Socialism, American-style.

[Space Tycoon]

Socialism, American-style: critics say bailout amounts to Wall Street welfare (http://finance.sympatico.msn.ca/investing/stocks/article.aspx?cp-documentid=10620615)


Lee-Anne Goodman, THE CANADIAN PRESS
September 23, 2008

WASHINGTON - Newt Gingrich is usually the kind of loyal party henchman the Republican party can depend upon to toe the party line.

And so his scathing interview with National Public Radio illustrated just how squeamish Americans, even diehard partisans, are feeling about the U.S. government's proposal of a US$700 billion bailout to the country's failing banks and financial firms.

"You have a Goldman Sachs chief of staff to the president and the Goldman Sachs secretary of the Treasury," said Gingrich, former Speaker of the House of Representatives, referring to Joshua Bolten and Henry Paulson, respectively.

"And they convinced the president that the American people ought to send $700 billion to Wall Street - which I think is a very, very bad idea and I would argue is a very un-Republican idea. I don't understand what they think they're doing," Gingrich said in the interview this week.

Some of his Republican colleagues are equally dismayed.

"This massive bailout is not a solution," Senator Jim Bunning of Kentucky told Tuesday's Senate banking committee hearings into the proposed bailout. "It is financial socialism and it's un-American."

(continued)










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[RedKarma]

Aren't these the same jokers a few years ago who wanted us all to invest our retirement accounts/social security in the stockmarket? Yeah, everyone jumped on board with that idea. :lol:

I wouldn't call this socialism. I'd call this a plutocracy doing one last smash & grab before November.

[Space Tycoon]

I would call it corporate socialism. It's no different from handing out money to people who can't be bothered to produce anything for society in return; or subsidizing losing enterprises that cannot achieve results in a free market.

The only difference is in scale.








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[Daltons Chin Dimple]

Yeah, but what are you gonna do. Like it or not, the entire Western economy (and huge swathes of the East) depends on what happens next. The US has already lost it's place as superpower of world finance and the next evolution of globalisation is going to be multi-polar in nature. However if it is allowed to completely slide then enjoy the 2nd Great Depression, 'cause it will be all you will be left with, and this one will be global in nature.

[tstone]

Like it or not, the government plays a role in all this, Space. That's the way it is, and there's isn't a successful free market economy out there that doesn't have the government playing a sigificant role.

But then, it's that much more important to ensure the role is a good one, and that the economy serves the whole, rather than wealthy elites.

[Kaeos]

Interesting note. My father in law is a History professor and a moderate Republican, he's been researching recent claims from various sites that historically the economy in America has done better under Democratic Presidents than it has under Republican ones.

He told us yesterday that despite his efforts to prove that claim wrong, he's finding it's right. Apparently when you examine the data, it shows that since 1948 in the years where there were Republican administrations vs Democratic ones, there were consistantly lower economic indicators. He pointed to one particular study done by a former Vice-Chairman of the Federal Reserve who is now an Economics Professor at Princeton who sited that the growth of gross national product under Democrats has been better than Republicans. The one exception in last 60 years has been Carter.

[tstone]

The country does better...when the country does better. And that's a fact. Not when only the elites do better. Tons of countries out there with rich elites and everyone else sucking. These tend to be unstable and rightly so.

Current Republican thought seems to be of this sort. But that's what laisez faire tends to create.

[neglet]

I would call it corporate socialism. It's no different from handing out money to people who can't be bothered to produce anything for society in return; or subsidizing losing enterprises that cannot achieve results in a free market. The only difference is in scale.

I'm not sure this is really an accurate statement. This "so-called" bailout isn't giving away free money to financial companies. I'm not sure if I can explain it as clearly as my husband does (he explained it to my dad very well at dinner last weekend), but I'll give it a try.

The financial crisis we're experiencing isn't so much a problem of companies losing money as it is them losing liquidity. At heart, it started with the risky subprime mortgages, the way they were bundled and sold as funds, and how the financial markets gave them triple-A ratings because they were backed by healthy companies. Then came the bust of the housing bubble and the increase in defaults. This caused a chain reaction:

1. People began defaulting on the mortgages
2. The subprime bonds began losing value
3. Companies had to write down the value of these bonds on their balance sheets, and had to make it up by taking cash from other divisions
4. Investors/other companies began losing confidence in the health of the affected financial companies, and stopped investing/lending credit
5. Which means the affected companies have even less liquidity, which leads to less confidence, less credit, and so on and so on and so on

So bailing out AIG, for example, wasn't because the company wasn't making any money. Their insurance divisions are very healthy and profitable. But their heavy participation in subprime markets meant that the amount of cash they had to cover their responsibilities was greatly reduced, leading to a lack of liquidity and the credit spiral. The government bailout wasn't free for them; the government now has 80% control of the company (much of which is healthy) by buying shares at pennies on the dollar. AIG will have to share the profit when they become healthy again, and they'll be paying a premium to buy back shares of the company.

