Bailout Bill Fails House Vote

[srmom]

Not to mention that the credit market is frozen so there is no credit going out.. want to buy a house? Oh well. Want to sell a house? As if it weren't hard enough already? Sorry, your buyers can't get a loan because there is no money to loan. New car? Hope you have $24,000 in cash to pay for it because there is no money to loan

It's not just cars and homes. In the business world, companies use credit to purchase capital machinery, buy inventory, invest in research and development, etc. The credit crisis is going to effect us all. Don't think you will be immune.

In the last 3 days 5 banks worldwide have failed. The panic is GLOBAL, and something must be done to help shore up confidence. European countries have been stepping in and injecting money into their banking system. The US, the largest economy, unfortunately is going to have to as well.

Small example:

My company sells capital machinery in the chemical and plastics industry. The companies that buy from us use credit to buy the machines (most companies don't have $100,000 laying around not being used). With banks not lending money, few capital expenditures will be made. My company will go under; I, and my co-employees will lose our jobs. The companies we represent will be unable to sell their product, they will go under, hundreds will lose their jobs.

This is not just a "bail out" of Wall Street fat cats, this is a problem for us all. It's just a matter of time when you, your family, your neighbors will be hit. I wish so much it weren't so, but it is and we'll be paying for it for a long time, one way or another.

This has been a long time coming. There have been warning signs for years, and our government (and we) have kept our heads in the sand, writing checks that we couldn't afford to cash.

[UGAalum94]

Originally Posted by PeppyGPhiB

People, people, people...we cannot allow AIG to go under. I don't think people get how serious this is. It isn't just a matter of saying, "Sucks to be them. They shouldn't have loaned people the money to buy big houses if they couldn't afford it. Let them die!" If AIG fails, so will a number of banks and lenders that AIG insures. And then NONE of the banks will have the money to conduct their business. FDIC will have NO meaning, because there won't be enough money to cover the losses. That's YOUR money that will be GONE. One day you may go to use your debit card and find that your bank will not allow you to withdraw any funds...because whoops, it doesn't have your money anymore...it's now at another bank, covering its debts.

I thought the AIG deal already went through separately.

And can you take me through how you get from AIG to FDIC failing completely?

ETA: This link is a little old considering what's happened between then and now, but it explains how the FDIC would meet it's obligations even if more banks did fail. http://biz.yahoo.com/ap/080916/bank_...ts_safety.html

I'm certainly not feeling good about things, but a real doomsday scenario seems a little further off than your post implies.

[a.e.B.O.T.]

Originally Posted by UGAalum94

I thought the AIG deal already went through separately.

And can you take me through how you get from AIG to FDIC failing completely?

FDIC insures bank deposits in the event that a bank fails, like AIG, WaMu, etc... its the govt. basically protecting you in case your bank can't pay you your money. Well, with all these banks going under, it is putting more strain on the FDIC to insure all deposits, etc... Essentially, this is another way AIG's collapse directly effects the government, and therefor you... Secondly, AIG, WaMu, etc are not just small time banks, oh no, these are the banks that have given loans to other banks, etc...

[UGAalum94]

Originally Posted by a.e.B.O.T.

FDIC insures bank deposits in the event that a bank fails, like AIG, WaMu, etc... its the govt. basically protecting you in case your bank can't pay you your money. Well, with all these banks going under, it is putting more strain on the FDIC to insure all deposits, etc... Essentially, this is another way AIG's collapse directly effects the government, and therefor you...

Right, the FDIC is likely to experience more strain, but I don't think it's in any danger of failing to meet its obligation because it has other resources at its disposal if it needs them, like you and me and our tax dollars.

I have no doubt that we're all going to be affected, but I don't think that we need to worry about our FDIC insured funds particularly.

[srmom]

That is a stretch, the FDIC is ultimately funded by the US government. (crossposted with UGAalum)

AIG has already been propped up by the government. The failure of AIG, being a global insurer, would have had worldwide implications. That is why the G7 pressured the US government into the bailout.

