Posts
553
Joined
10/18/2006
Location
Gilbert, AZ, USA
Edited Date/Time
1/23/2012 12:57pm
Like many of you, I am infuriated by the position that the American Taxpayer finds himself in today. But beyond that, what the hell is the fix? How did we get to this point and how do we prevent it in the future? It seems to me that bailing out Wall Street is only going to temporarily fix a terminally ill situation. I don't like the idea of government intervention and subsequent oversight. Seems that this will only lead to our government incrementally becoming more and too involved in the free market system. I am not so sure that I wouldn't be willing to go through 5-10 years of economic hardship in order to set a precident for our children about how to be fiscally responsible. I know may people who came through the depression era who were better people because of it. Would that be so bad right now if it meant that we let the free market system work itself out?
IMO, certain aspects of our world require some level of regulation, such as banking, mortgage, healthcare.
Without it, corporate profitability overrules common sense, fair play and national interests.
That is how we got here.
BTW, I don't really see it as a "bail out" and I think it's an inaccurate term in this instance, it's a fire sale investment.
If any business was given an opportunity to purchase millions or billions of dollars in assets at 20 or 30 cents on the dollar, it would be a wise move, right?
Sure, you risk a certain level of breakage, maybe 10% or 20%, but in the long run profits on the resale of the assets should off-set the losses, especially if the new owners (Gov't) re-negotiates any bad or near bad mortgages to a lower rate to keep people in their homes and paying the mortgages.
My congressman is up for re-election in Nov, I sent him an e-mail today letting him know that if he supports the bailout or obstains from the vote, then I am voting for the other guy instead of him.
If they approve this bailout, then I say we start a new plan for Nov, instead of voting along party lines, vote for the new guy or gal. Lets clean house and get rid of as many current DC residents as we can in the upcoming election and replace them with someone else.
That is how we can still make a dent in this system, if may be after the fact, but it still might send a message.
My real questions for this threat are centered around how do we fix or make this right for the long term. While I can admit that regulation would help a great deal in the short term, but isn't letting the industry tank a form of the market regulating itself? A painful way of doing it, but possibly a cyclical purging of the unecessary like Darwin's theory of natural selection? I honestly don't know the answer for sure here. I am just trying to figure some things out. What a pile of crap we find ourselves in.
That said, this is how this all seems to me.
If we do nothing, the banks will all seize up like a hodaka piston.
There will be no credit, and while on the surface this may not seem like too big a deal, it will kill many businesses and industries that rely on credit and revolving credit lines to stay in business.
An example I have used prior is the simple farmer, and let's look at a corn farmer.
It takes (for example) a corn farmer $100,000 to bring a crop to market, from seed, to fertilizer, to equipment fuel and repairs, to staff pay to harvesting and shipping.
Mr Farmer does not have $100,000 lying around and the profit on corn is not high enough to allow him to have that much left over for the next year. So Mr Farmer has a line of credit (LoC) at his bank and that is how he stays in business every season.
If the banks became so cash poor they cannot offer credit and revoke Mr Farmer's LoC, Mr Farmer is out of business.
and your cost of corn and corn products go up and more and more corn farmers fail
and other farmers and ranchers fail
Trucking companies don't have hundreds of thousands or millions of dollars in liquidity on hand to pay for fuel, so they too use a LoC.
No LoC, no fuel, no company, no trucking
While the fish may stink at the head, the whole fish is still dead.
Best we can do at this point is fillet the fish and try to at least make something of it, while discarding the head.
Bank collapse is not an option
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the market was doing just fine before that.
Nor one sole person or party to blame
Kudos
the prob started when GOVERNMENT told business WHO TO GIVE LOANS TO.
One day, you'll grow up
You said you just purchased a house, right? What would happen if you get laid off tommorrow? What happens if you find you need to have major work done on your house or your car dies and you have to replace it? What happens if you are injured and have to go on short/long term disability, you have enough savings to cover your bills for 3-6 months on say 50 to 70% of your current pay? What if you cannot work for a period of time and your job doesn't offer STD and LTD? Can you stand on your own and pay all your bills on time without using your credit cards?
You may be able to swing that. The problem is a lot of folks cannot do it. I don't buy the people living beyond their means argument a lot of people. People waste money on a lot of things, you and I included.
selling a 0 down loan to a couple million people didn't cause this, no one thing did. The regulated banks are still strong,(BoA for example) had adequate reserves to cover their bad bets (11:1). Morgan Stanley, lehman, bear, etc did not (20:1-40:1 leverage). Let me guess, this is clinton's fault too right?
Future planning is fine and good, but we have to do something about now.
A collapse of the banking industry benefits no one and shuts down a great deal of our Nation's industry.
IMO, deregulation was bad.
Greed ran wild, and as Gordon Gecko said:
"The point is, ladies and gentleman, that greed -- for lack of a better word -- is good.
Greed is right.
Greed works.
Greed clarifies, cuts through, and captures the essence of the evolutionary spirit.
Greed, in all of its forms -- greed for life, for money, for love, knowledge -- has marked the upward surge of mankind.
And greed -- you mark my words -- will not only save Teldar Paper, but that other malfunctioning corporation called the USA."
Pit Row
I agree that greed can be disasterous.
How does bailing out the banks now insure that it will never happen again in the future. That is really what I am about. I am ready to suffer through a depression if it means we begin living by principles that will truely secure our financial system long term. What we are doing today seems like a slippery slope toward a socialistic system. I.E. I saw yesterday that the automakers hands are being filled with Billions of dollars. Who and what is next?
Reset, fix the bad, move forward
Never should've done that
Additionally, LOC's won't be revoked simply because of tightening credit.......those are contractual arrangements, and will remain in place as long as the holder maintains the terms. Using Agriculture as an example is probably not very valid.......as the ag loan industry is a bit different.....but the trucking example is spot on. In Dave's theory, the trucking industry would collapse because no credit could be extended for fuel. However, the opposing theory suggests that companies who have maintained good credit, have an existing LOC, or have a strong balance sheet.....will be able to attract more customers by not passing on the higher cost of credit to it's customer base, while weaker companies will ask for up front money, or pass on the higher cost of credit to it's customers.....resulting in a shrinking customer base, until such point in time as they become an opportunity for the stronger company. In the case of the trucking industry, the smaller owner operators will take the brunt of it. Luckily (well, not for them, but for the economy as a whole), the rising gas costs have already taken a darwinian toll in the trucking industry, and only the strongest owner operators and companies are still operating....so most of the buyout and consolidation has already happened there...but there is room for more.
The tight credit will act to offset inflation as well.
The interesting thing is, not only do we have opposing viewpoints on what NOT doing the bail out will cause..........there is just as much disconnect in how it will help or not help as the case may be.
Both sides agree that if the bail out does not do what it's intended to do...........the consequences will be as bad or worse than no bail out at all.
This is my own economic theory. Call it X's Theory of Self Interest. My theory states that most entities, either individual or corporate.........are incapable of sitting on cash when market conditions suggest a bottom. This is based on two things: First, the fear of missing the bottom and not making as much money outweighs the fear of buying back in too early. Second, once a major player makes a move, the majority of other individuals, or corporations, will follow.
This extends outside of stocks. For example, a lending institution is inherently more afraid of not making good loans (maximum interest at minimum risk) during an economic recovery.......than making bad loans during a recession or market decline.
I believe that greed will save the day, regardless of the bail out.
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