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Let Risk-Taking Financial Institutions Fail!

Posted by dreamgarden (My Page) on
Mon, Sep 29, 08 at 11:03

I didn't buy a sub-prime mortgage and I don't appreciate banks playing 'casino games' with the part of my savings that AREN'T in the stock market.

This bailout's mission is to protect the top shareholders who own and control corporate America. It's to make sure their yachts and mansions and "way of life" go uninterrupted while the rest of America suffers and struggles to pay the bills. NOTHING in this "bailout" package will lower the price of the gas you have to put in your car to get to work. NOTHING in this bill will protect you from losing your home. NOTHING in this bill will give you health insurance. Let those who took the risks suffer, let THEM suffer the consequences. Let them pay for the bailout.

Please contact your Senators and Congressman and tell them what a raw deal you think this is.

Sep. 29, 2008
Let Risk-Taking Financial Institutions Fail!
By Ari J. Officer and Lawrence H. Officer

The Administration and Congress has felt compelled to do something about the "financial meltdown," so an inefficient and inequitable "bailout plan" has been rushed through the legislature, despite harsh criticism from the right and left. That's unfortunate. Both presidential candidates were stalling by qualifying the plan. Whichever candidate would have had the courage to reject outright this proposal would have the better claim to be President.

Do not be fooled. The $700 billion (ultimately $1 trillion or more) bailout is not predominantly for mortgages and homeowners. Instead, the bailout is for mortgage-backed securities. In fact, some versions of these instruments are imaginary derivatives. These claims overlap on the same types of mortgages. Many financial institutions wrote claims over the same mortgages, and these are the majority of claims that have "gone bad."

At this point, such claims have no bearing on the mortgage or housing crisis; they have bearing only on the holders of these securities themselves. These are ridiculously risky claims with little value for society. Consider the following analogy: It is as if many financial institutions sold "earthquake insurance" on the same house. When the quake hits, all these claims become close to worthless-but the claims are simply bets disconnected from reality.

Follow the money. Average Joes and Janes are not the holders of the other side of complicated, over-the-counter derivatives contracts. Rather, hedge funds are the main holders. The bailout will involve a transfer of wealth from the American people to financial institutions engaging in reckless speculation that will be the greatest in history.

Rescuing financial institutions is not the best solution. Yes, banks are needed to provide capital to businesses. But it is not necessary to spend $1 trillion to maintain liquidity. If the government is to intervene, it should pick and choose which claims to purchase: claims that are directly tied to mortgages would be a good start.

Let financial institutions fail, merge, or be bought out. The shares of the faltering institutions will be devalued, and they are likely to be taken over by stronger institutions-as has already happened. This consolidation of the financial sector is both efficient and inevitable; government action can only delay the adjustment.

The government should not intervene. It should leave overleveraged financial institutions to default on their derivatives obligations and, if necessary, file for bankruptcy. Much of the crisis has arisen from miscalculating the risks involved in a large book of positions in these derivatives. It is only logical that these institutions pay for their poor management.

Rather than bailing out Wall Street, we propose that the government should buy up the actual mortgages in question and do nothing else. The government should not touch any derivatives, that is, claims that do not directly tie into the actual mortgages. If money becomes too tight, then the Fed can certainly increase its loans to financial institutions.

Let the poorly managed, overly risk-taking financial institutions fail! Always remember that Wall Street and the real economy are not the same thing.

Ari J. Officer has completed his Master of Science in Financial Mathematics at Stanford University. Lawrence H. Officer is Professor of Economics at the University of Illinois at Chicago.

Links that might be useful:

www.time.com/time/printout/0,8816,1845209,00.html

www.visi.com/juan/congress/


Follow-Up Postings:

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RE: Let Risk-Taking Financial Institutions Fail!

Agreed!


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RE: Let Risk-Taking Financial Institutions Fail!

But then, you are quoting from two people who unlike most of us, have a fairly privileged lifestyle. Stanford University and the University of Chicago are ivory tower institutions. UC looks like a picture perfect tree-lined college campus in the Harvard or Oxford style, plunked smack in the middle of the worst ghetto in Chicago. Those profs don't exactly live in middle-class neighborhoods, I can assure you.

It is easy to accept the "sound bite" and think your tax dollars shouldn't be used for a bailout. But this is not something for nothing, the money will be used to purchase security-backed debt whose worth has fluctuated wildly on the open market, thus bringing down companies that do, in fact, affect EVERYONE's everyday life.

I don't know anyone who is NOT affected by what happens in Wall St. - the only difference is one of degree of severity. And yes, misfortune generally falls hardest on those who can least afford it.

