BenRaines Posted January 16, 2009 Report Posted January 16, 2009 Please share your understanding of the Financial Bailouts that we have witnessed over the last few months. Please don't cut and paste an article but what you understand of the financial process that has been going on. There are strong opinions on the Bailouts. What do you understand about them? Ben Raines Quote
hordak Posted January 16, 2009 Report Posted January 16, 2009 My understanding is that a politisions passed a bill (don't know the name off the top of my head) that encouraged lenders to to give out unsecured loans in the interest of equality. Everyone deserves a house or so they thought. So everybody and there buddy go out and buy a house even though they cant afford it. Many even take on a second home after watching late night infomercials and seminars on how get rich flipping homes. In 2003 John Mccain foresees a problem and wants congress to deal with it. They refuse, why look down the road when all your voting base is getting "the American dream." The bubble burst (this is where i get confused i don't really know why and how it happened) I think it has something to do with interest rates. People (who really don't understand how government works) vote for the opposite party because as far as they know the president is a king who controls everything in the county:rolleyes:. even though the other candidate foresaw the current problem and tried to stop it. President elect talks about throwing more money at the problem. Could be good or bad i am no economist. I did hear an interesting thought on the auto bailout. The big 3 failed because of outdated tech and in the bailout there needs to be some serious provisions other wise it's would be like giving money to help a company keep making Cassette tapes or VHS. I would personally like to see more of that money given to the people instead of business. It is our money in the first place so instead of giving the it to the bank give it to the people who owe the bank. When the debts are payed down the bank will have more money to use and when the consumers lowers there debt they will be more likely to spend and stimulate the economy. Would it work? Quote
applepansy Posted January 16, 2009 Report Posted January 16, 2009 My views on the bailout. Greed took over. On all levels. From bankers to people who wanted to buy a home and didn't qualify. Now they pass a bailout bill and decide that $700 billion plus dollars are going to banks to help the mortgage crisis. However the banks with the blessing of some idiot (forgot his name) used the money to buy out each other. And the idiot is the one deciding which banks should bail out which banks. Before the bailout bill was passed a Russion economist (? - my husband heard it on the Radio) suggested that the best way to handle a bailout is to give the money to the people at the bottom. That way the home owners would spend the money how they felt it was most important and a true Capitalistic system would grow stronger. What I think should happen? First we shouldn't have bailed anybody out. If banks close for poor management, oh well. If people lose their savings under $100,000 (insured by the FDA) well. . . we all make bad decisions. Its heartbreaking. . . its unfair. So make it fair and prosecute the greedy idiots who gave out all these loans to unqualified buyers. I was listening to a book on tape yesterday. The author quoted somebody and said "the best way to save money is to fold it over and stick it in your pocket." That really hit it on the head for me. Now that we have a bail out budget and we've given out part of the money which has gone to unspecified adventures, and buyouts and retreats. If I was in charge I'd request a payback for monies spent for unintended purposes. Hold the greedy people who are responsible for all this accountable. These people are not unknowns. Name their names. When someone robs a bank what do we do? We track them down and put them in jail, right? Well this time the CEOs of the banks are the ones who robbed the bank. Do not give out the other half of the bail out money. My only concession to this opinion is if the money went to the bottom. Its the people at the bottom (holding jobs, can't afford a house, contributing to society) who are and have always held up the economy in the USA. Bailout the auto industry? Again? Didn't we bailout Chrysler a couple of decades ago? How did that turn out? What I remember is Chrysler bought out Jeep. There's my 2 cents. . . well maybe that was worth 5 cents just for wordiness. And don't get me started on the Student Grant money process. Oh and idiot doctors who don't believe their patients and the Drug Companies greed. . . . ok I'll stop now. Dang Ben. . . I'm going to be on my soap box all day now. applecreek BTW my soap box has been out so much lately its been painted with pretty daisies and pansies on a sunny yellow background. Quote
BenRaines Posted January 16, 2009 Author Report Posted January 16, 2009 Thank you for your responses. I would like to get a few more before I jump in. I have a couple of other questions to ask once I get a few more responses. Ben Raines Quote
