Yeah, that's the question, what do you guys think? Should the govt bail out these companies that are going bankrupt? Explain why either way you answer. Personally I'm not sure, one part of me says let those companies go bankrupt and blame the leaders of those companies for doing a poor job managing their company, and the other side of me says help them out.
I don't think the government should bail out these people. I think they need to learn the hard way. Because of a small percentage of greedy people, a much larger percentage of people will have to suffer, and it's not right. You can keep covering up shit, but it will start to smell after a while. Let it hit the fan I say. Sure, this will cost thousands of lost jobs, among other things, but it's their own fault. Shouldn't we have learned from the "roaring 20's? " Cynical, perhaps, but this is how I feel.
That's what I'm thinking as well man, why should we help these CEOs for the mistakes they made? How about they give millions of dollars back, after all they're multimillionaires, all on the back of common people.
But what about the people who would suffer as a result. After all, government should be of the people, for the people, by the people. It is in the best interests of the people to keep these companies going, so they can afford houses and maintain their jobs, so why shouldn't they be bailed out? Really they should be nationalised and leave it at that, but that's a whole 'nother debate.
An economist proposed a different solution to the bailout. He estimated each American over the age of 18 would receive $259,000 (pre-tax) instead of giving the money to the companies. A more viable solution IMO.
It's not just American citizens benefiting from the bailouts though, it's the (at least) entire Western World that is hanging in the balance. Giving US Citizens money would be irresponsible of the US Government in terms of its world standing.
But that wouldn't help the mortgage crisis that is currently occurring in Europe, such as in the UK. Banks are being nationalised, shits really hitting the fan, to put it bluntly. Americans getting money won't solve that. The brunt of the problem, as far as I am concerned, is that the banks have been lending far too much money to people on mortgages. They say a "good" amount to lend someone is 2 or 3 times their annual salary but due to house prices that wasn't viable and banks started lending 5 or 6 times a person's annual salary (in many cases even more). The people can't afford to pay that back, and now that the banks are in trouble they are starting to stop giving out mortgages, and are hesitant to lend businesses money which is driving people out of business. This causes job losses, lack of income etc, and commodity prices (e.g. oil) are rising exponentially which means bills are getting higher. Catch my drift? A lot of this has not a lot to do with consumption and more to do with a lack of lending of money. Or the lack of ability to lend money.
Basically this is what happened. 1. People like buying safe investments. 2. Historically, mortgages are very safe investments: people will go to incredible lengths not to lose their homes. 3. Banks realized that they could make lots of money by taking groups of mortgages, and turning them into bonds that they could sell, earning a commission, and passing the risk to whoever bought the bonds. 4. These bonds became incredibly popular. Lots and lots of people and organizations wanted to buy them. 5. There aren't enough good mortgages to put together the number of bonds that people wanted to buy. 6. So banks started giving out mortgages to people who couldn't repay them, using elaborate and dishonest schemes to pretend that they were actually not bad mortgages. 7. The people who got mortgages that they couldn't repay didn't repay them. 8. The banks act surprised: "My god, no one could have predicted that so many loans would default! Whine, whinge, moan, someone come help us!
When you hand out 250,000 to everybody over 18, don't you drastically impact the inflation rate in the process?
Absolutely. But my point was I'd rather see families get the bailout money than these companies who created the turmoil out of sheer greed in the first place.
Where do you get the money to give out $260 000? Lets say there are 200 million people over the age of 18 in US. (I don't know the real number). 200 million * $260 000 = 52 Trillion dollars. If it is a big deal to give out 700 billion, Where does the US find 52 Trillion to give to everyone? Are you saying they print out 52 Trillion? Well the rich people would greatly complain (including plenty of the politicians), whoever would have large amounts of savings in a bank, or in savings bonds, their value would be essentially destroyed. Especially say retired people who say have their savings in a bank and not invested, then they become worth probably a quarter as much.
I'm not sure where his figure of $259K came from. I thought it sounded high myself, but assuming his calculations where right I liked his solution more than anything proposed.
My understanding is somewhat different than Shape's. Banks loan money to people to buy homes. If a bank takes in $1B in deposits, they can loan out (in theory) up to $1B for mortgages. Once they reach that limit, they have no money to loan anymore and credit becomes non-existent. Mortgages are good investments for people with the means, so the banks can (and do) sell the loan contracts to individuals who want the negotiated interest rate in return for their investment. If the bank sold all $1B of its mortgages for $1B, it'd have another $1B to loan out. There aren't enough individuals to sell the loans to, so Fannie Mae was created to be a market maker in these contracts. It's primary function has always been to buy mortgages from the banks so the banks have more money to lend. Government in all its wisdom doesn't let the banks issue mortgages that make sense as contracts. They encouraged or forced the banks, by law, to issue loans to people who can't afford the payment on a traditional 30 year note. So the banks came up with ARMs (adjustable rate mortgages) that start out with a much lower payment than the traditional 30 year note would have, and the people who got those loans could only meet the qualifications for the loans based on those lower payments. All is good in a bubble market. The home prices went up fast enough that by taking out 2nd mortgages or new loans, these buyers could borrow what they needed to make higher payments as those ARMs adjusted. The problem is that the banks were willing to loan more and more money to people who couldn't afford to service those debts, with the homes with inflated prices as the collateral. At some point, the buyers can't afford to take on any more debt and afford the payments, nor can they afford the current mortgage payment after the ARM adjustments kicked in. It turned out to be a vicious cycle. Homes get foreclosed on, the foreclosed homes flood the market (supply/demand) driving down home prices, leaving the equity in those mortgaged properties upside down (people owe more on the home than they can sell it for). Faced with paying $500K for a $200K home, people walked away (another kind of foreclosure) leaving the banks in the upside down position. A bank can take a $300K hit on a foreclosed home here and there, but when it happens to millions of homes, the losses are devastating. Again, the banks had sold these poor quality (high risk) mortgages to Fannie Mae, so it's ultimately Fannie Mae that took the 1M homes' worth of risk. Fannie Mae unable to buy more mortgages from the banks, leaves the banks in the position they can't lend. Get govt. out of the business. They fucked it up all along. They're probably the only ones that can take the financial hit they caused to right things, but after this situation is resolved, they should let the banks assess risk properly and only issue loans they're comfortable doing. As it should have been all along.
lol, yea it is a tad high. Considering that the Gross Domestic Product is 13 trillion (could be higher since this is a 2006 number). It would suck in that case to be a 17 year old missing out on the 259 000. lol, however the 259 000 probably would become worth something far less significant due to inflation.
I'm saying the regulations didn't work. With all good intentions, govt. rigged the market and changed the mandate of banks from making good loans to getting as creative and risky as they could to facilitate home ownership for people who were buying homes at bubble inflated prices on top of generally being a pay check away from missing a mortgage payment.
You're right, regulation didn't work because people were fudging the numbers. Loan officers, real estate agents, appraisors etc. etc. Everyone got caught up in the hype anticipating it wouldn't end before they could cash out of their real estate investments.
the bail out is just a temp thing. things will get back to where they are now, or worse, once the sigh of relief is done with. human greed, materialism, it's a shame.
