Our financial system is crumbling this week.

[lukethedrifter]

Tell you what, guys. I'll go out tomorrow and try to get a loan then report back here.

[sighyoung]

I don't think it's only people with bad credit. But, I thought you said that the larger banks were no longer lending money? That's what I said was untrue and you then said I was wrong. I'm not wrong. They are still lending money. They are still looking for good investments (always have been) even though they supposedly don't have any. What they want now is someone (namely you and me at 7K a piece and every body else on the board for the same price) to buy all their screw ups which I don't want to do. Imo, there are two options right now:

1) The government takes over and probably screws up the companies beyond what they are now becasue let's be honest, the government is a monumental screw up.

2) European banks come in and buy out what is left of these screwed up companies that have claimed bankruptcy but are still lending money as we speak (because it would cost them money not to). People that aren't going to give out stupid loans take over and they start loaning money again to good investments....because that is how they make money.

I'm all for option #2 as opposed ot #1.

You're being semantical if you thought I was saying the bolded part literally b/c there will be loans, but there won't be enough handed out to avoid a credit crisis for putting enough people in homes and small businesses to survive with a credit crunch followed by an economic crisis.

I simply don't buy it. Period. They're not going to stop giving out loans to good investors because that is how they make money. That would be like McDonals saying they aren't going to sell fries anymore. If the potato company they got the fries from went out of business, they would find another place to get their potatoes. Similarly, if all these "larger banks" go outof business, that only opens the door for other banks to step in and provide the capital. Someone will do it because it's how they make money.... regardless of what is going on around them, they're not going to stop trying to do that.

So you think all this talk about the credit crunch is fictional?

Solid companies such as Honda and Caterpillar are already paying ridiculous premiums on the bond market to raise capital from investors. http://meganmcardle.theatlantic.com/arc ... o_spre.php
http://meganmcardle.theatlantic.com/arc ... preads.php

So the credit squeeze is also affecting top companies, which are having trouble raising money for necessary improvements. And these credit costs will affect these companies' bottom lines, and the increased cost of business will be passed to consumers.

[Arthur Dent]

For the household of 2 working parents and 2 kids, that number swells to $4667 per taxpayer. The 7K number was based on taking the non-taxpaying population out of the equation.

That's not correct either. Even if the money were all to come from a cash contribution from tax payers (and it won't), the median household would pay far less than this.

I'd like to know the source of the $7k number. Maybe they specified per household (rather than per individual), but that still only comes to ~$6200. Anyway, people pay tax proportionate to their income, so the median household will pay far less. Specifying costs per household or per individual is much more meaningful than just throwing around large numbers like $700 billion, but it's extremely dishonest to imply that the bailout would cost each person $7000. It won't.

I believe the 7K was a rough estimate based on far more rounding than necessary.

Mean average is typically used because of its simplicity. Median is more accurate, but requires a lot more figures.

Just to demonstrate how misleading this is, using the CBO's 2003 figures, we find that the middle 20% of households (by income) pay 4.6% of the total federal income tax. If we assume that this is the same in 2008 and that the plan will be paid for through the income tax, the median household would pay ~$1400. Further, much of the borrowed money that will be used for the plan will ultimately be recouped as even the bad debt has some value, and the treasury should profit from an equity stake in banks that take tax money.

Edit: Corrected accidental rounding error.

Edit 2: Corrected incredibly bad math error.

[UK]

I don't think it's only people with bad credit. But, I thought you said that the larger banks were no longer lending money? That's what I said was untrue and you then said I was wrong. I'm not wrong. They are still lending money. They are still looking for good investments (always have been) even though they supposedly don't have any. What they want now is someone (namely you and me at 7K a piece and every body else on the board for the same price) to buy all their screw ups which I don't want to do. Imo, there are two options right now:

1) The government takes over and probably screws up the companies beyond what they are now becasue let's be honest, the government is a monumental screw up.

2) European banks come in and buy out what is left of these screwed up companies that have claimed bankruptcy but are still lending money as we speak (because it would cost them money not to). People that aren't going to give out stupid loans take over and they start loaning money again to good investments....because that is how they make money.

I'm all for option #2 as opposed ot #1.