beefche Posted January 16, 2009 Report Posted January 16, 2009 Here's my very limited understanding: Through mismanagment and bad loans, the major banks of America lost a lot of money. Instead of filing bankruptcy, they appealed to the government for a hand out. Not a loan, but a handout. The reason why the government decided to give them the handout was because if they allowed the banks to go under, it would cause a disasterous depression for the world economy (not just the US, but the whole world). No one appears to take any responsibility for the cause of the failures. Not Barney Frank, not CEO's, etc. It "just happened" when the bubble burst. I hear the term "loan" floating around, but have not heard of any terms for a loan--no limits on amount of money they can receive, no contigency on paying it back, no report on how the money is used. Once the banks received a promise of free money, other industries began to plead their case. Automakers asked because if they went under, most of American workers would lose their jobs (even those who don't appear to have jobs related to the auto industry). Some of my confusion lies in how the world market would fail if our banks failed? Why isn't bankruptcy a viable option? Why do the CEOs still have a job and get raises, bonuses, etc? How do you draw the line on who gets money--why can't a smaller business get some of the pie? How are we going to pay for this? Doesn't just printing more money increase the problems? How in the world did NO ONE know this was going to happen and not try to do something to stop it (in particular where were the senators over Freddie/Fannie???)? Quote
hordak Posted January 16, 2009 Report Posted January 16, 2009 Doesn't just printing more money increase the problems?Printing more money is a bad idea IMO. It just decreases the value of the money How in the world did NO ONE know this was going to happen and not try to do something to stop it (in particular where were the senators over Freddie/Fannie???)?September 11, 2003The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry. I join as a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 190, to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole. John MCCainThey tried but were met with opposition”These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,” said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ”The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”Representative Melvin L. Watt, Democrat of North Carolina, agreed.”I don’t see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing,” Mr. Watt said./ Quote
beefche Posted January 16, 2009 Report Posted January 16, 2009 Yeah, Mr. Barney Frank has been less than frank regarding his involvement in this mess. Thanks MA for keeping him in office! Quote
Canuck Mormon Posted January 16, 2009 Report Posted January 16, 2009 I did hear an interesting thought on the auto bailout. The big 3 failed because of outdated tech and in the bailout there needs to be some serious provisions other wise it's would be like giving money to help a company keep making Cassette tapes or VHS. The auto industry is not in trouble because of outdated technology, it is because of mis-management and union contracts that have legacy clauses. These companies have to pay the health care costs for workers who have retired, where as the imports do not. GM addressed this with the unions and in 2010, the union will start to pay the health care costs, but it's too little, too late.Plus they are not "bailed out", they were given a loan that they will have to repay, but the banks do not have to repay, or be accountable to where they spend that money.I'm not exactly sure what happened to the banks, but from what I can gather, they got greedy and approved people who have no business being approved for a home.Just a my Canadian perspective. Quote
BenRaines Posted January 16, 2009 Author Report Posted January 16, 2009 Some more good feedback. Keep the posts coming. Ben Raines Quote
hordak Posted January 16, 2009 Report Posted January 16, 2009 The auto industry is not in trouble because of outdated technology, it is because of mis-management and union contracts that have legacy clauses. These companies have to pay the health care costs for workers who have retired, where as the imports do not. GM addressed this with the unions and in 2010, the union will start to pay the health care costs, but it's too little, too late.Plus they are not "bailed out", they were given a loan that they will have to repay, but the banks do not have to repay, or be accountable to where they spend that money.I'm not exactly sure what happened to the banks, but from what I can gather, they got greedy and approved people who have no business being approved for a home.Just a my Canadian perspective.As someone who grew up in the rust belt I would definitely agree that the unions have played a big part in the downfall. However I believe the tech has played a part as well and should be reevaluated as a condition of the loan. GM puts almost all there eggs in the same basket Big powerful gas sucking cars, trucks and SUVs. Since they are/were marketing to Americans who love big powerful gas sucking cars it is understandable but since they have seen the gas price increases recently they need to think about the future.I mean while Toyota was showing of the prias that gets what 30 some miles to the gallon GM is working on giving the hummer more leg room.BTW Thank you for Hockey. Quote
