House rejects bailout plan

[md21017md]

I have been a lifelong republican/libertarian but I tell ya, this mess really has me rethinking the repub party mentality. Typically, the democratic policy has been tax the rich and distribute to the poor. Looking at the repubs, it seems to be tax everyone except the rich, give them (the rich) tax breaks. When they get into financial trouble, throw them a lifeboat, and hell might as well have a yacht with a cocktail party standing by for their rescue.

This house bail out is a crock from what I see. Because of shady lending practices allowed (I am guessing) by republican policy, people making nowhere near enough money and/or with shaky credit were allowed to get a mortgage. Who benefits? The wealthy lenders, investors and the wealthy (by comparison to the guy making $9/hour trying to buy a house) home owner that sells his house for a (at the time) huge profit and moves up, or the wealthy guy flipping the house. Everyone that made money off the deal runs all the way to the bank, the poor sucker then loses his house a year or two later when he can’t afford the teaser rate that was offered. The bank takes the house, sells it at a loss and cries to congress that they need money for the difference or they will go under.

Only in america

[dissident]

well the bill unexpectedly failed due to republicans voting it down. A victory for the little guy and a big hit to the status quo and the old system which is going to fail one way or another.

[md21017md]

Yes, the repubs voted it down, but the dems would never have supported it, the repubs didn't have enough to carry it alone. In the end, they (for once) voted the minds of the voters.

[cncracer]

More Democrats voted for it than Republican, and I think they all made a mistake. We will watch this ripple continue to a crash if the government fails to stop the fall. I think this is a prime example of short sight on our elected official’s part. We needed to have taken note of this years ago, and to hear them talk you would think it was a great big surprise. I think I heard about the problem two years ago and when Ron Paul was running he bellowed it at every option. Our congress has been sleeping with their heads in the sand and we need to replace them all.

[Sir Mister]

More Democrats voted for it than Republican, and I think they all made a mistake. We will watch this ripple continue to a crash if the government fails to stop the fall. I think this is a prime example of short sight on our elected official’s part. We needed to have taken note of this years ago, and to hear them talk you would think it was a great big surprise. I think I heard about the problem two years ago and when Ron Paul was running he bellowed it at every option. Our congress has been sleeping with their heads in the sand and we need to replace them all.

Are you in favour of injecting $700 billion into the economy to sustain a housing bubble?

[redbaren]

WASHINGTON - In a vote that shook the government, Wall Street and markets around the world, the House on Monday defeated a $700 billion emergency rescue for the nation's financial system, leaving both parties' lawmakers and the Bush administration scrambling to pick up the pieces. Dismayed investors sent the Dow Jones industrials plunging nearly 800 points, the most ever for a single day.

[DrEast]

Please let this thing stay dead.

We need the correction, and more than that we need people to wake up to how twisted our banking system truly is. We need to stop fractional reserve banking after its many centuries of abuse, and we need to stop making debt our chief product.

[lisakki]

Although I really hate the idea of a bailout personally, I do trust the Fed. I think out of all the US government subdivisions, they're probably one of the few groups of people that are qualified for their jobs. If Ben Bernanke says our country needs a bailout, I believe him.

[Zedicus]

I like the idea of plan 2, which is to change the Mark to Market rule for a fixed number of years, I heard 5 as a good number, as well as reinstating the the limitations on secured bonds and leaving the sub-prime loans, (including mortgages, auto, personal etc) in the hedge funds the way they used to in ancient history, what was it 5-6 years ago.

[DrEast]

We've gotta get rid of the Federal Reserve. The "crisis" we see now is just the symptom, and the disease is lingering on.

It's not a popular stance to take, but it's the only one that prevents the suffering that comes with wealth transfer through inflation, which hits the poorest people the hardest.

[TheLastMohican]

Although I really hate the idea of a bailout personally, I do trust the Fed. I think out of all the US government subdivisions, they're probably one of the few groups of people that are qualified for their jobs. If Ben Bernanke says our country needs a bailout, I believe him.

