I'm trying to get a hold of the facts regarding this whole Bailout business. How exactly did we get in this mess, and who will pay for it. I'm not finding much, I mean what kind of loans made to who, and how does the whole ball of wax affect me?
The one thing I can see is my 401k is down, like really down, I'm trying to avoid the issue but it's hard. Just hold on I say to myself, things will get better... maybe. But other than that I don't really see how any of this is related to me. I pay everything on time, and 700 billion or 1 trillion dollars is just a number, that I can't even attempt to fathom. Oh yeah, my bank (Wachovia) just got sold.
Granted, I know I should try to connect the dots and try to keep on top of things, but right now as with the presidential race, you have all kinds of politics and very little else. If somebody gets his nuts pinched because of fraud or stealing or whatever, then so be it. But how exactly did we get here, and how do we get out?
I don't care about playing the blame game, because ultimately that isn't going to do anything. But seriously what and how did we get here? That would be nice to know....
Tuesday, September 30, 2008
Bailout?
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7 comments:
How long have you got?
LOL
How we got here - Congress (with Barack Obama's insistence as well as others') cut down on all of the 'overly stringent' restrictions to help more people buy homes. This made Fannie Mae and Freddie Mac as well as the Home Loan banks (they are centrally located, and they are who make the loans to your bank so that your bank can make the loans) less interested in who could pay back the loans and more interested in quantity over quality loans. This pumped (by artificial means, and only on paper) more money into the struggling Wall Street economy. It was a bubble brought on by overextension and hysteria, and it had to burst. those who gambled on it continuing are the ones who are getting caught short now.
To be blunt - since we have lost so much manufacturing overseas, we are now a service and consumer-based economy. Such an economy is unstable and cannot last, as the consumers chase after first one product, than another. It's like everyone working for WalMart in a town - all you are doing is swapping the same dollars around, and back and forth, from paycheck to store to paycheck again, and bleeding out the gross profit to pay for the goods imported into the store. Think about that on a global scale - we are having to buy cheaper and cheaper goods because we are gradually losing little bits of the dollar overseas at every swap. This is the cause of inflation - when a country buys more than it produces, prices go up, standard of living goes down. The country 'artificially' produced homes by lowering interest rates and loan qualifications.
I could get really into this and talk about the real root causes; like the New Deal, and going off of the gold standard that devalued our money and made folks dependent on the Fed Reserve System - that is printing reams and reams of paper, and every ream devalues the dollar more and more because it is based on nothing solid; or that Wall Street is a mutually-agreed-upon fantasy gamble of money that does not exist in real time or real finance, gambling on the futures on non-producing consumer-based companies and economies. But that would take pages to explain.
Now we have to pay billions of dollars to bail out those companies that made huge profits during the boom and didn't count on the bust. And no matter what the stated amount of the proposed bailouts - they will cost us millions more over time - heard of interest? So those of us who paid our mortgages responsibly have to pay for all of the people who didn't, who never should have been allowed to - as well as all of the companies that bet on all of those fallacious loans as a permanent income.
And every bit of it can be traced back to Congress, who allowed the boom to happen by deregulation of the loan industry, and who profited thereby. If they hadn't, though, the recession would have happened a lot sooner - it's just that we wouldn't have to rescue all of those folks who "didn't understand" that it was a temporary and artificial prop-up.
I get all that, but why the 700 or whatever the new amount will be? It seems that they are saying that credit is tightening. OK, but it still doesn't really tell me, why we need billions of dollars. I just don't get it.
They overextended and if they are not saved (and taken over by government) they will collapse. This is a GOOD thing - for them to collapse, I mean - because anyone who overextends themselves in loans and betting on the economy should be schmacked. If you bet on the future of my Angus beef, you WANT the price to go up - higher costs of cattle feed, or fewer cattle on the market. The price climbs and climbs and you make millions. Hurray. Then we have a GOOD year - all the heifers have twins, lots of rain so no feed costs, open grazing is enough - the price falls and you lose your shirt. Then everyone has to come to your rescue, because you didn't keep your eye on the weather or cattle trends.
This is the same thing... those who blindly threw their money into the housing market, thinking the boom would last forever - "not noticing" that the boom was artificially induced by Congress' changing the rules, and HAD to fail. People made millions (and, according to Congress, pumped millions back into the economy) and now are losing millions. So Congress says that the only way to save the economy and keep it artificially at those high levels is to pay all their bills that they incurred while throwing their money around. Because your 401K and all other retirement investments are tied to that artificial economy, your investments will continue to lose money unless Congress dictates that taxpayers bail out the false investors with their overinflated investments.
I am opposed to the bailouts of ANYONE. Why? Because in a fair market, untrammelled by Congress or artificial prop-ups, the investors will seek out other investments. They will lose - temporarily - but will eventually stabilize. If taxpayers are forced to bailout the failures, there will be a temporary recovery, but the downslide will still continue overall - and will prove even more devastating in the long run as taxes increase to pay for the bailout and the interest on it. This is an EXTREME case of Welfare; paying for people to recover from their bad mistakes and using the money from the ones who didn't make those mistakes to buy their way out of it. The overall result of a bailout will be - more bailouts, higher costs of living, higher taxes, and a lowered standard of living.
Neither Presidential candidate has said what I want to hear - that the $700 bllion dollar deficit with China and the massive restrictions and catering that sent our manufacturing overseas will be corrected, and we can become a manufaturing mecca again. As long as we are a consumer-based economy, we will continue to see artificial booms and busts like the dot-com, Enron, and the housing industry - and if we keep bailing out those investors, then we will end up with, literally, nothing in our pockets.
I don't know either. I mean I would think with 700 billion or a trillion dollars, somebody somewhere would go to jail.
PS I am GLAD that credit is tightening - it SHOULD tighten til it squeaks, until only the people who have a good credit history and score can borrow - the rest have to work and save for what they want. The next thing to be impacted will be credit cards, as all of those folks who buy their daily household needs on credit will have to tighten their belts and start to make decisions based on what they EARN not on what CapitolOne will give them.
Incidentally, my dau walked into her bank yesterday at 4 PM and got a $3000 sig loan. Why? because she has a habit of paying her debt, responsibly and on time, even sometimes early. She is a good credit risk. Only good credit risks should be allowed to venture into credit. This correction will impact a lot of folk but it is ABSOLUTELY necessary to get us back on a decent and stable fiscal footing.
By accepting personal responsibility for our income and outflow, and by forcing the irresponsible to either fail or become responsible - and NOT to expect gummint Welfare to keep them in their multimillion dollar homes - we will return to a more stable economy.
Check yer email - it tells you who should have gone to jail - and where they ended up, just on the Fannie Mae scheme.
I... like you, see this, the tightening of credit, to be a good thing. I just can't wrap my head around why so much money.
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