Should taxpayer dollars be used to bail out a private company?
Less than a week after the Federal Government declined to bail out Lehman Brothers from going bankrupt, they orchestrated an $85 Billion bailout of AIG. Do you think the government should continue to bail out companies with taxpayer money, or should they let Capitalism play it's course and allow the companies to fail?
Side Score: 37
Side Score: 42
While I don't think that this is a practice that should continue indefinitely, the fact is that we are in a major financial crisis right now, and we can't afford as an economy to allow AIG to fail. They are simply too intertwined in our entire economy to let them fail. If taxpayers don't foot the bill on the front end via a bailout, they will likely have to do so on the backend via a long term economic recession and asset devaluation.
so, you're saying that people that have nothing at all to do with AIG should have to pay for the company's stupidity with their money? here's what i say we do. we stop giving all those high level suit-and-tie managers millions of dollars a year with even more millions of dollar bonuses and let them bail their own damn selves out!!
Scoring a yes on this topic actually makes me want to puke. But, from my ill-educated vantage point, it looks as if the reprehensible thieves who run things are so embedded that shock removal, even violent removal, would crush the system itself. What's needed is Obama and the re-imposition of strong regulatory oversight to avoid this kind of greed fest in the future.
Sure, the system needs crushing. But I don't want to be crushed along with it.
presumably by "reprehensible thieves" you are referring to Chuck Shumer, Barney Frank, Barack Obama, the Congressional Black Caucus and Chris Dodd among others who fought tooth and nail to prevent the Bush administration from passing regulations a couple years ago to fix problems that led to exactly what we are suffering from now. And of course I would never suggest that it is anything but coincidence that these individuals are among the greatest recipients of bribes . . . I mean campaign contributions from the GSEs and ACORN. Why were Obama's cronies listed above so strongly AGAINST regulation when Greenspan warned about the GSEs and when the administration tried to do something about the coming crisis which has now come? Could it be because of the hundreds of thousands of dollars of campaign contributions they would lose? Why aren't Democrats throwing out the same invective they save for oil industry lobbyists when it is Democrat dirty money that is screwing the country now? What is needed is Obama? Regulation? Are you nuts!? Obama's hands are so dirty with ACORN money that is a joke. Regulation is what got us into the problem we are in now. Regulations in the CRA are what mandated sub prime lending. Fighting regulations by Frank, Dodd, Shumer and the CBC is what prevented restraint of the GSEs that led to our current issues.
In general, I disapprove of government bailouts to companies that overstretch themselves and get caught by the short 'n' curlies. But AIG is responsible for insuring a huge list of mutual funds and pension plans against failure and that's a long-term consequence that would make the Enron collapse look piddly. If AIG could not honor its obligations, the financial world would be in a lot worse shape.
Lehman Brothers was old, respected, and a pillar of the financial community. It was not part of the defensive structure that prevents a wholesale collapse similar to the events of 1929. The decision to let it die was hard for the investors and workers, but I applaud the decision there. If every firm on Wall Street felt they had a right to expect government bailouts, the risk-taking would expand drastically and the amount of taxpayer dollars poured into that particular black hole would be obscenely large.
Finally, I am glad that the government now has the ability (as part of the bailout) to toss AIG's senior management and replace with someone new. I only wish they'd made the same deal with Fannie Mae and Freddie Mac. I really do have a problem with Freddie Mac's CEO collecting bonuses and stock options worth multiple millions when his company tanked due to his risk strategy and leadership.
Side: Necessary in this case
First let's define some terms and concepts or else we can get bogged down in semantics all week here. None of these companies are "private" companies. I am sure the discussion would be different if we were talking about private or closely held companies like Mars, Danaher or Koch Industries. Second, Fannie and Freddie are a different discussion because they are uniquely chartered as quasi governmental entities (GSEs). Third, each of these actions, or bailouts, are different and were handled differently and for different reasons. The government has treated each case differently and so must we. Fourth, we are not now nor has the United States ever been a pure capitalist state. It isn't, It can't be and it shouldn't be. So all arguments on the basis of purity of theory (this means you Ayn Rand) sound good but aren't practical or truly germane. Pure capitalism and pure socialism should not be discussed in terms of relative morality. They are theoretical economic systems. History seems to dictate that neither can work, or even exist in a so called "pure" form. Both always, without fail run into human nature when applied to real life and reside outside the realm of the theoretical. If human nature was not a factor we would not need laws and regulations at all but in the presence of human nature, a HUGE monkey wrench is thrown into either theoretical system. So hopefully we all agree that SOME level of government regulation and system of laws is necessary. Classical economists such as Bentham and Mills, have turned into pseudo philosophers trying to quantify the effects of human nature on various economic theories. Once we agree to that, any argument for or against a new action solely on the argument of purity of the free market or purity of the respective economic theory is undermined IMO.
