (not that I made them).

Right now, ya just gotta ride it out.

Honestly, does it even matter? You are going to work until you die, why do you need a retirement fund?

so i have something to borrow from when i want to go to Europe on vacation.... duhhhhhh. i\'m a wook, i can\'t save money.

[Spacey]

man my 401K is taking a freak\'n hit..... i think i\'d rather cash out and pay the tax penalty rather than keep freak\'n loosing money to noone...... this is bullshit

You\'re too late for that.  Should made changes 8 months ago (not that I made them).

Right now, ya just gotta ride it out.

Honestly, does it even matter? You are going to work until you die, why do you need a retirement fund?

so i have something to borrow from when i want to go to Europe on vacation.... duhhhhhh. i\'m a wook, i can\'t save money.

wookies don\'t go on vacation either.

they are always on vacation and sometime they go to work.

dirty Sasquatch

[derickw]

touche

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[Drew_Kingsley]

The $49.09 I have in the bank is still there. The $3 in my wallet are also safe.

In a related story, getting paid once a month sucks. Can\'t wait for that direct deposit to hit tomorrow.

[Spacey]

touche

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HA!

so true.

The $49.09 I have in the bank is still there. The $3 in my wallet are also safe.

In a related story, getting paid once a month sucks. Can\'t wait for that direct deposit to hit tomorrow.

I get paid twice/month and can barely wait for the next check.

You=better than I

[Mark]

Scary day. Makes me hate King George even more, if that is possible!

[Gfunk]

Here\'s a good article or blog or whatever you want to call it about the state of our economy. from: http://www.dailykos.com/story/2008/9/29/143536/436/784/614495

I\'ll Speak Very Slowly.
by RenaRF
Mon Sep 29, 2008 at 12:59:57 PM PDT
Little known fact: I have a degree in economics.  I went to one of the top three economics schools in the country, and graduated with honors.

Caveat: The area I studied was WAY academic.  Rather than adhere to market economics, my school focused on the inherent rationality and irrationality of actors in markets.  In other words, it focused on the role of investors and their individual and collective emotions as market drivers in and of themselves, completely outside of principles of accountancy or market math.

So with that, over the fold and I\'ll give my dumbed-down impression of the state of the economy and markets.

RenaRF\'s diary :: ::
I\'ll try to forget that I\'ve just heard Boehner, Blunt, and Cantor blame Pelosi\'s SPEECH for the failure of the Rescue Bill.

And make no mistake - this is a rescue bill.  Stop thinking of its central premise as that of a "bailout".  While some "bailing out" will, by necessity, occur, the rescue is the key focal point of this bill.

I tried to explain this to Mr. RenaRF over the past ten days or so.  Here\'s what I want you to picture:



Yep.  The human body, from an anatomical perspective.  

Imagine now that that human body, pictured above, in its entirety, is the economy.  Different parts of the body represent different sectors of the economy.  So maybe an arm is the pharmaceutical sector.  And maybe a leg is the IT sector, and another leg the energy sector.  But the central system to the human body is the heart.  If it doesn\'t function, all other systems in the body shut down.

So go back in time about nine or ten years and think of the dot economy.  I\'m going to grossly oversimplify here, but as a member of the IT industry in my professional life, I saw the bursting of the dot.com bubble up close and personal.  Long-standing practices of moving companies to initial public offerings (IPOs) were abandoned in the dot.com boom.  Prior to the easing in lending regulations and standards, a company generally needed five years of business history and some consistent quarterly performance that indicated a path to profitability before it would be considered for IPO.  Yet in the make-money-fast culture of the late nineties, those standards were abandoned.  Companies with mere months of business history and no discernible path to profitability were being approached for IPO.  Underwriting financiers would take preferred stock interest in those companies and amass stock for literally pennies per share.  When the company publicly launched, those same underwriters would turn around and push the stock and cause its value to go up.  They would wait until their best estimate of a peak and sell out, making ridiculous profits.

The whole house of cards caught up with the dot.com bubble and the segment itself returned to some level of reality.  But remember - in my example, I made the IT industry a leg.  You can lose a leg and still live a full, functioning life.