The free market has proven it is unable and unwilling to set a floor price for these distressed securities. Companies have tried and failed. If the government does not step in, the markets will continue to spiral downwards, and US assets that are actually worth something, become marked down to nothing on the basis of sheer panic. This allows those holding cash to step in and buy them for pennies on the dollar. Warren Buffett is one, but how many US citizens can he realistically employ? Nomura Holdings of Japan happily scooped up Lehman overseas assets, rendering a number of them redundant. Lehman US employees will now report to Barclays management in London.

Have you ever worked for a foreign-owned company? Usually it means you can work for them, but your chances of rising higher in executive management are now slim, with a corresponding decrease in pay (I worked for Union Bank when Bank of Tokyo owned them; there was only one American in top management and the remainder were all Japanese execs). Most of the US workers were low-paid drones, and in the name of efficiency, even the local receptionists were laid off and all calls routed through another city.

Do you believe that US companies such as Caterpillar should be ignored? Caterpillar, like ALL large companies, regularly uses the short-term borrowing markets for liquidity. These are the short-term bonds that funnel interest to your bank savings accounts and brokerage money market funds, after all. Two weeks ago, when the market began to implode, Caterpillar's borrowing costs rose 300% over what they had borrowed in Dec 2007. This hurts them, which hurts their employees, and thus the communities they live in.

There is plenty of liquidity in the market, but the markets have turned to hoarding cash. In order to get the plumbing working again, the Fed and Treasury have tried a number of interim moves which have not worked. Remember they only have a limited number of tools they can use. The crises are getting bigger, and when the pros start getting scared, then I for one believe it is time for the government to do something.


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RE: Let Risk-Taking Financial Institutions Fail!

"UC looks like a picture perfect tree-lined college campus in the Harvard or Oxford style, plunked smack in the middle of the worst ghetto in Chicago. Those profs don't exactly live in middle-class neighborhoods, I can assure you..."

Just to clarify, UC was founded in 1891, and it was located in the middle of what was then pretty much prairie land. It was not plunked into the middle of the worst ghetto in Chicago. The area grew as a result of the 1893 Columbia Exposition. The neighborhood deteriorated through the 1930s and 1940s. UC very actively sponsored and supported a huge urban renewal project in the late 50s/60s which had some degree of success (depending on who you listen to).

By the way, the worst part of Chicago these days is the west side, which is a number of miles away from UC.

jkom, I'm with you all the way on your comments.


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RE: Let Risk-Taking Financial Institutions Fail!

jkom: Do you believe that US companies such as Caterpillar should be ignored? Caterpillar, like ALL large companies, regularly uses the short-term borrowing markets for liquidity. These are the short-term bonds that funnel interest to your bank savings accounts and brokerage money market funds, after all. Two weeks ago, when the market began to implode, Caterpillar's borrowing costs rose 300% over what they had borrowed in Dec 2007. This hurts them, which hurts their employees, and thus the communities they live in. "

All these short-sighted people who have been against the bailout because they think that it doesn't help them will be crying and moaning when their adjustable rate mortgages reset according to the latest LIBOR and they find that they're paying $1000s of dollars more per year because banks are charging a premium to lend money to each other. (The LIBOR went from 2.4 to 3.8 overnight last week as the credit markets began to freeze up.)

They'll also be sorry when they don't get paid on payday because their company couldn't get their usual short-term loan to make payroll. Caterpillar can afford to pay the 300% increase in their borrowing costs - at least for the time being. Other, smaller, companies aren't going to be so lucky.

People are going to lose their jobs because of this.

The economy is going to grind to a halt as people quit spending money.

People are looking for a super-safe place for their money and turning to Treasuries. Last week the short term return was actually zero. This is going to end up hurting 1000s and 1000s of people on fixed incomes who rely on interest from such securities to live on.

But that's okay.

At least we're teaching those Wall Street fatcats a lesson.

@@


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RE: Let Risk-Taking Financial Institutions Fail!

I'm afraid some members in the House today allowed ideology to trump common sense.

I sure hope those who voted against this Bill will own the consequences of their decisions.

What happened yesterday or last year is not relevant. The vote on the House floor this morning was relevant to what comes tomorrow in our country. IMO, our so-called "leaders" in the House failed to protect the country & in the long run the costs will now be substantially higher.

I hope history doesn't look back on today as the day ideological zealots had an opportunity to get the country back on track...and failed.

I heard the Republican leaders say a few minutes ago that Speaker Pelosi said bad things about them. It's amazing to me that they are so delicate that because they got their feelings hurt they voted to punish the entire country. Good job, guys!