Hopefully we now all agree that there is a need for government imposition of will to SOME level in the free market economy which we embrace in this country. Next is to determine for what purposes the government should interfere. This is a constant tug of war. The period from the 1860s to the 1920s saw incredible accomplishments. The rail industry, Oil industry, steel industry all went from infancy to maturity in this short period largely because of nearly unfettered free market forces. But they were each built on a magnitude of human indignity and suffering that our society eventually deemed unacceptable. So, this leads me to an artifice I intend to add to the discussion. We now need to discuss to whose benefit an economy and thus economic system is "supposed" to operate. For this we need to bring in governmental systems to work in conjunction with an economic system. In a monarchy it is easy. Everything governmental or economic is for the benefit of the monarch and hopefully he cares for his subjects. In the United States, our founding documents declare that the government is of, for and by the people so it is pretty easy to decide that both our economic and governmental systems should be governed by what is best for the people. But the phrase "the people" is nebulous and the complexities of modern issues make it hard to get a majority, never mind unanimous consensus on what is best for the people. So I always think of society as an entity with its own rights. This stands in for the now out of favor term"most good for the most people". This helps me clarify situations where what is good for one part of "the people" is not good for another part of "the people". Concepts like greed or fairness or growth are best thought of in terms of whether their effect is good for society instead of good for "the rich, the poor, the educated, white collar, blue collar." For example, there is nothing inherently wrong with naked shorts. But they were abused to create great mischief. A theoretical free market demands open shorting, the real world demands limits, not because open shorting is inherently bad but because human nature will eventually corrupt the purity of the system. Up ticks, speculation, arbitrage, derivatives, all have the potential for abuse. Just the way any rule does. Can't plug every loophole. If we legislate without considering human nature, we waste our time.
Now finally we can begin to address the question at hand. Hopefully we all agree that government intervention is necessary at times in a free market economy because left to its own devices, human nature will twist the free market. When we agree that govt intervention is necessary it starts on a slippery slope that leads us this way: If the government has to act sometimes, it also has the responsibility to do so on the behalf of the people. If it bears that responsibility, it has to decide when it is proper and when not proper, to intercede. So that answers PART of the question. Yes if it deems it in the best interest of society (ie. the people) it has the responsibility to take action. It needs to weigh the good done against the costs and THEIR effect, etc. So yes, the government should act when it deems the contemplated action to be in the best interest of society.
Now let's go to the flip side of the coin. Those of us who whine and scream about our rights, are usually the last ones to acknowledge or fulfill our responsibilities. In this case, the government acknowledged their responsibility to act, but neglected that responsibility. In creating the community reinvestment act, it mandated sub prime loans. This was done out of the highest of motives, encouraging and enabling home ownership. That good motive of course fell prey to human nature and it turned into loopholes over the years. For many years an old Reagan treasury official has screamed about the abuses of these GSEs and no one listened. Several years ago a Bush appointed regulator raised an alarm about the way Freddie and Fannie were encouraging the risky loans through their loan packaging and standing behind loans with less and looser underwriting criteria and finally a few ears listened. This whole mess could not have come to its current state without the CRA and its high mind and purely good intentions, without the abuse of the quasi government agencies, and then, without the complicity of the government . . . because when a regulator blew the whistle, when the administration tried to get reform of Fannie and Freddie, a couple of highly placed and well regarded members of congress who just happen head the oversight committees watching over Freddie and Fannie. They also happen to lead lists of those who got preferential loans from Countrywide and they happen to be high on the list of those who received the most campaign contributions from Fannie and Freddy. So . . . I would say that the government has a RESPONSIBILITY to act in light of ts complicity in causing the problem. It had forewarning and refused to take action before this became a disaster. So now it owns the disaster. Eventually, someone has to realize that corporations are not Al Quaeda. They ARE Americans and America. The government does not put corporations over individuals. This country has the second highest corporate taxes in the world. Corporations don't pay those taxes. Their customers do. If we raise taxes on corporations, it is a cost like any other that gets passed on to the customers, individuals. Do you really fall for the nonsense that Obama can cut taxes on 95% of working Americans by raising taxes on the rich and on corporations? Do you believe taxing corporations doesn't end up as a tax on consumers by raising the cost of goods we purchase? Bailing out Freddy and Fanny were slam dunks. They were core to the infrastructure of this nation. The job is half done. They now need to totally reform the mission statement and oversight of these agencies. Fire some more execs like Franklin Raines so Obama can hire them as key advisors. I have no problem with this. Obama can learn more from Raines and the ex chief counsel on how to reform things than by outsiders. My problem is that if we accept this, why cant we accept that when Cheney is trying to work on energy policy, the first folks he talk to is oil companies. On both parties it just makes sense to go straight to the horse's mouth and we shouldn't be so cynical as to just assume the worst automatically. So I feel it was appropriate to save Freddie and Fannie. Now we need to reform it. I suggest:
1. it is quasi governmental. It has no business engaging in lobbying activities. They have spent $170M on lobbying in the last decade.