What faith! ;D

[Krazy P]

What faith! ;D

I had some faith in Mr B until last Nov when he started panicking and not letting the market work - intervening and showing that traders could manipulate his actions. Then I saw the incredible puff piece in the NEw York Times magazine and decided to do a little digging.

I said in November to all my colleagues - watch Mr B make things worse.

The bottom line is that he failed to get the deal done. The bottom line is that he was trying to stop the market from crashing, firms from failing and the U.S. government from intervening too much in the marketplace.

I think he's batting o fer right now.

(Not to say much could have been done - but if he let the markets work last November, we might at least be 9 months closer to the end of this mess. All the things he was trying to stop have happened anyway. You can't stop the tide from coming in or the sun from rising. Economic forces are as natural as storms coming in from the sea.)

[lisakki]

What faith! ;D

Is that sarcasm I sense? I suppose it IS very un-INTJ of me.

I've always been a fan of Milton Friedman's work, and Bernanke's policies are certainly in the same spirit. I've always been curious of whether or not Friedman was right in thinking monetary contraction led to the Great Depression.

I guess it's a kind of morbid curiosity; if the bill passes, I'll finally be satisfied in knowing if he was right or not.

[TheLastMohican]

Is that sarcasm I sense? I suppose it IS very un-INTJ of me.

I've always been a fan of Milton Friedman's work, and Bernanke's policies are certainly in the same spirit.

I would have faith in Milton Friedman, simply because he was right so often. Bernanke's policies are not identical to Friedman's, and he has yet to accumulate anything near Friedman's record of accuracy. We'll see...but so far I think Bernanke is a bit lacking.

[azelismia]

I think we need the correction too. good money after bad? Stupid!

[eternaltriangle]

You are all assuming a few mostly incorrect things.

1. This would be just another recession
-Recessions stink, of course, but the credit crisis has a risk of being something like the Great Depression. The Great Depression was so steep because of the degree to which it featured bank collapses, and the complete evaporation of available capital. Japan has been in a similar situation since 1987 (also caused by a popped housing bubble), where even at near-zero percent interest rates, the economy has barely grown. No private bank has the capital to address the current liquidity shortfall, so it makes sense for the government to step in. They are not, I should add, pissing 700 billion down the toilet - they are buying assets, often at fire-sale prices (or high-interest loans). Most if not all of that 700 billion goes back to taxpayers eventually as those assets are sold - heck, if there were a decent regulatory framework in place, taxpayers could even make money.

2. The market solves
-Without appropriate regulation of the banking sector, the credit crisis could well happen in some other incarnation, sooner rather than later. It wasn't just one firm that sold subprime mortgages, it was many - why were they systematically wrong in throwing money at people who clearly lacked the wherewithal to pay them back? Moreover, why are bank failures a constant feature of the American economy anyhow and not say, the Canadian economy? It is worth adding that the CEO's of these failing banks did relatively well by ruining companies. Perverse incentives coupled with bad information still exist - the market can't solve those kinds of problems, so the government needs to step in.

lisakki, Milton Friedman advocated for fixed rate monetary policies, and was not exactly sympathetic to the fed. He waxes enthusiastic in Free to Choose for the "good old days" of the 1908 panic, where individual banks addressed a run on the bank themselves.

The US needs to extend FDIC limits to prevent what is right now a run on the bank 21st century style. They also need to encourage bank mergers, to eliminate small, risky and inefficient banks.

[zibber]

One Dutch newspaper said this is the end of the (neoconservative) capitalist system. I figuratively wept sweet tears of joy. (More at the frankness of the paper.)

[thod]

Recessions stink, of course, but the credit crisis has a risk of being something like the Great Depression. The Great Depression was so steep because of the degree to which it featured bank collapses, and the complete evaporation of available capital. Japan has been in a similar situation since 1987 (also caused by a popped housing bubble), where even at near-zero percent interest rates, the economy has barely grown.

