2008.09.30
Let's talk dollars and sense
Question for you: Were we being so eager to punish the fat cats on Wall Street that we were willing to jeopardize the economy by initially urging congressman to reject the $700 billion bailout?
Apparently, that "cut off the nose to spite the face" sentiiment is turning. Congressional staff report that anti-bailout calls from constituents have given way to calls to "DO SOMETHING!" The public decided Congress needed to get over the partisan intransigence and come up with a solution to the nation's financial crisis. It looks like that got some congressmen off the dime with a renewed purpose to try to hammer out something and get it to Bush by the end of the week. We're all flying blind here. I haven't spoken with one person who is happy about the bailout; all fear the unknown of what will happen with it---and without it.
David Leonhardt of The New York Times wrote a wonderful contextual piece about the similarities of today's financial meltdown and the Great Depression.
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Yes Shanna, it is a case of "what to do, what to do?"
In December 07, Bush said there was no problem! And so stimulas tax rebates,quieted some, but I have seen this coming for 4 years. And yes, I have friends, and loved ones on the line with worthless investments.
However, pretatory, realestate agents, lenders, inflated home prices,banks, all this combined to be the feeding frenzy as it were, while health care cost sky rocketed, and wages for the middle incomer and below did not keep up with the rate of inflation, made this Wallstreet an accident waiting to happen. Bailing out the "big boys" instead the "little people'creats mistrust. And there are those who will always consider "it" someone elses problem.
I understand those in fear of their investments, and those who oppose the bail out. Living with someone who "robbed Peter to pay Paul" always telling me "not to worry", when there was/is plently to be concerned about, has me extreamely aware of the sham that now affects each American now. And the "fallout" just keeps coming, doesn't it? Fear should not ever rule one's life in any way. Thinking that someone, be it goverment, or your mate has your back[covered] can be a deadly falsehood; a setup for failure.
This situation will revel it's self exactly as it was/is intended to. I suggest prayers.
Comment by Dona Wheeler/Roanoke — October 1, 2008 @ 2:23 am
Seize or freeze the assets of all associated with this financial turmoil starting with the fat cat executives, big whig lobbyists, and government officials as collateral...as we would a terrotist state until we can sort out who the crooks are in this attack on America's life, liberty, and pursuit of happiness...in this case, peace of mind.
Comment by Bobby Buck — October 1, 2008 @ 8:10 am
Shanna - I'm sure you've seen Dave Ramsey before, he a smart man and I think his proposal (mentioned below) is worth a look:
Years of bad decisions and stupid mistakes have created an economic nightmare in this country, but $700 billion in new debt is not the answer. As a tax-paying American citizen, I will not support any congressperson who votes to implement such a policy. Instead, I submit the following three steps:
Common Sense Plan.
I. INSURANCE
A. Insure the subprime bonds/mortgages with an underlying FHA-type insurance. Government-insured and backed loans would have an instant market all over the world, creating immediate and needed liquidity.
B. In order for a company to accept the government-backed insurance, they must do two things:
1. Rewrite any mortgage that is more than three months delinquent to a 6% fixed-rate mortgage.
a. Roll all back payments with no late fees or legal costs into the balance. This brings homeowners current and allows them a chance to keep their homes.
b. Cancel all prepayment penalties to encourage refinancing or the sale of the property to pay off the bad loan. In the event of foreclosure or short sale, the borrower will not be held liable for any deficit balance. FHA does this now, and that encourages mortgage companies to go the extra mile while
working with the borrower—again limiting foreclosures and ruined lives.
2. Cancel ALL golden parachutes of EXISTING and FUTURE CEOs and executive team members as long as the company holds these government-insured bonds/mortgages. This keeps underperforming executives from being paid when they don’t do their jobs.
C. This backstop will cost less than $50 billion—a small fraction of the current proposal.
II. MARK TO MARKET
A. Remove mark to market accounting rules for two years on only subprime Tier III bonds/mortgages. This keeps companies from being forced to artificially mark down bonds/mortgages below the value of the underlying mortgages and real estate.
B. This move creates patience in the market and has an immediate stabilizing effect on failing and ailing banks—and it costs the taxpayer nothing.
III. CAPITAL GAINS TAX
A. Remove the capital gains tax completely. Investors will flood the real estate and stock market in search of tax-free profits, creating tremendous—and immediate—liquidity in the markets. Again, this costs the taxpayer nothing.
B. This move will be seen as a lightning rod politically because many will say it is helping the rich. The truth is the rich will benefit, but it will be their money that stimulates the economy. This will enable all Americans to have more stable jobs and retirement investments that go up instead of down. This is not a time for envy, and it’s not a time for politics. It’s time for all of us, as Americans, to
stand up, speak out, and fix this mess.
Comment by Jamie — October 1, 2008 @ 10:45 am
The suggestion for prayer is most likely the only thing we can do now. As Shanna said, we're terrified of what will happen with the bailout and what will happen without the bailout. God bless our leaders and this country!
Comment by Lo — October 1, 2008 @ 11:12 am
They created the problem, not the taxpayers. I say help the little guy and let the big guys dominoes fall where they may. I will not vote to re-elect any senator who votes for the passing of this bill when his time comes. Some voters, like me, have a very long memory and my senator knows my feelings.... hopefully you have all e-mailed yours as well. I've seen far too many scare tactics by the Bush administration and as far as I am concerned he has cried wolf for the last time. Bless this country.... yes... but our leaders? NO WAY! No Bailout.