Islander Posted January 16, 2009 Report Posted January 16, 2009 This $700 billion dollars is the most wasteful and shameful way to spend taxpayer's money in American history. They railroaded the bill thru Congress and the President bought the hogwash; that if they did not the whole economy would collapse that very month!!! The simple explanation is that banks, insurance companies and investment firms got into businesses they should not have been involved with in the first place. They converted those radioactive-science fiction loans into securities and sold them in secondary and tertiary markets. To make matters worse, they insured those securities so they could sell them. When risk was adjusted and came back to reality (interest rates reset to a realistic level) people could not afford to pay them and foreclosure ensued. Banks began to loose cash flow and liquidity and could not sustain operations or paid promised dividends/returns on the capital they used to fund the loans. Because Congress, the Fed, the Treasury and the President were at sleep at the wheel, the first $350 billion are gone and nobody knows where they went. Banks used the funds to buy other banks, to prop their balance sheets and to build their cash reserves but not to alleviate the real underlying cause of the crisis; to stop the bleeding which is the wave of foreclosure. Hold on to your socks for another 15%b decline in housing prices, another million in foreclosures and 10% unemployment as the economy slows down even further. They threw money at the (symptom of the) problem, as usual, before they understood what the real (fundamental cause of the ) problem was. A complete waste. Now that we have a vague idea of the root causes we have to throw even more money at it. I hear the printing press at the treasury has been running non-stop the last 3 months. It will not do any good. Quote
Canuck Mormon Posted January 16, 2009 Report Posted January 16, 2009 As someone who grew up in the rust belt I would definitely agree that the unions have played a big part in the downfall. However I believe the tech has played a part as well and should be reevaluated as a condition of the loan. GM puts almost all there eggs in the same basket Big powerful gas sucking cars, trucks and SUVs. Since they are/were marketing to Americans who love big powerful gas sucking cars it is understandable but since they have seen the gas price increases recently they need to think about the future.I mean while Toyota was showing of the prias that gets what 30 some miles to the gallon GM is working on giving the hummer more leg room.BTW Thank you for Hockey.True GM is known as a builder of trucks and SUV's, however, they are also the company that offers the cheapest mid size Hybrid (Malibu and Aura). They have sunk billions into 2 mode hybrid technology and in 2011 will introduce the first range extending electric car, the Volt. But that's not the topic of this thread, Sorry Ben.(please don't beat me).I think that part of the public is also to blame. We are all trying to have the bigger house, the newer car, the latest gadget. These companies provided a way for us to have them, even though there was no way we could afford it.The greed of the Banks + The materialistic Society = $700 billion. Quote
Palerider Posted January 17, 2009 Report Posted January 17, 2009 Yeah, Mr. Barney Frank has been less than frank regarding his involvement in this mess. Thanks MA for keeping him in office! It really worries me when Barney is in charge or has a say in this money. There really was alot of greed out there....automakers,what were they thinking going to Washington DC in corporate Jets...was there a Bank in trouble, probally so, now there all in line for a free handout...Yes, the Banks are being tight with their loans now....just wait...the day will come when one of them will start approving risky loans and sooner or later so will the others....cause there money hungry....my opinion ...:) Quote
miztrniceguy Posted January 17, 2009 Report Posted January 17, 2009 not sure if it is the same for all the banks, but with Citi the government received stock for the money Citi received. therefore, it is an investment in Citi, not a handout. The thought process is that Citi stock will go up, allowing the government to sell it later at a profit. Quote
BenRaines Posted January 17, 2009 Author Report Posted January 17, 2009 Miztrniceguy, you win the prize. Pale has put it in the mail, he is the one who gets all the money. There has been no Bailout. What has been done is equity in these major corporations, banks, auto companies, insurance companies, etc. has been given to the government in exchange for cash. In the case of AIG the government owns a controlling interest in the company at 80% of its outstanding stock. Most of this stock that the government owns is Preferred stock. Preferred stock has a note rate attached to it. In most of these cases the yield is 9% or better. What got us here? Banks and mortgage companies were lending money to anyone who could find a way to put a signature on a loan document. Sometimes even finding someone else to sign the document. At the bottom of the pile were people who wanted to buy a house, perhaps several so that they could make their first million in buying homes. Seminars and conferences were held to teach you how. Banks were willing to lend. Home and