Quite the opposite. There isnt and never was a shortage of capital in Japan. They had the highest quantity of savings in the world and still do. The problem in Japan was overcapacity, if you already have 5 car plants standing idle it makes no sense to build another, hence stagnation, since the capital cannot find anything to invest in. This lead to the yen carry trade where that money is shipped abroad to find investment opportunities.

Thus to compare the US great depression and Japan is wrong. The US may well enter 1930's conditions. This is down to the people having so much debt and no savings. This is the Americans fault, they used to be the biggest savers on the planet and thus there was no shortage of capital. However there are big savers still, mostly in Asia. Americas need for capital will be met by these nations buying up and building new plant in the US. Although China wishs to develop itself, it is not adverse to send some capital to the US if prices are right. The Japanese are ofc still looking for places to send their savings and they do not have the Chinese pressure to spend it at home in Japan.

[Jakalwarrior]

I am no economist but I can say I am happy I wont be paying welfare for those pricks that still have more money than I ever will.

[DrEast]

There's a fundamental preconception in a lot of people that we can all be wealthy and happy and nothing bad ever has to happen if we were just properly managed.

Isn't so, never was.

If we're in for a fall, a fall is a good thing. Trying to put it off is both futile (this needs to be underscored), and ultimately just damaging. We've been putting it off for a while now, so this fall is gonna be a bad one, yes.

I'm not a fan of Friedman, in general. I don't believe central banking can work over the long term, period. It's got too many systemic weaknesses, let alone that the whole operation is fraud, resulting in some pretty bad wealth redistribution without positive contributions to the market.

Remember: Any system that only works until a percentage of its participants suddenly think it can't isn't actually a sound system.

[AJB]

Let it stay dead.

The people put their faith in these guys for the past 16 months and they've only managed to make things worse.

Provide a solution that doesn't involve putting more money in their hands and I might get behind it.



We've gotta get rid of the Federal Reserve. The "crisis" we see now is just the symptom, and the disease is lingering on.

It's not a popular stance to take, but it's the only one that prevents the suffering that comes with wealth transfer through inflation, which hits the poorest people the hardest.

+1 here; but let's make sure we remove all the legislators that held their hand out while looking the other way on the activities that brought us to this point.

Term limits for every publicly elected individual -- 8 year max per position. Top to bottom president to alderman.

[lisakki]

You are all assuming a few mostly incorrect things.

1. This would be just another recession
-Recessions stink, of course, but the credit crisis has a risk of being something like the Great Depression. The Great Depression was so steep because of the degree to which it featured bank collapses, and the complete evaporation of available capital. Japan has been in a similar situation since 1987 (also caused by a popped housing bubble), where even at near-zero percent interest rates, the economy has barely grown. No private bank has the capital to address the current liquidity shortfall, so it makes sense for the government to step in. They are not, I should add, pissing 700 billion down the toilet - they are buying assets, often at fire-sale prices (or high-interest loans). Most if not all of that 700 billion goes back to taxpayers eventually as those assets are sold - heck, if there were a decent regulatory framework in place, taxpayers could even make money.

2. The market solves
-Without appropriate regulation of the banking sector, the credit crisis could well happen in some other incarnation, sooner rather than later. It wasn't just one firm that sold subprime mortgages, it was many - why were they systematically wrong in throwing money at people who clearly lacked the wherewithal to pay them back? Moreover, why are bank failures a constant feature of the American economy anyhow and not say, the Canadian economy? It is worth adding that the CEO's of these failing banks did relatively well by ruining companies. Perverse incentives coupled with bad information still exist - the market can't solve those kinds of problems, so the government needs to step in.

lisakki, Milton Friedman advocated for fixed rate monetary policies, and was not exactly sympathetic to the fed. He waxes enthusiastic in Free to Choose for the "good old days" of the 1908 panic, where individual banks addressed a run on the bank themselves.