It is fundamentally different with the financial services industry.  Because you can\'t cut out a heart without death of the remainder of the body that it supports.

Blood that flows to and from the heart is comparable to money that flows through the market.  The availability of money to leave the heart and travel to other areas of the body - market sectors - is what drives the overall economy.  It touches EVERY area of the economy.

Let\'s say you own a successful dry cleaners in your town.  You\'re profitable, you manage your expenses well, and you\'ve provided some number of jobs back to the community.  All of your financial fundamental are in place for expansion.  You\'ve scoped out an area where competition will be minimized and where your proven business model is likely to thrive.  You don\'t personally, however, have the money to take a lease on space and hire enough people to run your second location with all of its equipment requirements and the like.  You need to borrow that.  In a functioning economy, a lender would be happy to lend you the money to expand.  You\'re a great risk - you have a business model that has proven to be successful.  But you can\'t get the money.  And you can\'t get the money because there IS no money to lend.

Another example.  Let\'s say you work for a large, multi-national IT company.  Let\'s say further that the market has been kind to you.  Your profit projections have consistently been spot-on quarter over quarter.  All of your underlying financials are strong.  You are in the top one or two in your market segment, and you certainly don\'t have your personal business invested in mortgage-backed securities.

Only in many ways, you DO have your business invested in mortgage-backed securities, at least tangentially.  Because you do what many business of your size do on a daily and weekly basis.  You borrow money to keep your daily operating costs covered.  That means payroll, benefits, etc., are covered in the short term with full knowledge that, at the end of, say, a quarter, you will fully pay those short term loans back.  But the business bank who underwrites your short-term operating line of credit IS a member of the financial services industry.  And because that industry is tainted by bad debt, and because THAT has caused credit of any kind to tighten, you now cannot take a 7-day loan to cover payroll.  You and your 280,000 employees now are not able to meet your payroll obligations.

A final example.  Your car blows up.  You don\'t live in an area where public transportation is readily available.  You have a good job and a good credit history.  You need a loan to get a new car so you can keep going t work and keep working.  Only you can\'t get that loan.  It has nothing to do with your personal credit-worthiness - it has to do with the fact that money simply isn\'t available to lend to you for buying a car.

The financial services sector is the heart of the economy.  They have fucked up badly in the last couple of years, but really, they\'ve generally fucked up because we have allowed it.  Companies don\'t exist to provide good jobs or good benefits.  Companies exist to turn a profit, and public companies exist to return value to their shareholders.  They are made to do this on a quarterly basis.  A good quarterly report returns profit to shareholders.  A bad one returns no profit to shareholders (generally).  So why would we think, after removing regulations and failing to enforce most of those that remained in place, that Wall Street would do anything beyond what we have made it possible for them to do?  And that, in a nutshell, is to work the system - mostly within the law - to return insane short-term quarterly profits and therefore shareholder value.  The idea that business would think a) long term (when we are painfully short-term focused from a market perspective; and b) do things to benefit people rather than their own bottom line is counter-intuitive because we don\'t reward business for behaving in that fashion.

Right now, we are literally on a tightrope called credit.  Whether or not you have a job to go to tomorrow, and a job that can actually honor its payroll obligation, is an open question.  If your company has enough cash on hand to pay its operating expenses, consider yourself lucky.  Many other people, who work for good companies, will find that there isn\'t money for them to be paid.  The heart will have stopped pumping blood to all extremities of the body economic.

And a final few notes - this idea that facists have that the market can bear this out is ludicrous.  Further ludicrous is the idea that some kind of mortgage insurance construct would work.  If companies could make money with that methodology, they would have already been doing it.  No one\'s biting because no one can underwrite this debt for the amount of time it will require for the paper amount to match the value of the underlying collateral.

And the idea that all of these Representatives are getting "50 to 1" phone calls against the bailout does NOT remove them of their fundamental responsibility to be stewards of the American economy and the American public as a whole.  This shit is complicated.  The idea that the average person can fully understand the implications and the intricacies defies logic.  I have the requisite education background and I don\'t fully understand all the details around the current economy and the implications of any rescue legislation.

This is a sad, tragic day for America.  Legislators decided that their need to be re-elected exceeded their responsibility to the Americans they represent.