The government tried to stop the bleeding by capriciously bailing out some and letting others fail, but the hemoraghing continues, and this big $700 billion bailout (although the negotiated bill was better than the first draft), may or may not be the cure (or 1st step to a cure). BUT, it will get the bad debt off the books of lending institutions, thus freeing up dollars to lend as loans.

There will be more oversight, it will be harder to qualify, but at least there will be money in the market (and not in people's mattresses) to loan.

[AGDee]

Originally Posted by madmax

How does that compare to lending money to people that can not afford to pay it back?

I know we're in a very different situation in Michigan than in most parts of the country, but the people that I know personally who have foreclosed on their mortgages *could* pay it back at the time that they obtained the mortgages. Some lost jobs, one lost her husband (and therefore, his income), etc. On my street, more of the people who are walking away from their homes are either unemployed or they have to move and cannot sell their house for what they owe on it, so they're walking away from it. If you bought your house for $180K and financed $140K and had a family income of $100K, that wasn't an irresponsible buy. The problem is that now the family income is $30K and the house is only worth $120K so they're screwed. I don't know anybody who was foolish enough to do the interest only loans or other crazy loans that were being offered, personally. I'd be very curious to see that breakdown with foreclosures... the "why" of it all. What percentage is due to unemployment, what percentage is due to bad loans, etc.

[awkward1]

I own a home furnishings store. Now that people can't buy/sell their homes and many are facing foreclosure they aren't purchasing home decor items. Sales are off 55% from this time last year and I can't recall ever having seen business this bad. Now, if we do experience a credit crunch I won't be able to meet payroll within months. I could loose my business because of the free wheeling dealers on Wall Street and the mess they have created. Where is my bailout? Seriously! I understand the logic behind supporting our financial markets, but the reality is that it is the small business owners that are suffering and barely meeting their monthly obligations. The nations largest Chevy dealership closed it's doors last week, and I feel like that is just the first of many retail closures to come. Right now my financial life is at risk on so many fronts....retirement savings, stocks, my income, my insurance.....I'm pretty much hating our congress right now and hoping that the FBI prosecutes as many Wall Streeters as possible..

[moe.ron]

Man, I was up till 4 in the morning to watch the vote and see what move can make to protect mine and my client's money. Soon as the vote was in, I immediately shorted on Dow Jones future and went long on Gold. It was still a nasty fall, but I was able to recover some of the lost. Oh well, today I'm being hammered in the Asian market.

Crazy days ahead.

Good time to start looking for cheap stocks for the long term.

[PhiGam]

Thank you Democrats.

The Democrats accidentally did the right thing and the Republicans intentionally did the wrong thing, all for political reasons. My mind is bottled right now.

[srmom]

A good and understandable explanation of the problem.

I don't think Paulson and Bernanke et al. are doing a good job of explaining the real problem. I'm not an expert, though I talk to a number. Here's my semi-educated sense. Most significant US banks have some direct or indirect exposure to bad assets. These banks (all banks) are leveraged and because of the credit squeeze, the bad assets have to be marked down to market. However, the market is not functioning. As BCEagle says, an asset worth X is being marked down to X/3 (say). Given their leverage, many banks cannot withstand this extreme write-down and will quickly have to fold or get for very little (and this is happening). But, what is causing the extreme write-down is not fundamental insolvency but a liquidity crisis (exacerbated by the mark-to-market rule).

If there is no short-term liquidity, companies including huge ones like P&G have trouble getting the short-term financing to do things like make payroll. They will have to conserve cash. Eventually, the economy could find a new equilibrium without the same kind of liquidity in the capital markets, but it would involve a permanent destruction of wealth and lots of layoffs in the meantime.

