Fed Bailout Plan

[nascar]

Paulson outlines bold approach to end crisis
Friday September 19, 10:54 am ET
By Jeannine Aversa and Julie Hirschfeld Davis, Associated Press Writers Paulson outlines expensive, multi-faceted approach in hopes of ending financial crisis

WASHINGTON (AP) -- Treasury Secretary Henry Paulson on Friday sketched out a multi-faceted effort to confront the worst U.S. financial crisis in decades, outlining a program that could cost taxpayers "hundreds of billions" of dollars to buy up bad mortgages and other toxic debt that has unhinged Wall Street.


:evil:

[almost_there]

I'm glad someone posted this because I've wanted to discuss it and ask questions of the members here that may understand this much better than I do.

One question my DH and I have is "how could a financial business become so huge that it would be so dangerous to the entire system to let it fail?" I suppose the answer has to do with the free market and being able to climb as high as you can as a business :confused:

And in the case of mortgage servicing fraud which caused me to loose a house and have my credit ruined through bankruptcy, now I have to pay the same system that screwed me over through my tax dollars, too? Am I correct about this? This seems so crazy. I want to understand and be smart with my money - I am happy to report that my credit repair and rebuild is going extremely well now that we are in our new house and have the BK behind us - I know I can understand if someone explains it to me. x:-) Thanks.

could cost taxpayers "hundreds of billions" of dollars to buy up bad mortgages and other toxic debt that has unhinged Wall Street
Is this what it looks like - we're being told to write a blank check?

[nascar]

What burns my ass is that it's the same investors and speculators and who made bazillions of dollars in the process of causing this problem who are the asking for a bailout now that their luck has turned.

[Ravenous Wolf]

One question my DH and I have is "how could a financial business become so huge that it would be so dangerous to the entire system to let it fail?" I suppose the answer has to do with the free market and being able to climb as high as you can as a business

That has absolutely nothing to do with the free market. It is Uncle Sugar handing out corporate welfare to prop up people who make bad decisions. Inversely, Uncle Sugar severely penalizes people who make good decisions with whopping taxes.

In a true free market, things need to fail just as things need to succeed.

However, politicians from both sides of aisle are not going to let things take their natural course because nobody wants to be blamed for it (and the media is the worst source of information about economics).

[almost_there]

(and the media is the worst source of information about economics).

Could you recommend a good source of basic economic info? I never took an Econ. class in HS or college, but I'd like to learn more. I learned all about consumer credit out of neccessity, now I guess it's time to tackle economics and investing. I watch financial people like Jim Cramer, Suze Orman, etc. but if you were recommending a source of information to someone that's never had an Economics class - where would I start? Any must read books, for example?

Thanks.

[Ravenous Wolf]

I watch financial people like Jim Cramer, Suze Orman, etc. but if you were recommending a source of information to someone that's never had an Economics class - where would I start? Any must read books, for example?

That is a good question to ask and it is a lot harder to give an answer to, and mostly because it depends what you are looking for.

I have a degree in accounting so I have taken plenty of economics, business, and law classes so the reason I bash the media is because of how they report a complicated newstory into a simplistic thirty or sixty second sound bite. There is a lot more complexity involved because there are a lot of external social, political, cultural, etc issues involved.

Now if you are looking for information about investments, Jim Cramer is a good place to start even though a lot of people bash him. He gives a good background about companies and about their operating environment (in which EVERY industry is different). Of course there are a lot of complex finance and investing books out there but that is a good primer to see what the world of investing is about (mostly because he is entertaining to watch and he goes into detail on how certain industries work).

[Bigwoodystyl]

I agree with Wolf... It is a great question to ask, and an even harder question to answer. This is because the answer itself is overly complex.


It’s also hard to know what you're looking for in the context of this thread. If you want to understand why modern governments enact economic policies as they do, and why a true laissez-faire economy is rarely a reality, you need to understand macroeconomics. A discussion of macroeconomics IMHO should begin with Keynesian Theory, since in this field there really is classical theory before Keynes, Keynes' Theory and then theories after Keynes....