/tricia


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RE: Let Risk-Taking Financial Institutions Fail!

Yes, all the cheers about the bailout failing seems to me like cutting off your nose to spite your face. Sadly short-sighted - I can't imagine why the House Republicans are so proud of themselves for their political victory of spite over common sense.


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RE: Let Risk-Taking Financial Institutions Fail!

tricia: "What happened yesterday or last year is not relevant. The vote on the House floor this morning was relevant to what comes tomorrow in our country."

You're absolutely right, Tricia. I heard a great analogy earlier: When your house is on fire, you don't refuse to put it out because you're upset with who started it.


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RE: Let Risk-Taking Financial Institutions Fail!

jkom51:

"Yes, all the cheers about the bailout failing seems to me like cutting off your nose to spite your face. Sadly short-sighted - I can't imagine why the House Republicans are so proud of themselves for their political victory of spite over common sense."

So do you think the 95 House Democrats that voted against the bill are also proud of themselves?

I would guess since the House is controlled by the Democrats, they dont really need the support of the Republicans to pass it. But we can/should blame them, if the vote doesn't come out the way we like. Nice!

http://www.nytimes.com/2008/09/30/business/30bailout.html?hp


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RE: Let Risk-Taking Financial Institutions Fail!

My understanding from what I have read it is that they vetoed it because the constituents are flooding their offices with rants against the bailout...and some had the courage to admit that they do not know enough about it or the ins and outs of finance to vote either way...and no time was given to understand it better...and of course, Dubya's credibility is in the toilet...which does not help.

A bill will be passed...hopefully one that is more sane than this one...AND one that is actually understood by all those required to vote.

Otherwise, it is the fake Iraqi WMD's all over again...only far worse.

Here is a link that might be useful: Main Street turns against Wall Street


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RE: Let Risk-Taking Financial Institutions Fail!

I read somewhere (NY Times maybe?) that if you examine the voting pattern, those Congressmen who have their re-election locked up voted in favor of the bail out. And those who are in a fight to keep their seat voted against it. This tells me that many of those voting against it did so because they were afraid of pi$$ing off their constituents, most of whom frankly have no idea what is going on right now.

I urge everyone to check their 401k balances late tonight (after today's prices post) and compare it to your balance at the beginning of the year or even 4 weeks ago. I've lost, what to me, is a small fortune.

I don't like the idea of bailing out businesses. But it is better than the alternative.


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RE: Let Risk-Taking Financial Institutions Fail!

jkom51-"It is easy to accept the "sound bite" and think your tax dollars shouldn't be used for a bailout. But this is not something for nothing,
the money will be used to purchase security-backed debt whose worth has fluctuated wildly on the open market, thus bringing down companies that do, in fact, affect EVERYONE's everyday life. The free market has proven it is unable and unwilling to set a floor price for these distressed securities. Companies have tried and failed.
Yes, all the cheers about the bailout failing seems to me like cutting off your nose to spite your face. Sadly short-sighted - I can't imagine why the House Republicans are so proud of themselves for their political victory of spite over common sense. There is plenty of liquidity in the market, but the markets have turned to hoarding cash. In order to get the plumbing working again, the Fed and Treasury have tried a number of interim moves which have not worked. Remember they only have a limited number of tools they can use. The crises are getting bigger, and when the pros start getting scared, then I for one believe it is time for the government to do something."


The 'free market' has spoken. It is SAYING loudly and clearly that it unwilling to buy distressed securities that are proving to be completely worthless. The government needs to do something, but it shouldn't be to make the problem worse by rewarding corruption and avarice.

Cutting off your nose to spite your face? Who's 'face' are you talking about? This IS about getting something for nothing. Do you think highway robbery should be a socially acceptable practice? Because that is exactly what this piece of crap bill was about. REWARDING THIEVES with quality assets in exchange for assets that CAN'T EVEN BE PROPERLY VALUED. The banks made the mistakes, let THEM reap the consequences. This is what is expected of small business's, why should the banks be any different? They dropped the ball, the regulators dropped the ball, and so did our government. This was a complete taxpayer shakedown and I'm glad the taxpayers spoke up. I hope 'we the people' continue to let our elected officials know how we feel about this government sanctioned extortion.


bethesdamadman-"All these short-sighted people who have been against the bailout because they think that it doesn't help them will be crying and moaning when their adjustable rate mortgages reset according to the latest LIBOR and they find that they're paying $1000s of dollars more per year because banks are charging a premium to lend money to each other. (The LIBOR went from 2.4 to 3.8 overnight last week as the credit markets began to freeze up.) They'll also be sorry when they don't get paid on payday because their company couldn't get their usual short-term loan to make payroll. People are going to lose their jobs because of this. At least we're teaching those Wall Street fatcats a lesson."


