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.

[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.

[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

[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.

[AGDee]

I've not heard this reason given for contributing to the mortgage crunch, but it certainly seemed to contribute, in my view:

Once upon a time in America, your credit card interest was tax deductible. The Tax Reform Act of 1986 eliminated this option. This is, in large part, what led to people taking out home equity loans in mass quantities as their home values rose dramatically in the early to mid 90's. It was pushed as a smart financial decision.. use that home equity to pay off those credit cards and THEN your interest is tax deductible! This is where I've seen a lot of people get into trouble. You roll those credit card balances into a home equity loan or a new mortgage and KEEP USING THOSE CREDIT CARDS. Then your home value drops and BAM. You owe more on your house than you can pay and you have a boatload of credit card debt to boot. Most I know have worked their way out of it, but it's getting tougher and tougher now.

[CrackerBarrel]

The Democrats saying that it had the support of both parties' leadership in the House and the Republicans needed to deliver their caucus was apparently untrue. Minority Leader John Boehner, Republican Whip Roy Blunt, Republican Conference Chair Adam Putnam, Republican Policy Committee Chair Thaddeus McCotter and Financial Services Ranking Member Spencer Bachus all voted "No" on the bill. Just wishing that the bill had bipartisan support from the House leadership doesn't make it so.

[MysticCat]

^^^ Hmmm. Untrue as in "a lie" or untrue as in "turned out not to be true"? Is it possible that the Democratic leadership was led to believe that it did have the support of the House Republican leadership?

[CrackerBarrel]

The way I understand it is that the Republican leadership said that they needed to get something passed and that the Democrats had their support in passing a bailout bill. That may have been misunderstood as they needed to get this passed and would support it. I don't know exactly, but I do know Pelosi and Frank were raising hell about how Boehner didn't deliver the Republican conference. Umm, no kidding, he didn't vote for it himself either.

[srmom]

Did y'all see this?

http://www.washtimes.com/news/2008/o...-spouses-firm/

All these people are crooks and liars!!

[MysticCat]

Originally Posted by srmom

Did y'all see this?

Fixed the link:

http://www.washingtontimes.com/news/...-spouses-firm/

Why do I have a flashback to Capt. Renault in Casablanca:

I'm shocked, shocked to find that gambling is going on in here!

[srmom]

Thanks for fixing the link.

I cannot stand it when I read about someone's complete and utter hypocracy. Then, when they are shown as the bald faced liars that they are, they come up with reasons why they should be above the rules.

So true about the Casablanca reference though. I shouldn't be surprised!