Bail-out: More Debt

To clarify the bailout of Fannie Mae and Freddie Mac is more at taxpayer expense than the bailout of Bear Stearns was. The reason for this is that the bailout of the two FMs was an act of congress to allow the treasury department (a government entity) to purchase stock in the two FMs amongst other things. Yes to do that the government will probably have to borrow money from foreign countries but it is the tax payer that will end up repaying that loan eventually so this bailout is directly at the tax payers expense.

The bailout of Bear Stearns was done by the Federal Reserve (a private bank, NOT a government entity) where it made money available to save Bear Stearns. The money that the Federal Reserve creates is fiat based which is a fancy way of saying it's based on nothing. The Federal Reserve can create US Bonds at their discretion which are then bought by anyone (you, me, foreign governments). The more bonds out there the lower our dollar is worth, which is how they can claim that that bailout was at tax payer expense because we are paying for it everytime our dollar is lower in value.

An intelligent response.  :SNIFF!: 
Perhaps we should say "Drop Dead" creditors in paraphrasing Ford's remark to New York in financial straits.

Not so much "drop dead" but rather "you made your bed now lie in it."

Ford never said that - the NY Times said it.

When we fight a war on several fronts costing billions- to - trillions of dollars, fail to fund ourselves through taxation, de-regulate lending institutions and look the other way as greedy dogs lasso consumers, then sell off the paper, we deserve what we get.

 

See ya.

Perhaps you're right--Ford might not have put it that bluntly as did the New York Daily News.


Right on, brother.

My mistake - the Daily news - and yes, he never put it that bluntly.

The same can be said for consumers who buy what they can't afford, spend money they don't have, put wants over needs and then expect the Gov't to swoop in like Superman to the rescue and save them from impending financial doom. We deserve what we get.

Just goes to show the Gov't is not the only one going around making stupid decisions.

But Freddie Mac and Fannie Mae hold all those mortgages that all those poor, financially ignorant, unable/unwilling to read a contract people decided they can't pay (and would like the taxpayer’s assistance to keep them in those homes)! The democratic led congress will not stand for anyone losing their home, especially if those people are a large part of its base and it might cost votes. No personal responsibility that should be this congresses motto. In the wild there is a process of natural selection, here in the civilized world we sustain and celebrate stupidity, then scratch our heads and wonder why it is on the rise, go figure. 

Cruiser: That's all we need millions more to the homeless list. :SNIFF!: 

Wall Street would collapse without the credit industry. The whole point of the financial market is to toss bones to the have-nots.

Just because you shouldn't have gotten a mortgage in the first place doesn't mean that you end up homeless, there are things called apartments. I mean these people weren't homeless before so why should they be homeless afterwards. They simply need to live in a place that's affordable. There is no reason why someone pulling in $30K/year should be buying a house that costs $300K, the math just doesn't add up to being affordable.

Ever try to rent an apartment with a lousy credit rating?

Bail outs are bad, period. LIfe is not a guarantee, they are called "risks" because you can fail. And this one is as bad as it gets. A lot of people have alraedy failed, and lost their homes. This will do nothing for them. SO it is the luck of timing, and this is supposed to be good? I dont think so.

The companies will be bought and the stockholders lose - but that is the risk of investing in stocks versus a safe CD. Borrowers who are being taught there is no downside, will learn to make even stupider investments in the future. Put simply, this is anotehr feel good issue that has no up side, just a big downside.

But whose fault is it that the persons credit rating is low? Why should I have to pay for someone elses mistakes? I never said it wouldn't be difficult to find housing, just not impossible.

I sympathized with your position; but the broader picture warrants some bailout to avoid widespread panic however bitter the aftertaste.

I suspect Doc is glad now that no private investments were earmarked for social security.

The problem is that the bailout causes more problems than it solves. Because the Fed bailed out Bear Stearns the value of our dollar suffered. This in turn has caused prices to rise across the board. There will be ramifications to congress bailing out the two FMs it's just that enough time hasn't passed yet. The bottom line here is that due to the bailouts you better be ready for some major inflationary problems to start across the country. Oh and did I mention that part of the reason the price of oil is as high as it is today is due to the devalueing of the dollar? Sure the price of oil has come down recently but it is still a lot higher than it should be.

Au Contraire - I will gladly pay for MY mistakes - or my wise investments.

Now I understand your distaste for FDR: by stopping the run on banks, he would have taken the masochistic fun out of it for you. (:( 

I haven't done enough research on what caused the run on the banks back then so I can't speak about FDR stopping the run on the banks. What I can say about the current economic crisis is that it's not about masochisism, it's about personal responsibility. Why should someone who purposely went out of their way to not get in over their heads in debt have to suffer for the mistakes of those who did get in over their heads? Why should I have to deal with higher taxes or the inflationary problems caused by the bailouts when I didn't contribute to the problem in the first place. Let the cards fall where they may and those responsible for the problem should have to pay.

I dont dislike FDR - I never knew the man. I just dont like a lot of the things he did (which we are paying for now). Again, I dont mind have federally insured deposits - you pay for them (they are not free, the interest is lower to pay for them). I just want the option of being able to get a high return OR a safe investment. The way it is going, I will no longer have the choice. I dont now with my retirement (is there any question the return on SS is lousy?).

In an ideal world self-reliance and self-responsibility would be prevalent. The problem is that mistakes by definition are human and prevail; the process of politics is to make every effort to rectify our muddling through. And just as indeed nothing is free like lower interest to protect savings, we have to pay for mistakes of others whether in bone head investments or continually rebuilding in a flood zone.

The problem with the bail out is it is trying to swap short term pain for long term pain. Yes, a bail out may help to prop up poor firms and save them from bankruptcy, but what about in the future? Other firms (and the ones you've now bailed out) will think that if things go really bad they can always count on the government to get them out of trouble. So the downsides of risky investments are reduced, and you lead to too much risk taking, and acceptance of projects that wouldn't be a good idea if the company would have to bare the full costs if things went wrong.

As to the issue of the bail out effectively being financed by other countries (due to the US debt), it's still the US government funding it, since the debt they hold will need to be repaid. One of the reasons governments can borrow money so cheaply (and so much of it) is because if they had to they could resort to (more and more) taxation in order to repay the debts. So it's a bit like if you take out a mortgage/loan for a house - technically you could argue the bank is buying the house, but practically you are, since you'll then have to pay off all of that debt plus interest.

There is some truth to this, but unfortunately we have taken this to a ridiculous extreme in trying to erradicate all risk (communism). The simple fact of life (as you say we are human after all) is that you cannot eliminate all risk. And to even try is fool hardy and counter productive. There is a big difference in rebuilding a devasted town due to a natural disaster - and bailing out some twit that decided to borrow more money than they could possibly repay - all because of eliminating risk.

It would help if the snake oilers poured their sleaze in their tanks and became resolved to go straight by offering responsible and legitimate financial services.