A logical place to start reading, then, is with Lord John Maynard Keynes' The General Theory of Employment, Interest and Money. Then, compare/contrast this with classical and contemporary macroeconomic theories. (Note: this assumes you know at least some basic classical economic theory: supply and demand, etc. If not, you could start with Wealth of Nations by Adam Smith (who is widely considered the father of modern classical economics). You could also go with a textbook to start (although, IMO, this would make a dry subject even drier)... The Principles of Economics by Greg Mankiw (Harvard professor and advisor to George W Bush) is a thorough textbook written for entry-level Econ work.


To be overly simplistic, in terms of today's macroeconomics' schools of thought, you have:

--"New" classical economics (neoclassical microeconomics applied large scale to macroenomics)

--"New" Keynesian theory (which provides classical theory to explain original Keynes' theories... )

--"Post" Keynesian theory (which is a unique subset of Keynesian Theory, and somewhat "piggybacks" Keyne's ideals into a whole new theory driven by the theory of aggregate demand.)


--Monetarism, which to overly simplify again, is basically a theory that states inflation is related solely to the supply of money.



You could read Monetary History of the United States by Milton Friedman. This would give you an understanding of previous US economic policies, but it would also be heavily slanted toward Monetarism.


For a more objective look, you could read Seven Schools of Macroeconomic Thought by Edmund S Phelps.


(Because you mentioned Free Markets)

For a better understanding of Free Markets, I would recommend reading Free to Choose (or watching the 10 part TV series with the same title) and also Capitalism and Freedom both by Milton Friedman. (Note: This is heavily slanted toward advocating free market policy in the US…)




If you're looking for books on investing, these were somewhat discussed in the following thread:

http://debt-consolidation-credit-repair-service.com/forums/showthread.php?t=285280&highlight=andrew+tobias (http://debt-consolidation-credit-repair-service.com/forums/showthread.php?t=285280&highlight=andrew+tobias)


A book I didn’t recommend then (and don’t know why) is:

The Intelligent Investor, by Benjamin Graham

Just in case you were unaware, Benjamin Graham was Warren Buffet’s mentor and one of the versions of this book contains an introduction and appendix, written by Buffet.






Whether any of that helps you, or not, I don't know; my guess is that it probably looks somewhat daunting.. If you decide to read any of those books, you'd be taking a step forward... almost all of the books I mentioned are considered classics or modern classics...






.

[AISLE4]

The plan is outright theft. The socialization of debt and the privatization of profits. If the Glass-Steagall Act hadn't been overturned in 1999 this financial morass would have been avoided, but we can't stop the banksters and Wall Street from maximizing profits. The "plan" does nothing but reward Wall Street for their rampant greed and ignores their criminal deeds. It really is a spotlight on who has the power in this country...and all over the world: the money men. The politicians are hand puppets and the tax-paying citizens are the unwitting dupes.

[almost_there]

my guess is that it probably looks somewhat daunting...

Thanks, actually, for giving me so many detailed suggestions. I'll definitely follow up and investigate these titles for myself. Since last November when we discovered our mortgage servicer "stealing" from us, I've been on a quest to truly understand what happened to me - and what's been happening to homeowner's all over the country. My gut told me that if things were as bad as I felt it to be, this country was in serious trouble. Now I'm starting to see my worst fears play out. I feel the most important asset I can leverage, in the midst of fear or crisis, is my mind/knowledge.

I have 2 things, among others, I'd like to see added to any bailout plan
1) a plan for the implementation of comprehensive Financial Literacy Education of American students and citizens

and

2) some means for people like myself, victimized by the mortgage servicers, to restore our credit to a pre-fraud rating. I don't know how this would work exactly or what would be considered truly fair, but before all this happened we had rebuilt above average credit (low 700's) and now we are on our way to recovery but with the baggage of a BK for the next 10 years.