The US needs to extend FDIC limits to prevent what is right now a run on the bank 21st century style. They also need to encourage bank mergers, to eliminate small, risky and inefficient banks.

Yes, but during the Great Depression, Milton argued that THERE WAS NOT ENOUGH government intervention, which was the cause of the entire chain of events.

Milton argued that the low money supply on the market was the primary cause of the Great Depression, and could have been easily just have been another recession if the government simply supported the banks, thus preventing the mass panic and bank runs all the while boosting the amount of currency in the market. I think what Bernanke is doing right now is very much in the same spirit.

[Krazy P]

Yes, but during the Great Depression, Milton argued that THERE WAS NOT ENOUGH government intervention, which was the cause of the entire chain of events.

Milton argued that the low money supply on the market was the primary cause of the Great Depression, and could have been easily just have been another recession if the government simply supported the banks, thus preventing the mass panic and bank runs all the while boosting the amount of currency in the market. I think what Bernanke is doing right now is very much in the same spirit.

There is lots of debate about what did or did not cause the "great" depression. I think there were a few downturns in the 19th century that were pretty bad. You could probably find two very well made arguments on both sides with a little searching.

It is very interesting to me to see how this will all play out. It is an election year, two candidates neither of whom is an incumbent, and lots going on in the international arena.

The interesting political dynamic is that on the D side it was congressmen whose seats were at risk voting NO and on the R side it was a lot of congressman who were retiring as well. So, in a representative sense, it would appear that the "people" don't like it.

Also, divide $700 billion by all the people who have mortgages and you get $21,000 each. Or, to put it another way, you could payoff every mortgage under $75,000 with the money. It's a lot of money!

One piece of logic does appeal to me - it was government intervention in the markets that is at the root of the problem - why do a lot of people believe that more government intervention will make it better?

Isn't there some quote about doing the same thing over and over and expecting the outcome to be different?

[cncracer]

Are you in favour of injecting $700 billion into the economy to sustain a housing bubble?

Yes, I don’t like it, but I recognize without it we will come to an economic stop and our financial system will fail due to lack of vision.
I think the money needs to come back with interest, and the banking system and Wall Street need to be watched and controls placed on them to prevent this from reoccurring. That said if you want to see everything come to a stop world wide than fail to work this problem out and go join the soup lines.

[lisakki]

There is lots of debate about what did or did not cause the "great" depression. I think there were a few downturns in the 19th century that were pretty bad. You could probably find two very well made arguments on both sides with a little searching.

It is very interesting to me to see how this will all play out. It is an election year, two candidates neither of whom is an incumbent, and lots going on in the international arena.

The interesting political dynamic is that on the D side it was congressmen whose seats were at risk voting NO and on the R side it was a lot of congressman who were retiring as well. So, in a representative sense, it would appear that the "people" don't like it.

Also, divide $700 billion by all the people who have mortgages and you get $21,000 each. Or, to put it another way, you could payoff every mortgage under $75,000 with the money. It's a lot of money!

One piece of logic does appeal to me - it was government intervention in the markets that is at the root of the problem - why do a lot of people believe that more government intervention will make it better?

Isn't there some quote about doing the same thing over and over and expecting the outcome to be different?

I'm not saying I think Milton was right or he was wrong about the Depression. I'm saying that if this bill goes through, we'll know if he was right about the Depression or not.

I really don't care about the US economy either way. As my Financial Accounting teacher told us "you guys are too young, if the economy goes bad you guys can bounce. We old people can't."

[releviau04]

I don't think they should be bailed out and we should learn a great lesson from this. Its like "don't worry, we will bail you out, so you can go do it again". There isn't anything different than a criminal that got away with petty theft...they get caught...."oh no big deal", slap on the hand, maybe probation...but they always go and do it again......our government needs to practice what they preach...if a little person did something like this, they would go straight to the pokey with no get out of jail free card, not to mention our national debt exceeds.......what? .....but regular american people miss one lousy payment on a credit card and they are MARKED for life as a credit risk......hmmmmmm

[MichaelH]

You are all assuming a few mostly incorrect things.