"At least we're teaching Wall Street fatcats a lesson?" And WHAT 'lesson' would that be? That its OK to take incredible risks, run off with illegal profits and then sell CRAP to the taxpayers? The lesson they SHOULD be learning is the same one that all business's have to learn when they don't manage their money wisely. THEY GO OUT OF BUSINESS. Isn't that what free enterprise and capitalism are about?

No one is being short-sighted about this bailout. They see it for exactly what it is, a pig in a poke, or a snow job if you will.

If people are going to lose jobs, houses and their retirements over the poor decisions of those who CLAIM to be experts at money management, then someone needs to go to jail for creating the situation that led to this. NOT being rewarded for outright theft and greed.

I've noticed that the only people who seem to think this deal is a 'good one' are those who are bankers or are otherwise involved in the financial industry. A coincidence? I think not.


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RE: Let Risk-Taking Financial Institutions Fail!

jkom51, I'm wit' you (as Steve Martin said in "My Blue Heaven")

Bethedasmadman and dreamgarden, wake up and grow up. You think "fat cat" Wall St is to blame?? I dare you to watch this video and not call your House rep to back the bailout!

sure, we don't bail out Mom'n'Pop stores, but those don't take out a chunk of the GNP when they fail.

our house that we've worked on for years to upgrade is on the market and my husband retires next month. I'm so happy to have a job to pay for the mortgage, because who knows when the house'll sell with this economic mess.

god knows I wish we'd been ready in 2005 when we could've sold for half again more to people who couldn't afford it...

Here is a link that might be useful: worth the watch


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RE: Let Risk-Taking Financial Institutions Fail!

It's all political posturing...All politicians that voted against this should be voted out of office..I am not a proponent of government bailouts,but the market needs the "idea" of government support..It is all perception...Show that the government is behind the market,and we will not see a severe correction..As a contrarian,if it happens, i am buying....


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RE: Let Risk-Taking Financial Institutions Fail!

qdognj: but the market needs the "idea" of government support..It is all perception

Correct...and they are holding the market hostage until they get their reward for their misdeeds. Just more money with which to gamble...at our expense. Wall St. controls the country....with the Gov't aiding and abetting their out of control gambling problem.

The bailout should contain the requirement that ALL investment bankers, brokers, traders etc. attend Gamblers Anonymous.


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RE: Let Risk-Taking Financial Institutions Fail!

So what shall we do, then? Go back to the fictitious prosperity we've all been sold on? This was a boil that needed lancing.

Catastrophe? As I write this some eight hours after the US market closed, it looks to me like they gave a catastrophe-party and nobody came. The market didn't collapse. Gold didn't soar. Every single news organization in existence led their reports with sentences like "Largest market decline in history!" It's a lie! It was the largest point-drop in history. However, as a percentage of market value it was less than 1/3 of what happened in '87. Anyone recall the world coming to an end in '87?

The economic system here and world-wide is pretty reslient. Many would say it's long past time to correct the errors we've perpetrated on ourselves. Let it happen. We can endure an interruption. Actually, we must. What we were doing was fraudulent. We must stop doing that.

Interesting, too, politically. My president, fed chairman, sec. of treasury, head of SEC, leaders of both congressional parties, both presidential candidates...every political leader extant said "follow me....pass this bill...right away." The supposed followers told them to go get stuffed. In my six decades of life, I've never seen anything like it. But I'm glad to see it. This problem does not require an instant decision. A little more time to think about it will not find us in another ice-age.

The electorate is beyond angry. Interesting times.


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RE: Let Risk-Taking Financial Institutions Fail!

mtnfever: "Bethedasmadman and dreamgarden, wake up and grow up. You think "fat cat" Wall St is to blame??"

You need to read my post again. I was FOR the bill. My very last sentence about fatcats was a sarcastic jibe at those who were against it because they erroneously believe that it only helps Wall Street. That's why I put the @@ at the end of my post. Here is the whole post again. I can't believe that you missed the intent of my entire post:

***********
All these short-sighted people who have been against the bailout because they think that it doesn't help them will be crying and moaning when their adjustable rate mortgages reset according to the latest LIBOR and they find that they're paying $1000s of dollars more per year because banks are charging a premium to lend money to each other. (The LIBOR went from 2.4 to 3.8 overnight last week as the credit markets began to freeze up.)