[almost_there]

Well, I spent some time online just now reading about some of the theories of economics - Milton Friedman and Keynes, specifically - and I also looked up "free market" which is a term I used initially and now I know that if there was alot of fraud involved in this entire meltdown, which I believe there has been...alot...then that wasn't actually the free market.

As soon as I started reading, I also noted how inter-related economic ideaology is tied to political ideaology, which I knew before but not why. Very fascinating!

[jq26]

I find these guys are right on point. I've been reading their weekly transcripts for the past two years: http://financialsense.com/fsn/2008.html
The transcripts are a week behind but still right on point and very informative. And they aren't selling anything.

Another way you can get informed is by listening to Ray Lucia. He is on many AM stations across the country. You can also buy his book for $20. Probably can find out if you can get him on the radio by googling.

Neither of the suggestions above are going to get you into charts and graphs and technical analysis. Its broad based but accurate.

Any book by John Bogle is also good. His new one is the most critical of the system. Interesting take because he founded VanGard and is worth over a billion. But his thesis is correct- financial systems are nothing more than a parasite to the real economy (this is why VanGard funds are known as the lowest cost- to minimize the parasitic costs).

Bryan Burrough wrote a good book called Barbarians at the Gate. Its specific to the Leverage Buyout (LBO) that occurred with RJ Nabisco but there is much to learn.

Good luck and have fun with it. Keep in mind that much of the info out there only cherrypicks cases of extreme excess to make their point and ignores the major successes of the system in its entirety. So keep that in mind while reading...

[amortgageman]

http://money.cnn.com/2008/09/20/news/economy/treasury_proposal/index.htm?postversion=2008092011

His proposal and the other guy, who we cannot name, because it may bring in political discussion.

Paulsons proposal would basically give him free rein to spend $700 billion dollars any damn way he wishes. The bill gives him exclusive control on the oversight of these funds.

This is bad, way, way bad.

How do we get rid of this guy before he finishes destroying America's financial wellbeing?

[amortgageman]

Pay close attention to Section 2 (b) 2, where it states

(2) entering into contracts, including contracts for services authorized by section 3109 of title 5, United States Code, without regard to any other provision of law regarding public contracts;

[jq26]

:?: Where is Paul Volcker when you need 'em?

[amortgageman]

Sec. 8. Review.

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

[AboveAverage]

Basically, it is ok to spend my taxpayer monies keep rich men rich but when it comes to spending money on good social programs, that's bad, evil and darn-right communist.....

This is just wrong and we as Americans need to hold those accountable to this plan responsible for this.

"Voldemort" (he whose name we dare not speak lest this thread be dead [God I feel like such a dork for using a Harry Potter reference...I swear I don't read the books....]) will be gone soon. But this will be out of the hands of the Executive Branch and go straight into the Legislative....to go back to the Executive Branch. So this will really be Congress' fault, if anything.

Folks need to pay attention to those who rubber stamp this and remember this when the time is right. But people need to know this: those who hate welfare and social programs because they don't want to spend money on poor people, but yet say hey, Bear Stearns, Fannie Mae, Freddie Mac and AIG ----ed up, lets use taxpayer money to save them and have so******m for the rich ought to pretty much call themselves hypocrites....and if certain people were smart, they would use this very thing in the next coming weeks....but that's pretty much as much as I'll say about that jazz. :!:

[jq26]

Folks, keep in mind that Congress is driving this. They're pushing it, crafting it, and passing it. The White House can't spend a dime without Congress doling out the funds. So keep that in mind when assessing blame. The White House fought this but then gave in when all hell broke loose last week. A certain two repugnant Congressman that oppose the White House on almost every issue (hint: one has a lisp) have been pushing this for months and even trying to expand it beyond the current juggernaut. This is bipartisan stupidity in every way.