<snip> They are not, I should add, pissing 700 billion down the toilet - they are buying assets, often at fire-sale prices (or high-interest loans). Most if not all of that 700 billion goes back to taxpayers eventually as those assets are sold - heck, if there were a decent regulatory framework in place, taxpayers could even make money.


Hmm. So what you're telling me is that banks are sitting on these great, interest-returning assets. These assets are so good that taxpayers can pay out money they don't have, buy the assets, pay interest on that money (I believe it'd borrowed from the Fed), and still come out ahead.

Yet you claim the banks are going under because they have these great assets? I promise I'm not trying to be dense, but how does that add up?

My understanding is that the problem is banks holding bad assets that are likely to be invalidated: inflated home loans that will go into foreclosure. Taxpayers are not buying safe, high-yield investments, but risky paper likely to be worth less than the stated value.

I'm not a financial expert. Where is my understanding lacking?

[DrEast]

I'm not a financial expert. Where is my understanding lacking?


The assets are only bad because house prices are declining. Prices must never go down: That's deflation, and it's bad for banks. You lack understanding that the enrichment of bankers is the goal of modern government. Obviously this bailout is a GREAT plan.

[thod]

Well it doesnt matter if the house rejects it. They just send it to the senate. Except this time its got even bigger tax cuts in for the rich. Its like asking your boss for a pay rise, and when he says no, going to his boss and asking for an even bigger one.

[md21017md]

You obviously do not understand the american political system. Any bill must be approved by both the house and senate and then be signed by the pres. If 1 side shoots it down, it's not as simple as asking the other.

[DrEast]

You obviously do not understand the american political system. Any bill must be approved by both the house and senate and then be signed by the pres. If 1 side shoots it down, it's not as simple as asking the other.

What thod is saying, I think, is that it's going to go right back to the house, and now the popular view might have shifted just enough to get those last few votes switched. At which point, those last few voters will be responsible for the most ludicrous, authoritarian act of Congress in a generation, which is an impressive feat.

The will, literally, have signed away the last of their feebly dwindling powers, the power of the purse.

[thod]

Its got tax cuts in it. Thats enough to get any house republican to switch votes. We don't ask about minor details such as how a bill supposedly funded by increasing tax's is to be repaid with lowering tax's.

[Sliderule]

Isn't there some quote about doing the same thing over and over and expecting the outcome to be different?

That's the definition of insanity, and very apt word to be used when describing the current American economy.

"To repeat the same action and each time expect the outcome to be different."

Really, bout sums it up.

One Dutch newspaper said this is the end of the (neoconservative) capitalist system. I figuratively wept sweet tears of joy. (More at the frankness of the paper.)

On a side note how are things going over abouts where you are Zibber? Are people in Europe concerned about our impending doom and the possible effects it may have on them? Europe seems to be standing up fairly well so far, but trying to find coverage of any happenings outside of the U.S. inside of the U.S. is difficult at best.

[michael ingram]

Thank goodness those Republicans voted it down!

[TheLastMohican]

But now another version has passed the Senate... *fingers crossed*

[md21017md]

Isn't there some quote about doing the same thing over and over and expecting the outcome to be different?

That is what Einstein said about foolishness.

[Allie]

On a side note how are things going over abouts where you are Zibber? Are people in Europe concerned about our impending doom and the possible effects it may have on them? Europe seems to be standing up fairly well so far, but trying to find coverage of any happenings outside of the U.S. inside of the U.S. is difficult at best.

For what it's worth, here's the European situation:

To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.

[AJB]

Looks like they passed it this time around.

Does it look like we'll be bailing out more than just American institutions? Or am I mis-reading / mis-understanding this?

To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.


SEC. 112. COORDINATION WITH FOREIGN AUTHORITIES AND CENTRAL BANKS.