They'll also be sorry when they don't get paid on payday because their company couldn't get their usual short-term loan to make payroll. Caterpillar can afford to pay the 300% increase in their borrowing costs - at least for the time being. Other, smaller, companies aren't going to be so lucky.

People are going to lose their jobs because of this.

The economy is going to grind to a halt as people quit spending money.

People are looking for a super-safe place for their money and turning to Treasuries. Last week the short term return was actually zero. This is going to end up hurting 1000s and 1000s of people on fixed incomes who rely on interest from such securities to live on.

But that's okay.

At least we're teaching those Wall Street fatcats a lesson.

@@


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Let Risk-Taking Financial Institutions Fail!

asolo: "Catastrophe? As I write this some eight hours after the US market closed, it looks to me like they gave a catastrophe-party and nobody came."

By writing that sentence you have just demonstrated that you don't understand the problem. It was mentioned throughout the day on CNBC yesterday that the "catastrophe" was not going to happen overnight. As interesting as the stock market decline was yesterday, that is not the major issue. The major problem is with the credit market, not the equities markets. Banks are not lending to each other because they are fearful that they need the assets. And if they're not lending to each other, they sure aren't going to be lending to businesses. The credit market is going to slowly (or not so slowly) dry up. Businesses will close and people will lose their jobs.

To use an analogy, if you were to lose your job today, your individual "catastrophe" would not occur overnight. You would not be declaring bankruptcy the next morning. First, you would reduce your spending and start going through whatever assets you have. Only when everything is gone would you suffer a catastrophe. It is the same with businesses. They're not going to close up shop today. But if they can't get access to credit, it won't be long in coming.

It was the potential freezing up of the credit markets that caused Paulson & Bernanke to go to Congress a week and a half ago to tell them how dire the situation was. Credit has loosened up somewhat in the interim because of the expectation that the bill would pass. Now that it hasn't, all bets are off. Unless of course, Congress comes back on Thursday and does something to get those additional 12 votes.

And the first thing that they need to do when they come back is to put a muzzle on Pelosi.


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RE: Let Risk-Taking Financial Institutions Fail!

mtnfever-"Bethedasmadman and dreamgarden, wake up and grow up. You think "fat cat" Wall St is to blame?? I dare you to watch this video and not call your House rep to back the bailout!"

YOU wake up/grow up. Yes, I DO think "fat cat" Wall St is to blame and so do the thousands upon thousands of people who flooded the White House with calls/emails yesterday.

How can anyone justify approving a bill that would reward these thieves for putting our economy in the toilet? This is extortion pure and simple. This bill does NOTHING for the middle class except allow overcompensated, corrupt execs to fleece/extort tax dollars with zero oversight.

This bailout was doomed to fail for the following (solid) reasons:

1. The bailout bill had NO enforcement provisions for the so-called oversight group that was going to monitor Wall Street's spending of the $700 billion;

2. It had NO penalties, fines or imprisonment for any executive who might steal any of the people's money;

3. It did NOTHING to force banks and lenders to rewrite people's mortgages to avoid foreclosures -- this bill would not have stopped ONE foreclosure!;

4. It had NO teeth anywhere in the entire piece of legislation, using words like "suggested" when referring to the government being paid back for the bailout;

5. Over 200 economists wrote to Congress and said this bill might actually WORSEN the "financial crisis" and cause even MORE of a meltdown.

I'm sorry you have a house to sell, but I don't believe the entire population should have to pay just so YOU can get what you want for it now that your ready to sell.


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RE: Let Risk-Taking Financial Institutions Fail!

I'm not against the bailout because it won't help me. I'm wary of it because I don't understand how it solves the underlying problems. It seems like it only delays the inevitable.

I also fear that it allows the government and big corporations to allay the people's fears and keep on doing just what they've been doing. If the American people don't use these events to finally demand real change, I worry they never will.


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RE: Let Risk-Taking Financial Institutions Fail!

This may be a better place for me to ask my questions than my post on the 'Finances' forum.

If the Bush plan to tie Social Security to Wall Street had not failed, would we have been 'spared' this supposed panic?

If 'over 50%' of Americans 'own stock', how heavily are they invested, and who are they (demographics)?

Do most Americans live on credit in their day-to-day personal lives -- beyond mortgages? (I understand the need for credit in business, payrolls, etc.)

Does it matter that a third of homeowners have no mortgages? Are more than half of Americans 'homeowners'? How many homeowners are suffering because they must sell homes and buyers can't get (easy) credit?

