O/T: The Bail Out

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The subject takes me back to 1960, a few weeks before graduation.
Was in an industrial engineering class, the instructor had spent a lifetime in the real world, and up to then, not much in the class room.
The subject of the Edsel, the 1958 FoMoCo screw up, the largest business screw up since the Curtis-Wright mess of 1940, was brought up for discussion.
Still remember the instructors advice:
Class, if you are going to screw up, make it as big as possible.
They fire you for making small mistakes.
They won't fire you if the mistake is big enough because that will make the guy who hired you look like an idiot.
Almost 50 years later, sounds like there is about to be a repeat application of that advice.
Lew
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Lew Hodgett wrote:

Yep, despite the fact that the congress-critters like Barney Frank and Chris "Country-wide" Dodd caused the problem by using Fannie Mae and Freddie Mac as their own playground to essentially socialize the mortgage market by setting standards so low that just about anybody could get a loan to buy a house, these congress-critters are going to continue get re-elected and now get even more taxpayer money to "manage" the bail-out of the problem they caused.
Talk about the ultimate promotion.
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These, of course, had nothing to do with anything... Renata
" Gramm-Leach-Bliley Act of 1999 ... ...By preventing mergers between the various branches of Wall Street, ...[this] act reversed basic Depression-era legislation passed to prevent the sort of collapse we are now experiencing.
Commodity Futures Modernization Act of 2000. ...legitimized the "swap agreements" and other "hybrid instruments" that are at the core of the crisis.
"Legal Certainty for Bank Products Act of 2000," Title IV of the law--a law that Gramm snuck in without hearings hours before the Christmas recess--provided Wall Street with an unbridled license to steal. It made certain that financiers could legally get away with a whole new array of financial rip-off schemes.
One of those provisions, summarized by the heading of Title III, ensured the "Legal Certainty for Swap Agreements," which successfully divorced the granters of subprime mortgage loans from any obligation to ever collect on them. That provision of Gramm's law is at the very heart of the problem. But the law went even further, prohibiting regulation of any of the new financial instruments permitted after the financial industry mergers: "No provision of the Commodity Exchange Act shall apply to, and the Commodity Futures Trading Commission shall not exercise regulatory authority with respect to, an identified banking product which had not been commonly offered, entered into, or provided in the United States by any bank on or before December 5, 2000. ..." from an article by Robert Scheer
On Wed, 24 Sep 2008 21:58:32 -0700, Mark & Juanita

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Renata wrote:

The core of the crisis was Freddie Mac and Fannie Mae for setting the loan standards so low that those swap agreements and hybrid instruments contained loans to people with no chance of paying them back. This was done at the direction of Congress who demanded an end to "redlining" and the availability of "affordable mortgages" to more people. At its height, it was possible for people to walk in and get a loan with no down payment and not even have proof of employment.

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The real core of the problem is not the direction of Congress so much as the implementation. Isn't it the fiduciary duty of banks etc to protect their depositors' and stockholders' "investments? Then they (the banks and investment firms) should have NOT invested in dubious loans and Ponzi schemes of insurance thereon. The fault of Congress is only in not insuring that there was proper oversight and regulation of the Ponzi schemes and 120% of value mortgages.
Don't blame attempts to increase home ownership and responsibility for irresponsible acts by greedy banks, investment and insurance firms, as well as corrupt ratings agencies. (Not saying that F&F are blameless).
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Han wrote:

So ... the banks are "irresponsible" and "greedy" for trying to maximize their profits. But the welfare queens who already were living off of everyone else's money are noble? The government is as responsible for this mess as the banks. So are the people who borrowed money for homes they could not actually afford. It's just convenient to blame the eeeeeeeeeeevil rich people because the slimy left has so ingrained class warfare in the public mind. The best thing we could do here would be *nothing*. Let all the participants in this fiasco reap what the sowed. Let the irresponsible banks go under. Let the irresponsible borrowers loose their homes and equity. Why should I have to pay to bail either party out?
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AIG was $579 billion in debt.
The CEO of AIG made 5.6 million which included a "performance bonus." for ruining the company.
Total US welfare costs are $440 million per year.
Blaiming the problem is those on welfare is really misguided and and frankly bigoted.
By the way - have you ever talked to anyone on Welfare? Like those people still living in FEMA trailers that have 5 times the normal level of Formaldehyde gas? I bet they feel like queens. Sure.
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Maxwell Lol wrote:

You must have trouble with elementary arithmetic. Of the $3 Trillion US Federal budget (never mind State and Local), over *half* is entitlement spending - welfare in all it's forms - by my count, that's north of $1.5 *Trillion* - you're missing a lot of zeros.
And it's only bigoted if you have to look in every nook and cranny to find bigotry and make yourself feel better. The overwhelming portion of the $1.5 trillion goes to elders in some form - who, last I checked, cover all flavors of race, religion, and so forth.
What is "bigoted", is the bigotry displayed here and in the larger culture against those of us who object to being made slaves to serve the dishonest and lazy majority.

Yes. I used to live next door to them. It's what made me realize what a complete scam social entitlements are.

Perhaps they shouldn't have built homes below sea level in the first place. Perhaps they shouldn't have elected the (arguably) most corrupt government in the entire nation in NOLA. Perhaps - after a major disaster - they shouldn't insist on living the same place again. And, perhaps, they shouldn't expect their Federal rehabilitation to give them a quality of life *better* than they ever had in the first place. The entire system is a fraud.
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It's always about "you" isn't it? Every time you open your mouth all that comes out is ME, ME, ME. Stick it to everybody else just as long as it doesn't cost you anything.You really are the quintessential definition of the word "selfishness".
Arrogant, greedy, selfish, don't give a damn for anyone except yourself. You exude some of the worst traits in the human condition.
Fortunately, a large amount of your countrymen fail to share your failings. Lucky for the rest of the world.
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Upscale wrote:

That's correct, it is about me. It's about no one - you particularly - having ever explained why the family of someone I've never met is more deserving of my hard work than *my* family. It's about no one - you particularly - having ever explained why I have to be a slave to lazy, irresponsible, dishonest people. That's right, it's about me.
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Yo should read your writings from the point of view of an unbiased mind, and you'll understand why I won't say anymore than <plonK>
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On Fri, 26 Sep 2008 09:36:42 -0500, Tim Daneliuk

Yes, if they did it by leveraging 40-50 to one and knew the risk factors. Watched some interviews yesterday with some CEO's of smaller banks and investement firms that are leveraged 3-4 to one and they are doing just fine, return on assets very repectable.

agreed.
agreed. The responsible rich did not cause this.

Better think this one through. So I make my 20% down payment, get a fixed interest rate, live frugally so that I can pay off my mortgage, live my life debt free, often denying myself and family things because I don't want debt, save religiously, make it to retirement oblivious of the fact that my pension fund and 401K, even though they are rather conservatively invested, are intertwined with these 40-50 to 1 leveraged firms that are going down and are at risk of catastrophic failure as a result.
The time for the hard line was before the fact. The people you describe as causative above will lose very little because they had no skin in the game. Those living off of someone else will walk away from their debt and continue to live off of somebody else. The greedy evil corporate bankers and CEO's will get large severance packages, and will complain at the country club that if it had held up they would be far richer. Politicians will continue to spin the truth and get elected or, if not, join lobbying firms to lobby their replacements.
But hundreds of millions described above, who had nothing to do with the cause, will suffer greatly. It is true that if nothing is done, they won't have to worry about paying to bail either party out, if this thing spirals down as modeled by a number of economists, they won't have enough assets and income to pay taxes to do so.
My thoughts.
Frank
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If this guy is right, it can't be good. Kevin Phillips on Bill Moyers: http://www.pbs.org/moyers/journal/09192008/watch2.html
Dave in Houston
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"Dave in Houston" wrote