If you want to see a substantial destruction in the wealth of the US middle class and the reduction in their incomes, let your representative know that you'd like him/her to block the bailout. I'm not sure what the best way is to support our country's financial structure, but every day we delay for political grandstanding actually destroys value. My sense is that the Republican right (including the libertarian economist quote above) is unwittingly positioning itself to become the next coming of Herbert Hoover, who I believe cut back credit and government spending to dramatically exacerbate the Great Depression

and another talking about the consequences of a credit crunch

I heard a guest on CNBC tell the story of his grandfather who owned a factory in 1929. The grandfather considered the 1929 stock market crash a comeuppance for those Wall Street types and had no sympathy for them. One year later, his company had gone bankrupt and he was unemployed. Wall Street and Main Street are inexorably connected.

I also heard the CEO of General Motors talk about 10 days ago. When asked what the biggest problem GM faces, he didn't talk about having to retool assembly lines, or getting new designs that people are willing to buy, or finding $$ for the next generation of gas saving cars. He said the biggest problem GM faced was a credit crunch--buyers couldn't get loans to buy GM cars! This was the first time I had seen a "real world" manifestation that Wall Street problems were Main Street problems.

What if people couldn't find financing to buy cars, houses, pay tuition, increase the size of their businesses, etc? Main Street would grind to a halt, and I fear that many people don't see that danger. All they can talk about is how we shouldn't bail out Wall Street.

[RU OX Alum]

srmom, those were good quotes and interesting to read/think about

[Educatingblue]

Originally Posted by awkward1

I could loose my business because of the free wheeling dealers on Wall Street and the mess they have created. Where is my bailout? Seriously! I understand the logic behind supporting our financial markets, but the reality is that it is the small business owners that are suffering and barely meeting their monthly obligations. The nations largest Chevy dealership closed it's doors last week, and I feel like that is just the first of many retail closures to come. Right now my financial life is at risk on so many fronts....retirement savings, stocks, my income, my insurance.....I'm pretty much hating our congress right now and hoping that the FBI prosecutes as many Wall Streeters as possible..

I feel very sorry for small business owners who are caught in the middle of this mess! My husband and I were talking this morning and I think the predatory lending/mortgage crisis was just the beginning of our economy's downward spiral. I understand both sides.

I was watching the Today show this morning and they mentioned how difficult it will be to get credit in the future not to mention credit lines could be decreased to minimize liability.

This whole thing should be a reality check for people who have always lived above their means and buy crap they don't need!

[nittanyalum]

McCain Takes Hit From Bailout Collapse

[KAPital PHINUst]

I am so glad the bailout didn't pass!

This was the first during the Bush administation that Congress finally did something right, but then again even a broken clock is right twice a day.

America will experience a significant depression, bailout or not, but a bailout can make a difference between the depression for three years (without a bailout) and three decades (with a bailout). Just let it go, let the market correct itself, and everything will come out in the wash.

Thank you Congress, especially to my own Congressman Pat Tiberi who voted against the bailout.

[KSig RC]

Originally Posted by KAPital PHINUst

America will experience a significant depression, bailout or not, but a bailout can make a difference between the depression for three years (without a bailout) and three decades (with a bailout). Just let it go, let the market correct itself, and everything will come out in the wash.[/COLOR]

This is specious reasoning at best.

Some of the bailout plans will actually pay for themselves over time, and by giving the market a firm bottom backed by the (still) highest-rated credit risk in the world, both the short-term and long-term viability can be ensured.

You're putting up a false dilemma - there are more options besides "this bailout plan" and "no bailout plan." Also, it's not "short term" or "long term" - it can be both.

Besides this, there really isn't this guarantee that the market will correct itself - while I wish there were, the current US economy is not exactly run by Adam Smith's Invisible Hand. In short, we've inbred many of the economic and production factors to the point where market forces may not, in fact, correct themselves - in which case, brief nationalization may be superior to lengthy failure and relying on other nations to resuscitate the US economy through outside investment.