I don't understand the push for a 'bailout'. (Who so christened it, and was it meant to excite Main Street?) It *looks* like rewarding bad behavior. Should responsible citizens and responsible banks rescue the irresponsible? (Is that too simplistic?)

Is this long-simmering pot boiling over now 'just because' or have politicians been poised at the heat controls?


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RE: Let Risk-Taking Financial Institutions Fail!

Over 50% of Americans own stock - Many do through their company sponsored 401k and retirement plans. Pension plans invest in the stock market. Typically a company offers a variety of investment options for the pre-tax income that the employee puts aside. Based on my employment experience, about 85% of the options are stock market options. This is nationwide and for all participants in 401ks, I believe.

If Bush had been able to tie Social Security to the stock market, I think this mess would be alot worse because the pool of Social Security funds from which to pay monthly benefits would be shrinking as the stock market falls. So I say thank goodness SS wasn't tied.

Do most Americans live on credit? Alot do. Look at the revolving credit line on the attached. June 08- that was the month people had their $600 stimulus checks.
http://www.federalreserve.gov/releases/G19/Current/

I hope this helps with some of your questions. I've got to run.


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RE: Let Risk-Taking Financial Institutions Fail!

patser -- Thanks!

I was attempting to be tongue in cheek about Bush's Soc Sec/Stocks attempt. If that had that gone through, today Main Street would not be irate when taxpayers bailed *themselves* out.


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RE: Let Risk-Taking Financial Institutions Fail!

Bush's push to privatize SS was nothing more than attempting to give Wall St. more money with which to play the finance community's equivalent of roullette, craps, poker, blackjack, slots, etc........


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RE: Let Risk-Taking Financial Institutions Fail!

The economy is going to grind to a halt as people quit spending money."

What money? Lots of people don't have any. They haven't for awhile - that's why they have too much debt.
I think what you mean is they have finally stopped spending money they don't have. Because their wages have been eroding forever.
The last 10 years have been so schizophrenic - all the tv money pundits bemoaning how americans don't save and have too many credit cards and live on credit - then the next half hour show bemoaning how the economy is going to hit the toilet if people don't spend more.
You can only have saving, appropriate debt and spending when people have a certain amount of income - ah, the missing ingredient.
We go on and on about how people bought too much house - is that really true? Most of the foreclosures here are very modest houses. Much of the "foreclosure debacle" was lower to middle income families trying to get in on the bottom level. If the economy was really working that wouldn't have been so hard or so risky.
So the economy was going to grind to a halt eventually no matter what - because jobs and wages have been eroding for a long time.

"When your house is on fire, you don't refuse to put it out because you're upset with who started it."

I would if I figured it was going to burn down anyway even if I paid the fireman XXX billion.


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RE: Let Risk-Taking Financial Institutions Fail!

"What money? Lots of people don't have any. They haven't for awhile - that's why they have too much debt. "

A lot of people don't have any money because they SPEND it all, and when they can no longer afford the Ipod or Iphone,or dinners at the local casual fastfood restaurant, they CHARGE it...Many people feel they deserve what others have whether they can afford it or not...I drive by the local Olive garden,Houlihans,Ruby Tuesday,et al, and there ussually is a waiting line to get in...I see just about every pre-teen with an Ipod, AND a cellphone,and this is everywhere,not just affluent areas..I see very few 10 year old cars,most seem to be 5 years or newer...

Yes,jobs have been eroding and wages have been stagnant,but this is not a recent trend,yet people still go about buying/spending with disregard...


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RE: Let Risk-Taking Financial Institutions Fail!

I think the economic ramifications of bailout or no bailout are way too complicated for the average US citizen to understand. Many people get their education via the highly biased media. So we have many citizens who have no clue ignorantly and naively advising their elected officials not to vote for this. And of course our elected officials number one concern is getting reelected - not doing what is in the best interests of the country as a whole. And frankly I think many of them are ignorant when it comes to economics and finance as well but too arrogant to acknowledge it.

It is possible though that if things take their "natural" course without government intervention it could be better for our society in the long run. In general I think the generation that lived through the hardships of the great depression were better grounded in solid values - like living within their means, saving money, personal sacrifice, strong work ethic, community and family, etc.

Contrast that with current times where people seem consumed by having A LOT of stuff and having it RIGHT NOW whether they can afford it or not. The latest big screen TV, cell phone, SUV, bigger and better house, etc. People think nothing of "disposing" of perfectly good things because they're not the latest technology or trend (ever read the kitchen forum here?)