2. If Americans are going to assume risk on behalf of these companies, the they should share the benefits. Let the funds from the government be paid to the social security system and let the companies pay junk bond rates to the social security system so that it can pay us more than 1.5% interest on our social security money. This provides liquidity and bridge loans at near prevailing rates. It also lets us not get into the business of lending but merely lend when liquidity is dried up, not merely expensive.
3.We mostly agree expanding home ownership benefits everyone. I don't hear griping that we spend $175M a year to encourage home ownership without the Freddie Fannie bailout even though this subverts the purity of the free trade markets.
4. We should reexamine and modify the charter of these GSEs to maintain their mission while narrowing their options to accomplish the mission. There should not only be no incentives to be creative with funky new programs, they should be prohibited from helping the private sector be creative in this manner.
5. These giant lenders should be subject to capitalization and lending caps similar to normal banks.
I am sure there is more but that will start. If we don't go this route, then we should go all the way and adopt the Forbes plan to break these GSE's up into smaller units with no government linkage at all.
Now, finally for the Lehmans, Countrwides, AIG etc. I don't think any of us are sufficiently knowledgeable to determine which companies are, and which companies rent so intrinsically entwined in the economy as to be necessary to prevent disaster. I believe in what the Govt did for BAC in the Countrywide deal. They guaranteed a set amount of potential losses in order for one company to take over another when normally it might have just gone under with disastrous results. I am sort of on board for the AIG deal except again, I feel the people who are assuming the risk (you and I) should participate in the reward. We should put restrictions or mandates that serve the public interest and we should be paid back with interest. Let the social security fund hold junk bonds. Let the profits from those bonds be used either to pay social security payments or redeem bonds sold by the govt to fund social security. Either way we benefit from the risk we took.
Once again, the Bush administration has utterly failed us and we are left with no choice but to spend massive amounts of money to bail out his Wall Street friends.
Where was the SEC/Fed/other regulators during this entire lending frenzy? Where was the Republican Congress and this administration? Repealing the very regulation that would have prevented the kind of business from the securities firms that led to this debacle.
Very important point of business: if you don't have transparency, you have suspicion. What could possibly be more suspicious than these mortgage bonds?
I see no choice but to waste vast amounts of my money buying these stupid securities against my will now via what amounts to a hold up from the financial sector.
I demand accountability. These people should be banned from ever working in the securities or banking industry again. Federal bailout regulation should include provisions for this and repeal the bankruptcy law provisions regarding them so that the federal government can go after their homes, assets, and income. If I have to fork out a trillion dollars they darn sure should not be allowed to pocket billions in earnings that many of them made. That should all be a part of the federal legislation. Go after their money. If I have to forfeit mine, they should at least have to forfeit theirs.
Personally, I would prefer seeing them stripped to the same $150 in cash and a small home that the bankruptcy courts grant, then send them to camps for hard labor for the rest of their useless lives.
It is inexcusable that the Bush administration has waited until the last conceivable moment to deal with this, and then demands that Congress act in hours yesterday. Glad to see that they didn't do it.
This needs to be weighed carefully. This is like being asked to co-sign a mortgage. This is not small change and it is going to apparently take a major part of our national wealth to bail these freaks out.
I don't want to own their businesses, which is what happened so far. I want them regulated so tightly that this never happens again, and I want criminal prosecutions from here out.
The BUSH administration? What rock have you been under for the last 5 years? It was the Bush administration that attempted, under prodding from Alan Greenspan, to regulate Fannie and Freddie. It was the DEMOCRAT leadership in Congress, specifically Dodd, Frank, Waters and Shumer who shut down the administrations attempts to head off this mess. Obama has insisted he had a phone call with Bernanke about it but Republicans actually had hearings under Chris Shay and tried to fix the horrific abuses. They were shut down by Dems who were funded by the GSEs and ACORN.