I would suggest that those who believe we have to hold our nose and save the heart of the economy reach out to our Congresspeople and tell them so.  Best of luck to everyone.

[bezerker]

^^  did you actually read all of that ? !

[Gfunk]

yeah brah.

[delfunk1]

Interesting article against the bailout.

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

Commentary: Bankruptcy, not bailout, is the right answer CAMBRIDGE, Massachusetts (CNN)

-- Congress has balked at the Bush administration\'s proposed $700 billion bailout of Wall Street. Under this plan, the Treasury would have bought the "troubled assets" of financial institutions in an attempt to avoid economic meltdown.

This bailout was a terrible idea. Here\'s why.

The current mess would never have occurred in the absence of ill-conceived federal policies. The federal government chartered Fannie Mae in 1938 and Freddie Mac in 1970; these two mortgage lending institutions are at the center of the crisis. The government implicitly promised these institutions that it would make good on their debts, so Fannie and Freddie took on huge amounts of excessive risk.

Worse, beginning in 1977 and even more in the 1990s and the early part of this century, Congress pushed mortgage lenders and Fannie/Freddie to expand subprime lending. The industry was happy to oblige, given the implicit promise of federal backing, and subprime lending soared.

This subprime lending was more than a minor relaxation of existing credit guidelines. This lending was a wholesale abandonment of reasonable lending practices in which borrowers with poor credit characteristics got mortgages they were ill-equipped to handle.

Once housing prices declined and economic conditions worsened, defaults and delinquencies soared, leaving the industry holding large amounts of severely depreciated mortgage assets.
The fact that government bears such a huge responsibility for the current mess means any response should eliminate the conditions that created this situation in the first place, not attempt to fix bad government with more government.

The obvious alternative to a bailout is letting troubled financial institutions declare bankruptcy. Bankruptcy means that shareholders typically get wiped out and the creditors own the company.

Bankruptcy does not mean the company disappears; it is just owned by someone new (as has occurred with several airlines). Bankruptcy punishes those who took excessive risks while preserving those aspects of a businesses that remain profitable.

In contrast, a bailout transfers enormous wealth from taxpayers to those who knowingly engaged in risky subprime lending. Thus, the bailout encourages companies to take large, imprudent risks and count on getting bailed out by government. This "moral hazard" generates enormous distortions in an economy\'s allocation of its financial resources.

Thoughtful advocates of the bailout might concede this perspective, but they argue that a bailout is necessary to prevent economic collapse. According to this view, lenders are not making loans, even for worthy projects, because they cannot get capital. This view has a grain of truth; if the bailout does not occur, more bankruptcies are possible and credit conditions may worsen for a time.

Talk of Armageddon, however, is ridiculous scare-mongering. If financial institutions cannot make productive loans, a profit opportunity exists for someone else. This might not happen instantly, but it will happen.

Further, the current credit freeze is likely due to Wall Street\'s hope of a bailout; bankers will not sell their lousy assets for 20 cents on the dollar if the government might pay 30, 50, or 80 cents.

The costs of the bailout, moreover, are almost certainly being understated. The administration\'s claim is that many mortgage assets are merely illiquid, not truly worthless, implying taxpayers will recoup much of their $700 billion.

If these assets are worth something, however, private parties should want to buy them, and they would do so if the owners would accept fair market value. Far more likely is that current owners have brushed under the rug how little their assets are worth.

The bailout has more problems. The final legislation will probably include numerous side conditions and special dealings that reward Washington lobbyists and their clients.

Anticipation of the bailout will engender strategic behavior by Wall Street institutions as they shuffle their assets and position their balance sheets to maximize their take. The bailout will open the door to further federal meddling in financial markets.

So what should the government do? Eliminate those policies that generated the current mess. This means, at a general level, abandoning the goal of home ownership independent of ability to pay. This means, in particular, getting rid of Fannie Mae and Freddie Mac, along with policies like the Community Reinvestment Act that pressure banks into subprime lending.

The right view of the financial mess is that an enormous fraction of subprime lending should never have occurred in the first place. Someone has to pay for that. That someone should not be, and does not need to be, the U.S. taxpayer.