Comment by Diane Cayton-Hakey — October 1, 2008 @ 2:20 pm
Jamie,
My limited knowledge of the financial market is going to show here in my respectful disagreement with some of the points in your posting. The market is a huge, complex beast, and I'm sure my limited understanding oversimplifies it too much, but here goes.
1) Insuring subprime loans: Doesn't this just shift risk to the taxpayer? Would this continue the whole "personal gain, but distributed risk" scenario? People are already arguing that's what got us here...companies took on large risks assuming the gov't would step in and bail out.
2) Rewriting loans: As a mortgage holder, I see this as a penalty to me. I practiced restraint in my purchase, and I work very hard to ensure I make payments. Now I see someone who either over-extended or did not prioritize correctly getting "bailed out". Rather than rewriting, how about transferring the mortgage, and house, to someone who will contract to comply with the payment schedule?
3) Refinancing: Not sure many banks will refinance with negative equity. My house has lost about $100k in the last year. I don't think any bank would touch that refinance.
4) "golden parachutes": I appreciate the sentiment to "stick it to the man", but for any shift in policy/practice to be effective, it will have to come from everyone on the inside. Companies, and stockholders, will have to start stepping up and demanding results comparable to compensation. I don't think government-defined compensation will be the way to go.
5) I'm not sure removing capital gains tax would flood the market with investors. For them to see a benefit, there would have to be a gain in the investment. Things aren't exactly gaining right now due to housing values and market uncertainty of the future. Perhaps people would flood assuming things would rise. From what I can tell, the market is an "illusion" anyway, in that much of the gains and losses are speculation and emotion rather than solid financial/economic factors.
Also, removal of the capital gains tax would likely affect the taxpayer. Especially with gov't revenues down this year, where would the replacement revenue come from?
Just for discussion. Again, there may be holes, and I'm happy to discuss.
Comment by Ed S. — October 1, 2008 @ 2:39 pm
I think Ed found and filled in most of the holes in the other post. Golden Parachutes already carry heavy tax burdens and that hasn't deterred them in the least. Eliminating capital gains is going to shift funds into real estate? Why would someone even consider MOVING funds if there were no reduced rate on gains? I did hear mention of one pretty good idea today, by of all people, Obama (McCain quickly agreed), and that was to raise the FDIC insurance on deposits from the current $100K to $250. I'd rather see a million, but it's a start. As for insuring all these flimsy mortgages, that's a nonstarter. Why reward the same practices that have necessitated the current bailout?
Comment by Mike — October 1, 2008 @ 9:12 pm
The bailout rewards the problem makers, government and the excessively greedy bankers. In addition, Congress is attaching unrelated items to the bill as they ALWAYS do on all legistlation. Don't pass the bailout and the markets will sort this out by punishing the bad risk managers and not burden the taxpayers with the cost. The market will sort this out without a doomsday effect.
Ed, you're right on #s 1 and 2. #3 credit will be tight but lenders who are properly capitalized (yes, there are some) will come back to the market looking for good risk. #4 don't reward CEO's guilty of fraud and poor risk management, but the govt should never get involved with compensation indefinitely. #5 the capital gains tax would allow capital to allocate properly, set it high and no one funds the best ideas. In summary, don't bailout and let the fat fall away from a leaner stronger banking system. It's just like the Democrats to try and outlaw all things "bad".
Comment by Jim — October 1, 2008 @ 9:30 pm
WHAT A JOKE!!!! After the 9/11 scam, the Patriot Act, the Iraq War.....what FOOL on earth would be FOR ANYTHING The BushMaster was for? And add in the Pelosi @#%Q#% (rhymes with "witch") and the AIDS emaciated Harry Reid "for" it.....and anyone with ONE GRAIN of common sense should be AGAINST it, whatever it is!!!!!!!!!! Makes NO difference WHAT it is. If these 3 are FOR it, that's all an average person needs to know to be AGAINST IT.
Comment by Percy Kution — October 1, 2008 @ 10:00 pm
This is some great discussion, BTW.
I'm not sure what I think of the FDIC insurance limit increase yet. I just don't understand enough about the relationships in the system. The money would have to come from somewhere. In the event a major bank really failed, I'm not sure this would be enough to avert disaster.
Then again, maybe the system isn't as fragile as I think it is.
Comment by Ed S. — October 1, 2008 @ 10:28 pm
Florida Times Union Poll of Jacksonville Florida's of White and Minorities on the following questions:
1) Do you think the country is in an economic "crisis"?
93% Yes. (264 votes)
6% No. (17 votes)
2) Who will benefit from it the most?
70% Big corporations? (198 votes)
27% Politicians? (78 votes)
1% Small business and homeowners? (5 votes)
3) Who's to blame for the current situation?
43% Washington. (122 votes)
26% Banking executives. (74 votes)
20% No one, it was a number of factors. (58 votes)
7% Housing speculators. (20 votes)
2% Someone else. (7 votes)
4) Who do you think has a better plan to fix things?
45% None of the above. (129 votes)
30% John McCain. (85 votes)
22% Barack Obama. (64 votes)
1% President Bush. (3 votes)
Then if this economic indication of those polls though out the country, then why is Obama ahead?
Comment by Backlash — October 10, 2008 @ 10:05 am