Similarly, this new bailout does not mean financial companies are getting free money. They've lost share value, and it's by no means unlikely that the "bad debt" the government is investing in won't actually make a profit, once the markets regain confidence. The government is paying money and assuming the risk of much of these subprime funds--which does stick in the craw, because it feels like the companies who got into this mess should get themselves out. But they're at the point where they can't get out of the mess--and maybe it's the government's fault, because of the lack of regulation in the first place--and if we let them fail, no one anywhere will get credit, because people will be too afraid of risk, and that will really stall the economy.

So I'm not sure this is really socialism, so much as the government becoming a big insurance company for the financial sector.

[Woodwraith]

If the government is paying 700 billion dollars, just where is it getting the funds? Aren't we 1 trillion dollars in debt already? I smell a tax increase. :ohwell:



-Yeah, except for balancing my check book, economics was not my best subject in school.

[MPG]

Interesting note. My father in law is a History professor and a moderate Republican, he's been researching recent claims from various sites that historically the economy in America has done better under Democratic Presidents than it has under Republican ones.

He told us yesterday that despite his efforts to prove that claim wrong, he's finding it's right. Apparently when you examine the data, it shows that since 1948 in the years where there were Republican administrations vs Democratic ones, there were consistantly lower economic indicators.
I strongly hope that he and anyone else who has done this kind of study shifted the data by about 2-4 years, because that's about how long the economy needs to really react to any kind of policy change. There are no "quick fixes" in the economy, and any policy needs some time before it passes Congress anyway. In most cases, any administration will reap the benefits of the last administration or pick up the pieces, respectively.

[Kaeos]

The financial crisis we're experiencing isn't so much a problem of companies losing money as it is them losing liquidity. At heart, it started with the risky subprime mortgages, the way they were bundled and sold as funds, and how the financial markets gave them triple-A ratings because they were backed by healthy companies. Then came the bust of the housing bubble and the increase in defaults. This caused a chain reaction:

1. People began defaulting on the mortgages
2. The subprime bonds began losing value
3. Companies had to write down the value of these bonds on their balance sheets, and had to make it up by taking cash from other divisions
4. Investors/other companies began losing confidence in the health of the affected financial companies, and stopped investing/lending credit
5. Which means the affected companies have even less liquidity, which leads to less confidence, less credit, and so on and so on and so on

Correct. Correct. Correct.

Whats bothering me about the plan as I am hearing it now is, when the first proposal hit they were talking about simply "buying" the loan portfolios, buying up those bonds at a discounted price. That would alleviate much of the liquidity issue.

Now the whole thing seems centered on simply opening up more money for the same corporations for the purpose of lending more money to comsumers? What am I missing here? Why are we even talking about avoiding giving executives golden parachutes? Where did the focus of this change?

It's about the bad loans and the bad debt. It doesn't make sense to simply inject more cash into the system. That's only going to cause more bad debt to be created and raise inflation.

[Space Tycoon]

It's about the bad loans and the bad debt. It doesn't make sense to simply inject more cash into the system. That's only going to cause more bad debt to be created and raise inflation.

Yeah, well, that is exactly what I feared and the reason I started this thread.

This is welfare for the rich. No accountability, no-one takes the fall. The working poor and the middle class will pay, as always, for the failures of the elites.





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[tstone]

Well, it's being severely challenged. So if it does go forward, it will be in such a way, hopefully, that it works to protect the people's wealth and serve the nation, rather than the fatcats.

It's about fucking time.

[whitetemplar78]

I was gonna start something very simlar to this myself, but asking a more basic question, is this the right thing to do??? Im not even gonna began acting like I understand alot of this mess, but I do know enough that right now, our country along with a large chunk of the western world face a bad depression. So is this the answer? Is this really the only choice that we face on this issue?....or is there another way that can help fix this fuck up that a bunch of greedy morons caused?

[RedKarma]

If the government is paying 700 billion dollars, just where is it getting the funds? Aren't we 1 trillion dollars in debt already?




Latest I heard we were $13 Trillion in debt.

[rappites]

If they took the 700 bil and equally handed it out to each tax payer that would be about $250K a piece.

That would pay off our house and debt. All that money would go back to the banks and then we could do repairs to our house that are needed. So, consumer spending would go up. So, everyone's credit would be wiped clean. Anyone with 60 days or more that is currently past due on credit cards will have to have a proven record of paying them on time after they pay off their debt.