Please explain exactly what regulation you think the administration repealed that caused this debacle? Because the truth is that Dems fought and stopped the administration from regulations correcting the issues that allowed Freddie, Fannie to lead us here. Tighter regulation? It is regulation that got us into this mess. What we need is GOOD regulation. Not tighter regulation.
Why are the mortgage backed securities suspicious? There was transparency. The investors could see the underlying loans and if they didn't, it was their own fault. I agree that it would be better if we adopted covered securities instead but there was nothing fundamentally wrong with the MBSs.
You demand? who cares what you demand? Did you vote for a Democrat member of Congress who voted against the administration led attempt to reign in Fannie and Freddie? Then you are to blame. In fact you are to blame anyway for trying to blame the admin for what congress caused. They mandated the sub prime loans in the CRA, they removed all risk from lending by having GSEs buy up the paper and now they have the audacity to tell us they are going to fix what they caused? And you sit here blaming everyone except the ones who did this to us? lol what a joke.
What is inexcusable is that you sit here blaming the Bush administration for acting at the last minute when they tried to act years ago and were thwarted by the Dems who were making money hand over fist for preserving the status quo.
"It was the Bush administration that attempted, under prodding from Alan Greenspan, to regulate Fannie and Freddie. It was the DEMOCRAT leadership in Congress, specifically Dodd, Frank, Waters and Shumer who shut down the administrations attempts to head off this mess."
Nonsense. The GOP was in complete control of BOTH Congress AND the White House for almost 6 years, and they didn't absolutely nothing to stop the problem. In fact, Greenspan was at the forefront of advocating for ARMs!
"'I made a mistake' admits Alan Greenspan"
"Please explain exactly what regulation you think the administration repealed that caused this debacle?"
"Tighter regulation? It is regulation that got us into this mess."
Once again, this is sheer nonsense. The GOP Congress repealed the Glass-Steagall Act, which was originally invented to prevent a "repeat of the 1920's era scams in which banks made speculative investments, turned the debts into securities, and sold them off to unsuspecting investors with the blessing of the bank." Sound familiar??
And guess what law repealed that Glass-Steagall Act? It was the Gramm-Leach-Bliley Act of 1999. Yes, that is the same Phil Gramm that said that we've become "a nation of whiners", and the same Phil Gramm whose legislation led to the Enron scandal.
What else did Gramm do you ask??
"100 Year Crash: McCain advisor spurred $62 trillion derivatives market that will swamp global markets"
"Why are the mortgage backed securities suspicious? There was transparency."
No there wasn't, period.
"They mandated the sub prime loans in the CRA"
No, they really didn't.
"Private sector loans, not Fannie or Freddie, triggered crisis"
"the CRA Didn't Cause the Housing Bubble"
Side: Necessary in this case
Never. You let the market correct itself. The Government should never interfere in the free-market unless it invades other people's rights and only to lower taxes/deregulate.
We never would have these bailouts if the Federal Reserve wouldn't give these line of credits away. What's interesting to me, and people don't seem to talk about, analysts anyway, the Price Purchasing Power of the U.S. Dollars now. It amazes me that all the Stock Market Channels like CNBC or FBN never disclose how much our dollar is really worth. We can bet our bottom dollar, literally to, that our dollar will be worthless by Christmas (not that it's worth something these days).
So the Federal Reserve, this year alone, has printed half a trillion dollars to bailout companies. That bailout money is not through taxpayer money, earmarks, etc. it's through creating money out of thin air.
If these companies fail it would be devastating at first but time would eventually pass and, again, the market would correct itself. I agree with Peter Schiff when he said that we need a hard-line recession to people get a grasp of what is going on: "People need to spend less, save more and produce more."
This is just the beginning of the economic storm. Just think about our national debt now and our monthly budget. We're not even through September and look at what we have to spend: $85 Billion AIG, $225 Billion War on Terrorism, $10 Billion to Georgia, $10 Billion to Texas (I think that's correct) and we are going to have a new war going on with Pakistan (As Obama has promised and guaranteed us).
Do people even know where taxes go to anyway? Our income tax goes to pay off the interest that the Federal Reserve charges to print the money for the United States Government.
Oh crap! I even forgot about the $2 billion per day we borrow from China, Japan and Saudi Arabia. Yeesh!
"Never. You let the market correct itself. The Government should never interfere in the free-market unless it invades other people's rights and only to lower taxes/deregulate."
MY TAKE: What free market are you talking about? Because the one we're in today has never been free.