We recently looked at some homes due to a possible job related relocation. We live in a nice but relatively modest 3 bedroom 2 bath home - more than enough for two people - best thing about it is that it's paid for. I was astonished at the number of fantastic 5 bedroom, 4 bathroom homes - with bathrooms and closets bigger than my bedrooms. A private bedroom and bathroom for every kid because no one can share such things anymore. Well, ya think if they could that perhaps there wouldn't be so many homes that are bank owned/short sales/foreclosures?

It's ridiculous. Frankly people in this country need a correction. Painful as it may be to just "let the chips fall where they may" we might just end up better off in the long run.


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RE: Let Risk-Taking Financial Institutions Fail!

****I was attempting to be tongue in cheek about Bush's Soc Sec/Stocks attempt. If that had that gone through, today Main Street would not be irate when taxpayers bailed *themselves* out.****

If I were allowed to invest the 2% of my Social Security in the stock market when I first started working, my money would today be FAR ahead of what I'll get in S/S. You see, when I started working in 1972, the market was at 600 points. Not 10,000. Even with the "ceash" in '87 and today's slide, I STILL would be way ahead!

But I have a problem. I keep hearing that there wasn't enough "regulation" of the banking industry. Sen Chris Dodd of CT is the HEAD of the Senate Banking Committee. His JOB is REGULATION! But how can you be an effective regulator when you're at the top of the list of campaign contributions from Fannie Mae? And what got the Republicans in a twist was MS America's speech that it was all Bush's fault! That was a total fabrication on her part. The 12 Democrats on the House committess voted against this bill. And then blamed Republicans for the failure. Hypocracy!

What we have is a Congress that does not CARE about the people. They only care about themselves.


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RE: Let Risk-Taking Financial Institutions Fail!

gibby3000 -- I'm going to assign you some extra credit work to research the Depression. We'll see if you still want this to work itself out that slowly. A quarter of Americans were unemployed and families starving, homeless. (Not that I see us in that peril right now, but...really, to say the Depression was some 'great lesson'?)


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RE: Let Risk-Taking Financial Institutions Fail!

chisue - both my parents and my inlaws lived through the depression as well as aunts and uncles - so I've learned much about it from their personal experiences. I don't come from a well to do family so they weren't flush with money during that time. Fortunately they did instill in me a strong work ethic, frugal/saving nature and desire not to be in debt - and that has served me very well. Of course I don't want to see people starving and homeless but I do think many people would benefit from a less materially focused life and a greater sense of personal accountabilty for their actions and choices. Corporate greed and arrogance is a problem and so is government incompetence but all these individuals didn't HAVE to take our mortgages they couldn't afford.


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RE: Let Risk-Taking Financial Institutions Fail!

gibby3000 -- My family lived through it too, but many people didn't. My family was not 'flush' either. My mother was sole support of her parents. My father and his sibs were farmed out even before and it only got worse. To me, there are no reasons to suggest anyone should live (or die) in times like that.

I understand what I think you mean to say, but it's over the top to say another Great Depression is a good idea. "Let the chips fall where they may" punishes *everybody*, not just your selected group who over-reached in buying or the greedy brokers who created worthless paper.


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RE: Let Risk-Taking Financial Institutions Fail!

My concern is the Fed injected 650 BILLION into the market on Monday and it still went down. WHY?

What about inflation if this thing passes? Printing 700 Billion will certainly bring the dollar down. We'll be paying double for most stuff at the grocery store.

I've heard that this bailout isn't going to be enough and they'll be back for more. What do you think?


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RE: Let Risk-Taking Financial Institutions Fail!

Monday's Fed injection was a short term transaction.

I think that the bailout, if it ever passes, is going to make money for the US government.

And if it doesn't pass, I don't think severe severe recession is out of the question.


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RE: Let Risk-Taking Financial Institutions Fail!

Don't know if there is a perfect answer. But flushing more money down the toilet is not the big fix for sure.

Lets see...the little guy has created too much debt, has lived beyond his or her means and can't pay their bills. So we need the bailout, so the little guy can borrow more money, continue to live beyond their means and create more debt that they can't pay?

Sounds like the bailout, is more of a Ponzi scheme not meant to bailout the taxpayer, but instead reamout the taxpayer as it makes the rich...richer.

Would an alcoholic be fixed if he inherited a whiskey factory? Would a limitless supply of free alcohol cure what ails him? Or would it just increase the sickness?

We have learned nothing from our bailout mess. We can see this from the debate on how to water down the 'mark to market' accounting standards.

Instead of restoring high financial and accounting standards, we are further relaxing them, in effect increasing the sickness that got us here. I would add that any accounting standard that discards mark to market accounting would be off my screen for investments.