You're being semantical if you thought I was saying the bolded part literally b/c there will be loans, but there won't be enough handed out to avoid a credit crisis for putting enough people in homes and small businesses to survive with a credit crunch followed by an economic crisis.

I simply don't buy it. Period. They're not going to stop giving out loans to good investors because that is how they make money. That would be like McDonals saying they aren't going to sell fries anymore. If the potato company they got the fries from went out of business, they would find another place to get their potatoes. Similarly, if all these "larger banks" go outof business, that only opens the door for other banks to step in and provide the capital. Someone will do it because it's how they make money.... regardless of what is going on around them, they're not going to stop trying to do that.

So you think all this talk about the credit crunch is fictional?

Solid companies such as Honda and Caterpillar are already paying ridiculous premiums on the bond market to raise capital from investors. http://meganmcardle.theatlantic.com/arc ... o_spre.php
http://meganmcardle.theatlantic.com/arc ... preads.php

So the credit squeeze is also affecting top companies, which are having trouble raising money for necessary improvements. And these credit costs will affect these companies' bottom lines, and the increased cost of business will be passed to consumers.

Exactly this just doesn't extend to 1st time home buyers, this extends to small business loans, student loans. This is a critical situation not based on bailing out Wall St. but is there from preventing the economy from slowing down further into recession.

I'm not sold on the bill, it could be better, but it's better than letting this cont.

Ironically with the 777 point drop, the stock market lost over 1 trillion today & how much is that bailout for?

[Jocephus]

[/youtube]

[/youtube]

[Radbird]

The Republicans turned away from voting for the bailout because Pelosi gave a partisan speech just before the vote? Really??

Then shame on Pelosi for speaking and shame on the Republicans for reacting like spoiled children.

Ain’t Democracy Grand?
Behind the shocking bailout vote on Capitol Hill.

House Minority leader John Boehner (speaking) and other
House GOP leaders said Speaker Nancy Pelosi's "partisan" speech
spurred defeat of the bailout bill.

[ghostrunner]

The Republicans turned away from voting for the bailout because Pelosi gave a partisan speech just before the vote? Really??

Then shame on Pelosi for speaking and shame on the Republicans for reacting like spoiled children.

I don't think that was it, though that was dumb of her. I think it was more to do with angry constituents and probably some amount of general principle. Forty percent of the Democrats voted against it too.

[BW23]

The Republicans turned away from voting for the bailout because Pelosi gave a partisan speech just before the vote? Really??

Then shame on Pelosi for speaking and shame on the Republicans for reacting like spoiled children.

I don't think that was it, though that was dumb of her. I think it was more to do with angry constituents and probably some amount of general principle. Forty percent of the Democrats voted against it too.

Maybe it's not just republicans that hate Nancy.

[Jocephus]

robert reich's thoughts:

Monday, September 29, 2008
The Stalled Deal

The Bailout of All Bailouts just got voted down, 228 to 205. There’s the expected partisan finger-pointing but House leaders will schedule another vote as soon as they can convince twelve of the nay-sayers, from either party, to approve.

Wild card: Angry voters who go to the polls in five weeks. Conservatives don’t want government to take over the free market. Liberals don’t want Wall Street fat-cats to get a free ride. And the more the public focuses on the bill, the angrier they become. (Polls show about a third of Americans in favor, a third opposed, and a third undecided; the percent in favor is growing slightly, but the percent against is growing even faster.)

Wild card on the other side: The Dow is dropping precipitously. Roughly half of all American families have some retirement money in the stock market. And even if they don’t own shares of stock, an increasing number are feeling the pinch of an economy gradually grinding to a halt. (This week’s employment report will not be very encouraging.)

Don’t expect easier sailing in the Senate. Fewer than a third of the Senate is up for reelection on November 4, but they’re all hearing from angry constituents.

Prediction: A scaled-down bill will be enacted by the end of the week. It will provide the Treasury with a first installment of $150 billion. Treasury can use it to back Wall Street’s bad debts with lend no-interest loans of up to two years, until the housing market rebounds. Or to invest in Wall Street houses directly, in exchange for stocks and stock warrants. There will be strict oversight. Congressional leaders will promise further installments, but with conditions calling for limits on salaries and relief to distressed homeowners.

http://robertreich.blogspot.com/2008/09 ... -deal.html

[Freed Roger]

Maybe Pelosi's statement didn't cause the problem. There's not much to disagree about what she said-blaming failed policies - but many disagree about when she said it... When your dog craps and pees in the house its debatable how much good it does to stick their nose in it? But you definitely should put the dog outside.