"We never would have these bailouts if the Federal Reserve wouldn't give these line of credits away. What's interesting to me, and people don't seem to talk about, analysts anyway, the Price Purchasing Power of the U.S. Dollars now. It amazes me that all the Stock Market Channels like CNBC or FBN never disclose how much our dollar is really worth. We can bet our bottom dollar, literally to, that our dollar will be worthless by Christmas (not that it's worth something these days)."
MY TAKE: Have you seen the dollars rally lately? All indications point to a strengthening dollar, not a weakening one. You see, the whole world is behind the US about a year (when it comes to the market) So we've been slowing for a year, but now so is europe, china, japan, etc... This is slamming the value of their currency and increasing the value of the dollar.
"So the Federal Reserve, this year alone, has printed half a trillion dollars to bailout companies. That bailout money is not through taxpayer money, earmarks, etc. it's through creating money out of thin air."
MT TAKE: The Fed didn't create money out of thin air. they had a huge nearly trillion dollar bank account. and they are using it to LOAN not CREATE money. In essence, they are adding no liquidity, meaning the funds are sterilized against any inflationary pressures. Just read up a little bit more about it and you'll see for yourself.
"If these companies fail it would be devastating at first but time would eventually pass and, again, the market would correct itself. I agree with Peter Schiff when he said that we need a hard-line recession to people get a grasp of what is going on: "People need to spend less, save more and produce more."
I agree, we do need a recession, but we don't need another Great Depression. But Peter Schiff also thinks we don't need any market regulation either. Last time i checked, we're in this mess because the Fed never regulated banks lending practices properly. And in fact, this whole mess is due to less regulation in the financial industry over the course of the past 20 years (think graham,leech act).
"This is just the beginning of the economic storm. Just think about our national debt now and our monthly budget. We're not even through September and look at what we have to spend: $85 Billion AIG, $225 Billion War on Terrorism, $10 Billion to Georgia, $10 Billion to Texas (I think that's correct) and we are going to have a new war going on with Pakistan (As Obama has promised and guaranteed us)."
MY TAKE: That $85 billion to AIG will be paid back.. at an 11% interest rate. It seems to me the government is making out like a bandit. And should AIG stock move higher, the government can sell their 79% stake and make even more money.
In the end i understand the need for what's happening today. I don't completely agree with the way the Fed has done it. But i think the repercussions (a worldwide depression that could start huge wars as foreign economies US debt all becomes worthless at once) if we don't do it are far worse.
I also happen to think that the government will end up profiting from most of these bailouts. They aren't just handing out free money. they are all on loans, and for the most part, the fed is buying assets at ridiculously low prices. these are assets that - although they won't do well - should mature at a higher value then what the fed paid to acquire them.
YOUR TAKE: What free market are you talking about? Because the one we're in today has never been free.
My take: It is not free because of ridiculous government regulations.
YOUR TAKE: Have you seen the dollars rally lately? All indications point to a strengthening dollar, not a weakening one. You see, the whole world is behind the US about a year (when it comes to the market) So we've been slowing for a year, but now so is europe, china, japan, etc... This is slamming the value of their currency and increasing the value of the dollar.
My take: Strong? umm Look at god VS. Dollar today and 10 years ago, and the rate of gold going up. FAIL!
YOUR TAKE: The Fed didn't create money out of thin air. they had a huge nearly trillion dollar bank account. and they are using it to LOAN not CREATE money. In essence, they are adding no liquidity, meaning the funds are sterilized against any inflationary pressures. Just read up a little bit more about it and you'll see for yourself.
My take: There would be nothing for us to loan if that loan wasn't out of thin air. So what money again? And who's bank account? And how does that trillion dollar become trillion dollar again? Money is never a definite value of what you have. Resource is.
YOUR TAKE: I agree, we do need a recession, but we don't need another Great Depression. But Peter Schiff also thinks we don't need any market regulation either. Last time i checked, we're in this mess because the Fed never regulated banks lending practices properly. And in fact, this whole mess is due to less regulation in the financial industry over the course of the past 20 years (think graham,leech act).
My take: Because of regulations made American STUPID! People should educate themselves with all big decisions, NOT BUYING 900K $ houses when you're fucking 19, and I've seen it.
YOUR TAKE: That $85 billion to AIG will be paid back.. at an 11% interest rate. It seems to me the government is making out like a bandit. And should AIG stock move higher, the government can sell their 79% stake and make even more money.
My take: AIG is a fail business. Done! Why bail, they suck. When people learn not to go for certain company for certain reputation, they will know to be much more careful with every decisions they made and not fuck it up. Again, why do we have to pay for someone else's mistakes.