The Secretary shall coordinate, as appropriate, with foreign financial authorities and central banks to work toward the establishment of similar programs by such authorities and central banks. To the extent that such foreign financial authorities or banks hold troubled assets as a result of extending financing to financial institutions that have failed or defaulted on such financing, such troubled assets qualify for purchase under section 101.


Here's section 101 if you want to read it.



SEC. 101. PURCHASES OF TROUBLED ASSETS.

(a) Offices; Authority-

(1) AUTHORITY- The Secretary is authorized to establish the Troubled Asset Relief Program (or `TARP') to purchase, and to make and fund commitments to purchase, troubled assets from any financial institution, on such terms and conditions as are determined by the Secretary, and in accordance with this Act and the policies and procedures developed and published by the Secretary.

(2) COMMENCEMENT OF PROGRAM- Establishment of the policies and procedures and other similar administrative requirements imposed on the Secretary by this Act are not intended to delay the commencement of the TARP.

(3) ESTABLISHMENT OF TREASURY OFFICE-

(A) IN GENERAL- The Secretary shall implement any program under paragraph (1) through an Office of Financial Stability, established for such purpose within the Office of Domestic Finance of the Department of the Treasury, which office shall be headed by an Assistant Secretary of the Treasury, appointed by the President, by and with the advice and consent of the Senate, except that an interim Assistant Secretary may be appointed by the Secretary.

(B) CLERICAL AMENDMENTS-

(i) TITLE 5- Section 5315 of title 5, United States Code, is amended in the item relating to Assistant Secretaries of the Treasury, by striking `(9)' and inserting `(10)'.

(ii) TITLE 31- Section 301(e) of title 31, United States Code, is amended by striking `9' and inserting `10'.

(b) Consultation- In exercising the authority under this section, the Secretary shall consult with the Board, the Corporation, the Comptroller of the Currency, the Director of the Office of Thrift Supervision, the Chairman of the National Credit Union Administration Board, and the Secretary of Housing and Urban Development.

(c) Necessary Actions- The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this Act, including, without limitation, the following:

(1) The Secretary shall have direct hiring authority with respect to the appointment of employees to administer this Act.

(2) Entering into contracts, including contracts for services authorized by section 3109 of title 5, United States Code.

(3) Designating financial institutions as financial agents of the Federal Government, and such institutions shall perform all such reasonable duties related to this Act as financial agents of the Federal Government as may be required.

(4) In order to provide the Secretary with the flexibility to manage troubled assets in a manner designed to minimize cost to the taxpayers, establishing vehicles that are authorized, subject to supervision by the Secretary, to purchase, hold, and sell troubled assets and issue obligations.

(5) Issuing such regulations and other guidance as may be necessary or appropriate to define terms or carry out the authorities or purposes of this Act.

(d) Program Guidelines- Before the earlier of the end of the 2-business-day period beginning on the date of the first purchase of troubled assets pursuant to the authority under this section or the end of the 45-day period beginning on the date of enactment of this Act, the Secretary shall publish program guidelines, including the following:

(1) Mechanisms for purchasing troubled assets.

(2) Methods for pricing and valuing troubled assets.

(3) Procedures for selecting asset managers.

(4) Criteria for identifying troubled assets for purchase.

(e) Preventing Unjust Enrichment- In making purchases under the authority of this Act, the Secretary shall take such steps as may be necessary to prevent unjust enrichment of financial institutions participating in a program established under this section, including by preventing the sale of a troubled asset to the Secretary at a higher price than what the seller paid to purchase the asset. This subsection does not apply to troubled assets acquired in a merger or acquisition, or a purchase of assets from a financial institution in conservatorship or receivership, or that has initiated bankruptcy proceedings under title 11, United States Code.

[GuerrillaVoyage]

Thank goodness those Republicans voted it down!

Only to add another 110 billion in pointless spending and shoot it through today eh?