[admin]

Folks, keep in mind that Congress is driving this. They're pushing it, crafting it, and passing it. The White House can't spend a dime without Congress doling out the funds. So keep that in mind when assessing blame. The White House fought this but then gave in when all hell broke loose last week. A certain two repugnant Congressman that oppose the White House on almost every issue (hint: one has a lisp) have been pushing this for months and even trying to expand it beyond the current juggernaut. This is bipartisan stupidity in every way.

Actually, Congress is in the friggin' way. They are currently holding things up. It's the Treasury folks that are manning the ship. If we left this up to Congress, we'd be at the bottom of the ocean floor. The partisan crap has to stop. Fix it, already.

[AboveAverage]

Actually, Congress is in the friggin' way. They are currently holding things up. It's the Treasury folks that are manning the ship. If we left this up to Congress, we'd be at the bottom of the ocean floor. The partisan crap has to stop. Fix it, already.

What needs fixing though? These companies got greedy, took some chances and now failure happened. If Wall Street was left alone by the government, yeah there would be pain felt by many Americans (joblessness, etc) but then it would take some time to correct itself. Why can't the cycle happen the way it should? All this is doing is prolonging the inevitable when this all comes to roost. Laissez-faire should pretty much be followed.

What is happening now is that the rulebook is changing as this mess is going on. What I'd like to know is why?

[jq26]

Why? Because Americans are conditioned that they live on inflated asset prices. When the floor drops out, we prop it up again. What a joke.

The Dow is down 20%. In comparison, the Nikkei is down 40% and the CSI300 is down 60%! And yet they are not crafting bailouts to prop up their asset prices.

Americans need to get real. Living like the Vanderbilts on the median income is not sustainable. Time to to pay the price. I'm not sure who is more stupid- the borrower who took on a 0 down 2yr ARM or the bank that lent them the money. Both of these fools should pay the price. Not Joe Taxpayer.

[Goldbug]

So the Fed is privatizing profit and socializing debt? A good deal for somebody, and it's not us! Anybody e-mailed their congressman? Let's turn up the heat on these #$$&*@!$.:evil:


Goldbug (Rabble Rouser)

[Ravenous Wolf]

The Dow is down 20%. In comparison, the Nikkei is down 40% and the CSI300 is down 60%! And yet they are not crafting bailouts to prop up their asset prices.

Americans need to get real. Living like the Vanderbilts on the median income is not sustainable. Time to to pay the price. I'm not sure who is more stupid- the borrower who took on a 0 down 2yr ARM or the bank that lent them the money. Both of these fools should pay the price. Not Joe Taxpayer.

But that is the worst part about allowing politics into economics. Regardless of whatever your politican persuasion is (and I don't want to get into it because it only turns into ugly name calling), both political parties are knee deep into it and both support the bailouts and both support corporate welfare. They just say it and do it in different ways depending on how the media chooses to report it.

So what is wrong with failure?

That is what this country was built on? If you screw up, then go ahead and try again but try it differently and see what happens. Over a generation ago, this country accomplished great things without these kinds of safety nets but times have changed.

People don't have a problem watching a football game because one team is going to lose. But here in the real world, people act as if you are asking them to hand over their left nut if somebody loses.

Whether it is economics, education, a hurricane, or whatever, the word "failure" has become such a four letter word...

[Bigwoodystyl]

In 1979, the entire national debt was $1.5 trillion (adjusted for inflation).. That is, 1.5 trillion of today's dollars.

This June/July, the national debt was raised 800 million, and this week's bailout is estimated at 700 million conservatively. Most estimate it closer to a trillion.

If we take the conservative 700 million, that is 1.5 trillion in the last 3 months, more than what was accumulated in the first 200+ years of the nation's history.

In 1998, the national debt was 5 trillion dollars (adjusted for inflation). During the 43rd president's term, the debt has increased by 6 trillion dollars. Keep in mind, (IMHO, this is supposed to be an Executive Leader from the party who opposes big government..)