YOUR CONCLUSION: In the end i understand the need for what's happening today. I don't completely agree with the way the Fed has done it. But i think the repercussions (a worldwide depression that could start huge wars as foreign economies US debt all becomes worthless at once) if we don't do it are far worse.
I also happen to think that the government will end up profiting from most of these bailouts. They aren't just handing out free money. they are all on loans, and for the most part, the fed is buying assets at ridiculously low prices. these are assets that - although they won't do well - should mature at a higher value then what the fed paid to acquire them.
My conclusion: The only thing I don't agree with your conclusion is that we owe it to the government when the government made bad decisions by lending money to companies that made bad decisions by paying CEO and employees way more than they should to fuck it up.
Isn't it bad enough that Al Gore wants to tax energy until we can no longer afford it to force us to conserve. Now you want a repeat of a depression which took us twenty years and a world war to recover from?
And while you are figuring your doomsday budget, add in $25B to Detroit. Meanwhile I haven't seen you complaining for the last decade about spending $175B annually to promote home ownership. I didn't see you complaining when the Bush administration led a movement for reform of GSE oversight which was squashed by a Dodd/Frank led torpedo job two years before this mess came to national attention. All of the problems are caused by a liquidity crunch and the US govt is the least constrained player in the game. They are buying time, yes at risk to themselves, but not indiscriminately and not without a reasonable expectation that time is all needed to out last the liquidity troubles. Debt markets have to adjust, media sky is falling pronouncements have to stop spooking everyone and everyone just needs to hold on by their fingernails until the worst is past. This is not without risk but it is reasonable. In my opinion of course, as always
"Isn't it bad enough that Al Gore wants to tax energy until we can no longer afford it to force us to conserve."
That's not what the goal is at all.
"I didn't see you complaining when the Bush administration led a movement for reform of GSE oversight which was squashed by a Dodd/Frank led torpedo job two years before this mess came to national attention."
Wrong again, the GOP had complete control of BOTH the White House AND Congress for almost 6 years, and they failed to do anything. In fact, their buddy Alan Greenspan encouraged ARMs very heavily!
The problem with this country is that we are hypocritical. We hold the world to a higher standard. Letting a private company fail shows we eat our own dog food, we follow what we preach. Bailing out a private company makes us (dare I say it) Socialist! And I don't want to be a Socialist. I'm barely social. With CD, I wouldn't be social at all ;)
In bailing out banks the claim is that a financial disaster will be prevented. This isn't true. The debt held by these banks has to go somewhere, it doesn't just disappear. The choice was that either a terrible economic disaster happens now, or that that disaster is put off, multiplied, and left to grow.
Letting AIG go bankrupt would, of course,have caused a massive collapse, a 'tsunami.' Yes, this would suck. It would have been very damaging. But now the US government owns AIG's debt.... and Fannie and Freddie's debt... and A LOT more debt besides. What the Fed effectively is doing is bankrupting the US Government instead of the Banks! The effect of the US govt. declaring bankruptcy would be huge in comparison to AIG or anyone else's collapse.
The buck has been passed. A coming disaster has NOT been averted. The US has stepped out of the way of an oncoming car into the path of a Locomotive. The world can deal with the failure of the banking system. The pieces can be picked up, and eventually within perhaps 20 to 30 years the world can move on. But if the US collapses who knows? The most powerful country in the world with the biggest army and one of the biggest populations... collapsing? Who knows what havoc this might create. Forget about a 20 to 30 year recovery - the world, and the US, would never be the same.
There are a lot of fallacies in your post. First, you don't know the bailout will create a disaster down the road any more than I know for sure it will prevent one. The AIG transaction specifically was set up as a bridge loan. The huge problem right now is a constipation in the credit colon. Liquidity is essentially non existent. If the bailouts buy time and the liquidity crisis eases, everything is fine.
We did not take on AIG debt as I understand it. We provided a bridge loan and were securitized by 80% of the company's equity. This was done to provide time to avoid/delay bankruptcy and/or allow an organized sale of some or all of the assets of the firm. The AIG deal as I understand it is not a federal assumption or guarantee of debt.
The US has much more liquidity than these companies. While it is fashionable and flamboyant and perhaps effective to make dire predictions of the impending bankruptcy of the federal govt, it is just a lot of sizzle with no steak. As Alexander Hamilton predicted, a responsible debt is a national treasure. We can talk forever about what constitutes "responsible".
The world has survived the collapse of dinosaurs, Babylon, Alexander the Great's Hellenistic empire, Rome, the British Empire, Genghis Khan's empire, the Ice Age (the movie AND the event) is surviving AL Gore's Global Warning scam and more. It will survive this.
let me count the ways in which you are wrong...