This guy is right, and so are you!
Not only is he right, but if you go back and read through the archives of this newsgroup alone you will see his premise alluded to again and again by many of us common folk, particularly by those who share an all important age based perspective. All regarding issues such as loss of manufacturing, with emphasis on a burger flipping service economy and its attendant, ignorance based acceptance of shoddy goods and services; rampant corporate greed; a broken educational system (which, at its highest levels encourages that greed and blurs the distinction between morality and legality in our laws and social systems, with no moral compass to guide); social welfare trappings that exist mainly to salve a guilty conscious; illegal immigration; fiscal irresponsibility at all levels (just wait until the unsustainable credit card debt "bubble" hits the fan); and the inexplicable, tacitly allowed and insidious, government gridlock/ineptitude; which are all blatant, visible manifestations of an economy and culture spiraling downwards.
This crisis, with more to come, has been predictable for some time, which begs the question that if us common folk can see it coming, why the hell not our elected "representatives" ... for "leaders" they are provably not?
You can now sit back and wait for the next "crisis" stemming directly from the "What's in your wallet?" mentality.
Simply put: "what you sow, you shall reap"...
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A well-spent 26 minutes. Thanks for the link.
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Frank Boettcher wrote:

If we just let them fail, this problem would be self-correcting.

So that means - and I face this decision like so many others - we have to rebalance our retirement portfolios - now before the bottom falls out.

But, if we have bailout, we'll all be paying to *perpetuate* what you've just described.

You are - I think - right, up to a point. The problem is that there is *no* fix. The most the government can do is delay the inevitable. This whole mess starts and ends with business, individuals, and government living in economic fantasyland. Trying to buy our way out of it now with tax money will fix nothing. It will weaken the dollar and cause a consequent increase in oil prices. When government interdicts and distorts markets, no good thing comes from it. We need to get back to "Root, hog, or die" as did our forefathers.
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On Sat, 27 Sep 2008 11:10:19 -0500, Tim Daneliuk

Don't think so, too intertwined, I'm led to believe. But I'm no expert.

A lot of the damage has already been done there. And there is no place to go except hard assets and cash and cash isn't safe. If the big bucks flow out of equities and cost and availability of capital is nil for those "adding value to something that is mined or grown", then they go down, nobody has a job and nothing is worth anything. So the government starts the priniting press and cash becomes worthless. And when there is no one to sell anything to, hard assets don't have any value.

The fix is to prevent complete collapse, then gradually move in the other direction in an orderly fashion. That direction would be limited government, limited taxation, rewarded personal responsibility, regulatory action to only prevent fraud, deception, or outright illegal behavior.
Problem is, we may have gone too far to get back. We have attained a weird sort of government and economy that has creeping socialism on one end and those in favor of and reaping the benefits of that have allowed a sort of reckless captialism on the other end to fund it. Even though the game is all but over, nobody is going to give up their position if they don't have to.
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<SNIP>

It's not "creeping". We have leapt into the socialist sewer on virtually every front given almost any opportunity. It is ironic that Comrade Obama has admitted he may have to give up his communist health insurance ambitions to make room for the socialist economic bailout. Evil begets evil.

Well, the problem is that it wasn't really free market capitalism at all. It was more like oligarchic capitalism in which the largest center of money in the private sector took profit when it appeared (as they should), but laid off the risk and losses to the taxpayer whenever possible (which should never have happened). This is not a free market economy, it's a con game. This doesn't stop the Obama communists from claiming that this was a "failure of the free market". It was no such thing and they know it, but like all collectivists, at their heart, they are liars.
Pretty much every left government in the past 100 years has participated, but so have a good many of the the so-called right governments. I note with disdain that the airlines got protection from the Bush administration in the immediate aftermath of 9/11 even though their problems long predated this, for instance. Why? Because the sheeple howled that they had a "right" to a "fair" price. Just like Clinton told them they have a "right" to housing. Just like Comrade Obama invents a "right" to healthcare and so forth. In my very jaundiced (I admit) view, it is this body of invented and fictitious rights promised the sheeple that actually paved the way for the taxocrats and the oligarchs to pillage the country's coffers, private and public.
Maybe you're right, we need to find a softer landing for now. But on the other side of that, as you say, we need and immediate return to limited government, individual responsibility, and self-sufficiency. Every time some drooling ideologue insists on using tax money to "help" people, we need to point out that this was a large part of what led us to the meltdowns of 2008 ...

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Limiting government is easy to legislate. Individual responsibility is an ideal, almost impossile to legislate. Self-sufficiency is a dream, possibly attainable by erecting HUGE trade barriers, but who is going to profit from limited resources after the barriers are erected, pray answer?
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let alone enforce.

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