[sickness]

$700B / 300M == $2333.33, not anywhere near 250k.

[MPG]

$700B / 300M == $2333.33, not anywhere near 250k.
You are nearly correct, but I have to nitpick: There are only about 100M tax payers in the US, so I guess we end up with $7000.

[sickness]

Yeah. But Wall Street fucked over all Americans equally and for at least a generation. Many of those other 200M will become tax payers by the time this all levels out if politicians and the people haven't forgotten about it within 4 years and all the out-of-control deficit spending resumes.

[WISEGUY562]

I'm glad it didn't pass.
I hope it doesn't pass when they put it up again.

This crisis isn't just the fault of these companies, I know at least 2 people that took advantage of the low requirements to buy a house and basically were just betting on refinancing or flipping the house later on. Now they're in deep trouble for taking these adjustable mortgages. That was a huge reason for all this, too many people getting in over their heads. Nobody forced them to take these loans and if you didn't understand what you were signing then you shouldn't have

If it's up to me I say we just take our medicine.
How many times do we hear alarms about something that's going to bring down the world. Most of the time is hyperbole from the same people that'll probably benefit from all this.
Banks will make loans again because that's how they make money. This time they'll be more discriminating.
We will make it through this.
No bail out.

[Kaeos]

700 point drop in the stock market today with the bil being defeated. Single largest 1 day drop in history. This is teetering on Depression territory now.

I sincerely hope this is all hysteria for nothing and it corrects quickly. Because if the administration isn't lying about how bad it is. If this really is happening and Congress just shot down the fix. We're fucked.

Good luck America. I'll be away from the board most of this week. Hope we're all here when I get back, lol

[WISEGUY562]

It's the biggest point drop but not the biggest percentage drop, which is the way it should be measured.
And it's no where near the 22% of 1987 and guess what? we're still here. We didn't implode, didn't go back to been savages. Let the hysteria die down and we'll work our way out of this ordeal.
Don't buy all doomsayers theories. It's all hyperbole.

[Daltons Chin Dimple]

Also, this time there are a lot of speculators waiting in the wings ready to pounce which will help turn things around. I myself am quietly looking forward to buying AIG for the price of a cheeseburger and fries, and remembering what property prices fly like in an upswing, I may fill my boots and pick up a couple of buy-to-let properties on the cheap.

[tstone]

Same here. I'm looking into buying into two more funds as well as a property or two.

I LOVE dollar cost averaging...

[sickness]

I'm glad it didn't pass.
I hope it doesn't pass when they put it up again.

This crisis isn't just the fault of these companies, I know at least 2 people that took advantage of the low requirements to buy a house and basically were just betting on refinancing or flipping the house later on. Now they're in deep trouble for taking these adjustable mortgages. That was a huge reason for all this, too many people getting in over their heads. Nobody forced them to take these loans and if you didn't understand what you were signing then you shouldn't have

If it's up to me I say we just take our medicine.
How many times do we hear alarms about something that's going to bring down the world. Most of the time is hyperbole from the same people that'll probably benefit from all this.
Banks will make loans again because that's how they make money. This time they'll be more discriminating.
We will make it through this.
No bail out.
So what about us responsible Americans who bought property during this time? We saved, we put money down and we swallowed the bitter pill that was skyrocketing property because there wasn't much choice.

Now all those people who had no business in the market get to walk away basically scott-free (they didn't have good credit to begin with and some lenders are even bribing them not to trash foreclosures on the way out). The management of these companies who ignored their risk management divisions will get out by and large without ever having to worry about a single criminal charge or their own financial solvency. The people who made money on mortgage securities and the stock value of these lenders while they were up won't lose that money. They all saw this coming and turned a blind eye t it anyway.

Meanwhile, good, responsible Americans will be forced to stay in their houses, unable to sell for at least 5-7 years, perhaps 10 or more, as it climbs back to the value of their mortgage. If we were talking about a 10% drop, I'd say we take our medicine. We deserve it. That's the uncertainty of property value.

So far in the 16 months since I bought my condo, sales values in the complex have dropped from $450-480k down to a sale in July of $354k with a current listing of $329k on another unit.

The bailout that failed gave welfare to irresponsible corporations. It allowed people who knowingly got themselves into an ARM or a high-rate loan to renegotiate their rate to lower their payment. It propped up hemorrhaging corporations who are the fat in need of a trim. It left the rest of us with mortgages that clearly overstate the value of our homes because we had no choice but to get into the market.

So, am I just supposed to take my medicine?