land prices kept going up. People and banks forgot that they do not go up forever. The brokerage firms wanted to be able to make money off of this by packaging the mortgage notes in to sophisticated mortgage securities. These interest bearing securities were then sold back to banks and investors. The securities were put on their balance sheets and then more loans were issued using the securities as collateral for the loans. Years ago banks were allowed to lend at a 10-1 ratio. If they had 1 dollar on the books they could lend 10 dollars with it. During the best days the banks and brokerage firms, holding these securities on their books at 30-1. As the news started to come out about defaults on notes in the portfolios of the sophisticated securities those holding them tried to sell the securities. When no one wanted to buy them, due to the unknown value they started to have no value. Current market accounting rules require that a security be "Marked to Market". That means that instead of showing it as its former value or expected value the securities needed to be held on the books of the banks at a 0 value. With them valued at 0 then they can't be leveraged and then all the other things at the bank are in default. Original plan of TARP funds was to buy these troubled assets off of the bank and brokerage books and hold them until maturity. Keep in mind that at least 90% of the loans that are in these sophisticated mortgage investments are still performing. Less than 4% of all mortgages are in default or being foreclosed on. Sure there are some but not all. In the case of some of the TARP funds they are earning nice 9% returns while being loaned out to banks and brokerages and the government gets the money they are lending out by issuing 30 yr bonds with a yield of 2.5% or 3%. The government is earning a net return after expenses of about 6%. If the media would quit telling everyone how we are being ripped off, how the government is giving the money away. None of the money has been given away. Here is an example. You own your home free and clear. You go to the bank and want to take out a loan using your house as collateral. The bank gives you $100,000. Were you just bailed out? Did the bank give you the money? No the bank took your house as collateral by placing a note or mortgage on it. You pay interest while you have the money and when you pay back the principal and interest and it is all paid back you will own your house free and clear again. Someone mentioned Chrysler bailout almost 30 years ago under Lee Iacocca. The government loaned them the money, they paid interest on it and before the note was due they paid it back with interest. I don't see that as a bailout but good business. Ben Raines Quote
miztrniceguy Posted January 17, 2009 Report Posted January 17, 2009 Exactly. Ben. Yes, there was a lot of greed and stupidity that took place at all levels, from people who bought in when they couldn't afford to all the way up to the Madoff's who ripped off client's, resulting in the current situation. We as a country are at fault. The regulators were asleep at the wheel, because they were paid to sleep. I sincerely hope that this country learns a lesson. I know I have. There needs to be a major belt-tightening. Quote
Palerider Posted January 17, 2009 Report Posted January 17, 2009 I think there will be some changes....however....there will be a bank once again...looking at the all mighty dollar and making loans to people with questionable credit.....there are still places that will make car notes on people with bad credit...what they are looking for is...if the person allthough they have bad credit,yet they still paid there car note on time...so they give them a loan at a higher interest rate ..... Quote
Palerider Posted January 17, 2009 Report Posted January 17, 2009 I just found this article....gotta give it a read if you have the time..My Way News - Report: Over 8 in 10 corporations have tax havens Quote
miztrniceguy Posted January 17, 2009 Report Posted January 17, 2009 pale....where's my money? Ben said you have it. Quote
hordak Posted January 17, 2009 Report Posted January 17, 2009 Miztrniceguy, you win the prize. At the bottom of the pile were people who wanted to buy a house, perhaps several so that they could make their first million in buying homes. Seminars and conferences were held to teach you how.Hey i mentioned that. Whats the runner up prize? Can i least get an honorable mention? Quote
Palerider Posted January 17, 2009 Report Posted January 17, 2009 starting Tuesday...we spread the wealth....here you go......... :money::money::money::money: Quote
john doe Posted January 17, 2009 Report Posted January 17, 2009 Ahhhh, virtual money! The perfect currency for a virtual world! Quote
Palerider Posted January 17, 2009 Report Posted January 17, 2009 Ahhhh, virtual money! The perfect currency for a virtual world! kinda fitting for the new leadership coming in......:) Quote
Palerider Posted January 18, 2009 Report Posted January 18, 2009 A virtual president? why yes.....he can do everything....listen to the media....might as well be virtual.... Quote
Recommended Posts
Join the conversation
You can post now and register later. If you have an account, sign in now to post with your account.
Note: Your post will require moderator approval before it will be visible.