“Madam Speaker, when was the last time someone asked you for $700 billion?

It is a number that is staggering, but tells us only the costs of the Bush Administration’s failed economic policies—policies built on budgetary recklessness, on an anything goes mentality, with no regulation, no supervision, and no discipline in the system.

Democrats believe in the free market, which can and does create jobs, wealth, and capital, but left to its own devices it has created chaos.

That chaos is the dismal picture painted by Treasury Secretary Paulson and Federal Reserve Chairman Bernanke a week and a half ago in the Capitol.

As they pointed out, we confront a crisis of historic magnitude that has the ability to do serious injury not simply to our economy, but to the American people: not just to Wall Street, but to everyday Americans on Main Street.

It is our responsibility today, to help avert that catastrophic outcome.

Let us be clear: This is a crisis caused on Wall Street. But it is a crisis that reaches to Main Street in every city and town of the United States.

It is a crisis that freezes credit, causes families to lose their homes, cripples small businesses, and makes it harder to find jobs.

It is a crisis that never had to happen. It is now the duty of every Member of this body to recognize that the failure to act responsibly, with full protections for the American taxpayer, would compound the damage already done to the financial security of millions of American families.

Over the past several days, we have worked with our Republican colleagues to fashion an alternative to the original plan of the Bush Administration.

I must recognize the outstanding leadership provided by Chairman Barney Frank, whose enormous intellectual and strategic abilities have never before been so urgently needed, or so widely admired.

I also want to recognize Rahm Emanuel, who combined his deep knowledge of financial institutions with his pragmatic policy experience, to resolve key disagreements.

Secretary Paulson deserves credit for working day and night to help reach an agreement and for his flexibility in negotiating changes to his original proposal.

Democrats insisted that legislation responding to this crisis must protect the American people and Main Street from the meltdown on Wall Street.

The American people did not decide to dangerously weaken our regulatory and oversight policies. They did not make unwise and risky financial deals. They did not jeopardize the economic security of the nation. And they must not pay the cost of this emergency recovery and stabilization bill.

So we insisted that this bill contain several key provisions:

This legislation must contain independent and ongoing oversight to ensure that the recovery program is managed with full transparency and strict accountability.

The legislation must do everything possible to allow as many people to stay in their homes rather than face foreclosure.

The corporate CEOs whose companies will benefit from the public’s participation in this recovery must not benefit by exorbitant salaries and golden parachute retirement bonuses.

Our message to Wall Street is this: the party is over. The era of golden parachutes for high-flying Wall Street operators is over. No longer will the U.S. taxpayer bailout the recklessness of Wall Street.

The taxpayers who bear the risk in this recovery must share in the upside as the economy recovers.

And should this program not pay for itself, the financial institutions that benefited, not the taxpayers, must bear responsibility for making up the difference.

These were the Democratic demands to safeguard the American taxpayer, to help the economy recover, and to impose tough accountability as a central component of this recovery effort.

This legislation is not the end of congressional activity on this crisis. Over the course of the next few weeks, we will continue to hold investigative and oversight hearings to find out how the crisis developed, where mistakes were made, and how the recovery must be managed to protect the middle class and the American taxpayer.

With passage of this legislation today, we can begin the difficult job of turning our economy around, of helping those who depend on a growing economy and stable financial institutions for a secure retirement, for the education of their children, for jobs and small business credit.

Today we must act for those Americans, for Main Street, and we must act now, with the bipartisan spirit of cooperation which allowed us to fashion this legislation.

This not enough. We are also working to restore our nation’s economic strength by passing a new economic recovery stimulus package—a robust, job creating bill—that will help Americans struggling with high prices, get our economy back on track, and renew the American Dream.

Today, we will act to avert this crisis, but informed by our experience of the past eight years with the failed economic leadership that has left us left capable of meeting the challenges of the future.

We choose a different path. In the new year, with a new Congress and a new president, we will break free with a failed past and take America in a New Direction to a better future.”