[neglet]

I think Congressional leaders and the Bush administration have done a piss-poor job explaining 1) what has happened; 2) what could happen if we get a spiral, and 3) what the bail-out (which they should have called a "loan," if they really wanted to sell it to the American people) could do. Instead, they're doing the usual, trying to scare us into going along without getting into details.

As to point number one, we all know about the subprime loans and the bad debt, but I'm not sure everyone understands that because of it, there's less credit available even to people and business needing it for projects/purchases that aren't so risky.

As to number two, the spiral isn't just affecting Wall Street. Let's say that house down the street gets foreclosed on. Without reasonable credit, who's going to buy that house? Now it's requiring a much higher down payment, a higher interest rate ... and bank needs to recover something, so they drop the price. That drops prices in your neighborhood. Now your house (and those of your neighbors) loses value. Property values fall, as do property tax revenues, and your community has to either raise taxes or cut services. That makes property values drop, and so on, and so on.

So your house is worth less, and credit card companies are cutting your limits, so you have less credit available if you have an emergency. Maybe you get laid off, but you can't find a new job because that small business that was going to expand can't offer you a job, because they can't get the credit to open the expansion.

Now, there can be some good to this downturn, as some of you point out. Bursting the housing bubble means housing becomes more affordable--but that only helps if you can manage to get the credit to purchase, which now is much much harder. Certainly this crisis is going to get people (and businesses) to learn to live more closely within their means, which should be a good thing. But I think that's going to happen now anyway, even if we fix the credit crunch with a loan/bailout. The days of extravagance are over (until the next boom cycle).

In the meantime, how bad are we willing to let things get? Supposedly the stock market lost more value yesterday than what we proposed to spend in the bailout. And that leads to point 3, which I think Bush tried to address in his speech this morning. This proposal should be sold as a loan, not a bailout. It's an investment, not a giveaway. The government buys $700B of "bad debt," some of which could increase in value once the panic stops and we sell it. Some in Congress have proposed controls over the loan, which would force financial companies to contribute to the cost through fees. I'm not sure what I think of that, but something needs to be done. We let too many people tell us (that means everyone, from Wall Street to average consumers) we could have money for nothing (and chicks for free?), and we believed it. Now the chickens are coming home to roost, and if we don't deal with it we'll all be covered in chicken shit.

[Jakester]

Until this latest crisis, hasn't Bush been telling us that the economy was strong? Now he's telling us it's in terrible shape. Why'd he let it go from "strong" to "disaster" in a matter of days?

[WISEGUY562]

.

So, am I just supposed to take my medicine?

Sickness.
with all due respect.
I think we should all take our medicine.
If you bought your condo as an investment, which is what it sounds like, then you should've been aware of the risks. These are the same risks these co.s took and why I say let them suffer the consequences. That is part of investing, I know I lost plenty in the stock market in the past.

Now my house I didn't buy it as an investment, although it is an investment, but I bought it cause I liked it and I knew I could afford it. So I don't care what its true value is cause I wasn't looking to flip it and I plan to stay here long enough that when I do sell it it'll have appreciated some by then.

I'm not suggesting you were irresponsible but folks that bought houses as investments, on adjustables, knowing that they really couldn't afford it long term unless the market would keep going up so they could sell it or refinance later on don't deserve any favors just like these co.s that knew it don't deserve any favors.

I acted responsibly, but I won't get any breaks cause I make my payments. Hell, people like me aren't even talked about yet we're supposed to help out all the others that gambled? No one is going to lower my rates or forgive missed payments or let me rework my loan agreement for free.

[whitetemplar78]

This is a tough call, on "taking medcine" and all that. Really the reason for government is to serve the people right?...ok fine fix this problem with low cost loans, but at the same time, I want to see punishments, I want to see public whippings, these CEO's FAILED plain and simple, and to be honest I wonder how many of them saw this coming, AND DID NOTHING!!! how many lied, how many bullshitted us, and the Government about the state of their companys? One of the few nights I watched O'Rielly, cause to be honest, was too lazy to get the controller, but anyways he was ranting about the CEO's of WuMu, and Wachovia and how they had made statements just weeks before the collapse about how well they were doing, strong cash reserves blah blah blah, and how they need the FBI to start looking into this......and OMG I agreed with him, the blowheart that he is, on this, we do see the same. I do see the need for the Government to step in, but they need to make it clear that these are LOANS that WILL be paid back, with interest to Uncle Sam and in effect to us, the american tax payer. But along side this, I want to see punishments, and these fat cats need to be hammered, and I mean hammered hard for this fuck up.

[Bill_the_Pony]

Seizure of assets and prison terms would not be out of line.