Even with mark to market, we have all these accounting lies. Can you imagine how it will be when asset values can be assigned by the holders of those assets with no reckoning with what the 'actual market value' of those assists are?

One of CNBC's commentators chewed out Rick Santelli a while back telling him there is 'no time' for discussion of ideology in the bailout crisis. We must have the $700 billion NOW!

At CNBC they seem to think that if money is just thrown at the problem all will be fine.

If there is no time to change the underlying sickness in our broken capitalist system, how will more alcohol fix the alcoholic...or in this case more money fix the dishonest, greedy thrives of Wall Street CNBC?

Every once in a while CNBC offers some words of wisdom other than the poker playing, crap shooting, compulsive gambler mentality of trading that you promote.

Rick Santelli offered one such pearl of wisdom when he said the powers that be in America need to 'take their medicine like men' and stop trying to avoid the penalties of their financial shenanigans at all cost. To avoid taking their medicine is just making matters worse.

Fix the underlying sickness before you loan out a dime. Take your medicine like men CNBC as well as thieves of Wall Street.

Don't give taxpayer money out, not a dime - loan with high grade collateral and interest. But only loan if absolutely necessary. But don't force the taxpayer to buy toxic waste that no one in their right mind would buy. Put the rich, greedy, lying bastards of Wall Street on the line and not the taxpayer that can hardly make ends meet.

Paulson had over 30 years on Wall Street. Paulson is said to be worth half a billion dollars and we never heard a peep of warning out of him until the crisis was full blown.

This seems to be a case of honor dies where the interest lies.

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RE: Let Risk-Taking Financial Institutions Fail!

"I heard the Republican leaders say a few minutes ago that Speaker Pelosi said bad things about them. It's amazing to me that they are so delicate that because they got their feelings hurt they voted to punish the entire country. Good job, guys!"

Pelosi had a very clever argument actually - she basically annoyed undecided republicans into returning to their free-market priciples by saying that it was all caused by right wing ideology. You see, its my theory that she was against the first bailout bill (the one from the Senate)all along because she wanted to be the hero for the second bill, this come coming from the House. It worked.

Of course, the bill itself will have about no noticeable effect. Nothing is going to fix the markets until assets return to prices that are supportable by fundamentals alone. Yes, that means housing too. Especially housing.


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RE: Let Risk-Taking Financial Institutions Fail!

I'd sure like to hear comments about 60 Minutes news story "A Look At Wall Street's Shadow Market." Is this all just a bunch of hooey that 60 minutes dreamed up? And once Henry Paulson gets all these toxic assets in his mitts, how many decades is it gonna take to get them unraveled (by his successors)?

Here is a link that might be useful: 10-05-08 story


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RE: Let Risk-Taking Financial Institutions Fail!

turnage, thanks for the link. The report is spot on...and chose (in far greater detail) exactly what I have been saying for the last 6 months.

When one learns that Wall St's activity with regard to only 6% of the mortgages brought down the entire finance system to this extent, it is quite clear that the system itself is fatally.......and apparently purposely flawed.

If not for their "creative" and entirely unregulated finance instruments, that 6% would never have mushroomed into the biggest finance crisis since the depression.

Pretty sad when you have 94% paying on time...but it is meaningless.


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RE: Let Risk-Taking Financial Institutions Fail!

The idea behind lending: Making money (interest) without producing ANY product. (a lazy man's invention?) The major risk..not being paid back your principal.

In the real world of no-borrowing..far more renters/ used car owners than homeowners/new car owners. It is more about the "pursuit of happiness"(?)
No loans mean much lower priced products. Investors are needed to finance State/Federal projects and privately owned corporations. with risk). Preserving wealth is the mindset from day one.

Ever feasible for this to evolve from the world of instant gratification?


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RE: Let Risk-Taking Financial Institutions Fail!

"Pretty sad when you have 94% paying on time...but it is meaningless."

Say you're a bank who has a customer base where 94% pay as they should. Out of that 94% you have to charge enough interest to cover operating costs, the money that you as a lender borrow yourself, taxes, oh, and by the way, if you charge more than about 5.5% for a loan you will go out of business because your competitors will get your customers. 94% times 1.055 comes out to a loss of 0.83%, without even paying penny one of expenses.

That's why institutions take risks with money. Playing it straight is the shortest path to insolvency.


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RE: Let Risk-Taking Financial Institutions Fail!

A sound & safe bank typically earns between .8%-1.00% ROA. Real estate delinquencies are normally less than .50%. They work on small margins & 6% is a huge number of defaults.

/tricia


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