First, the fed banks an 11% interest on that short-term AIG loan. PLus they own 79% of aig shares at a dirt cheap price. AIG will sell some assets, pay the Fed back, and then their share price will move higher.
The Fed sells their shares of AIG and make out huge.
This disaster you speak of, you have no idea just how bad it could be. It's easy for most people to say we need the disaster because they never went through the Great Depression. Ask anyone alive in those days if the world should ever see a time like that again and you'll get a resounding "no".
The US government will notgo bankrupt. you can count on that. And in five to ten years, when you look back you'll notice that tax payers may have even made money from these events.
I don't mean to take offense to those on the other side of this debate but the notion that anyone would, with a straight face, advocate spending taxpayer dollars on a private company is so offensive to me it's just unconscionable. So in a sense what your saying is that we should privatize profits while socializing losses. Is that how I am to understand the opposition on this issue.
I don't think any of the ceos or chiefs of the company's taken over should have any benefit.
But i think the consequence of not doing some of these bailouts is far far worse than anyone can imagine.
And in fact, would be worse to the taxpayer should they opt for the route you suggest.
What would you rather see.. some greedy guys make out ok. or another great depression? Think about how a depression would impact you, and the people you love.
And then tell me what would have been better.
"but the notion that anyone would, with a straight face, advocate spending taxpayer dollars on a private company is so offensive to me it's just unconscionable."
So, when should we stop giving hundreds & hundreds of billions of dollars annually to the "defense" industry?? ;)
One of the big laughs that I got when the original TARP stuff was being debated was my Congressman's accusation that "it wasn't paid for". After I pointed out to him that Congress had just passed a ONE YEAR budget appropriation of over $600 Billion on "defense", which wasn't paid for at all, he changed his mind. Some of the TARP money has already been paid back, with interest.
Of course not. These companies knew what they were doing, especially the lending agencies. They give people loans they know they'll have to foreclose on, just to increase their market value. CEOs and large stock holders make quick huge prophets while people (who were dumb and naive to take out a loan they really couldn't pay but were in large part tricked into taking out) lose their homes. Then when the bubble pops, they go asking government for a handout. You know what's going to happen when they're bailed out? In five to ten years they'll do the same thing again and we'll all have forgotten what happened last time. Problem is, the CEO's aren't held responsible, they still get their paychecks and bonuses. There's no responsibility accept what's passed to tax payers. It's disturbing, unfair, and yes Borme is right, the worst kind of socialism. (as apposed to the good kind like universal healthcare)
all the companies put under conservatorship saw their ceo's kicked out.
also, the ceos for freddie and fannie were even denied their "exit" package.
It's the ceos fault as much as the governments for not properly regulating. thus this is a failure of not just private industry, but the government as well.
Also, the stockholders lose their ass. it's the bondholders (you know, foreign government, pension funds across the us, etc..) that get saved.
Now imagine if every pension fund in america suddenly took a huge hit, and people weren't able to access their retirements again? what kind of mess would that cause?
Just to clarify, i think these ceo's should go to jail. that's how upset i am with them. and i am also upset that this is what has to happen. But i dont want to see a great depression. i dont want to see how it would destroy familes and lives. i dont want to see how badly the world would be screwed if it happened.
it's easy to say we shouldn't do this, but to deal with the great depression instead is far, far worse.
what do you want them to go to jail for? The games played, like mark to market tricks and related bookkeeping aren't illegal. Shorting and speculating isn't illegal. Responding to greedy people too stupid to know if it smells too good to be true it probably isn't or that there is no way to buy a house you cant afford without it biting you in the butt eventually isn't illegal. Stupidity is endemic. We cant legislate against it and can't afford to protect people from it.
Unless you are ready to jail people for being too stupid to be allowed to breed, how do you jail CEOs for taking advantage of stupidity within the law? Outlaw intelligence to even the playing field? I think Heinlein wrote a short story about that. What's next? Jailing credit card issuers because they should tell people not to use the credit cards? Home builders for not telling potential buyers they can't afford their houses? Should WalMart run a credit report to see if you can afford that DVD before selling it to you? At some point people just plain need to take responsibility for their own actions.
The loans people now say are so bad are PERFECT for me and I use them totally responsibly. I make my money in large chunks, similarly to a salesman on commission, not regularly. I bought a condo and did a no doc, interest only loan. I have two years left until the rate adjusts and have already reduced the principle by 25% and I put down 25%. Just the nature of my cash flow. Now that loan won't be available to me because some idiots misused it. There is nothing wrong with the loans when used appropriately. It will likely adjust upwards, The property has been rented out since I bought it. and by the time it rents upwards after 5 years, I will likely have paid it down by a third. Even with depreciation of value, it will be a safe, conservative loan. I understood what I was signing. I listened to the part about the downside, not just how it would let me buy the house I knew damn well I couldn't afford. I am not saying that some mortgage agents didn't push products to customers they shouldn't have. But I don't believe that any buyer/borrower didn't know when they were taking a risk to buy something they couldn't afford.
No. We should let the market correct itself. I know that the "Old Money" of our country is facing a new era. They will have to find a job. What a concept. We the people, taxpayers and the people who live the life of the great United States of America don't need to bear the weight of the elite. The high society of America doesn't even regard the common american as a even partner. That is, until we allow the Democratic Congress to spend our money to save their isolated lives. Give it up. Become American. That means sacrifice. We are Americans. All for one and one for all. Let the Wall Street companies and the failed banks drop like a rock. We will clean up. We will rebuild. On our terms. Call your congressional representatives and senator to let them know that Wall Street is on their own. No Bail Out.
Side: Tell Congress NO to Bail Out
Why should we reward inefficiency, blatant thievery, and exploitation?
Companies are supposed to ADAPT to changing situations, if the demand is no longer there then they should change tactics, I see no debate in this.
Giving the money only delays the inevitable, it doesn't fix anything! It just STEALS taxpayer money in order to maintain already too lavish executive lifestyles.
I think we began to see socialism creep into our country when we saw our "little league sports" go to NOBODY loses and EVERYBODY is a winner; What a shame!
There should be winners and losers based on how well one prepares and executes. This holds true whether it is little league sports team or a company. Having everyone get rewards whether they properly prepare and execute OR NOT just kills productivity and the incentive to DO BETTER.
Tell me what is wrong with having LOSERS?
Let's go back to letting people and companies being REWARDED or PERSECUTED based on PERFORMANCE!
Side: Tell Congress NO to Bail Out
We are a country founded on democratic principles where our Representatives are elected by the people to represent the people. Our representatives voted to NOT bail out the automakers and now our President, who has spent our money like a drunken sailor, is going to cough up some of our money from somewhere to bail out the automakers. What kind of democracy is this?
When Obama and Obiden take office it is going to get even worse. What do we have to do to get this country back to a democracy and stop this slide into socialism?
What will be next: Seizure of ALL retirement assets from us to bail out more of the failing companies?
How can we convince other countries like Iraq and Afghanistan to become a democracy when we are a democracy heading for socialism? Already, many of our children do not want to work. They just want to "hang out" and have fun at someone else's expense.
I am tired of our government spending my money for these failing companies. Let them fail, we will survive if the people can get control of the country once again!
I agree with you 100%. I just have to correct you on one thing. The U.S. is not a democracy. We are a Democratic Republic. I have looked up what the difference is about both of them. Both seem to really kind of be the same. But, I do know that it is what was coined when this Government was established.
Of course not, and here's why:
Only big companies that should be strong and smart enough to sustain themselves are important enough to be bailed out, which makes it OK to irresponsibly run your company into the ground, knowing that the government will come help you when you really need it.
The little companies that are constantly starting and failing never get a bailout, and the big companies do. How will small companies eventually rise to greatness if there is no chance that a large company will ever fail? The opportunities that small companies have to grow, large companies becoming weak, will become few and far between if the large companies are protected like this.
Bailing out private companies are like getting Rob by US (retarded) government and give it to groups of people that lives on people's back of 0 productivity. If they fail, then they have bad business management. Why should citizen suffer the failure of companies that CEOs of these companies are making bank. Why should be spoil the people who got the idea of buying houses and you can live for free. Why should we stop giant money hungry company from getting the slap in the face when they made bad investment move. DO YOU PEOPLE WANTS TO PAY HIGHER ELECTRIC BILL WHEN DWP FAIL TO MANAGE AND HAD TO JACK UP THE BILL TO COVER THEIR MISTAKES? If people will be out of job, maybe they need to be creative about business. Maybe we need to open Alaska for rent. Maybe we all need to learn how to make our product more attractive for exports.
no, the only problem is the government butt rapes CEOs already with extreme taxing (and wealth redistribution) that right now it's only fair (and probably not even enough) that corporations can get bail outs.
but i believe in a truly capitalist society where the government stops ass raping everyone with taxes and "ZOMG, WE GOTS TO HELP THE POOR GUYS".
Side: Free Market