The BAIL OUT Dilema

This is where I get upset at people who say LESS government, more private enterprise. Where is the pull yourself up by your boot strap argument, when it comes to the billion dollar companies? It's only made for the regular working class; Those who made mistakes in buying houses, those unwillingly on welfare, those who have a sick relative and goes into debt. But here we are, regular tax payers bailing out HUGE corporations! While CEO's go un- tarnished! It's a graaaaave injustice! Under what conditions would multi-billion-dollar bailouts of private businesses be acceptable? What standard is acceptable (if any) for deciding when it is best to use public money to save private business? Never! (In my opinion) I understand that some companies get "too big to fail" and have to be bailed out. I believe the role of government is to help the people! I think each year our government should determine and regulate if companies have become "too big to fail". Maybe that company should be forced to break up into several smaller companies, or something but what's happening now is outrageous! It's not the ideal free market solution, but it sure beats the present "free market" system that's using taxpayer money to bail out the biggest corporations in the country! Look, I'm not poor. In fact, I'm among the rich in this country. A lot of what I stand for is NOT because it affects me so much. But it affects the community at large and I am for the people at large, not just for self. I see a sad double standard, in how our present administration runs things. I have many right wing friends that insist they have gotten to where they are with NO Help - Just hard work, and determination. (Which I don't believe is possible) And their usual attitude for any one who is desperate is pull your self up, work harder. I have some on the left who enable people - making them lazy. Both are wrong to me. But Government IS supposed to be for the people and by the people and not just for the richest among us! It's just not fair!


kissmyblakarts said...


Here's an article you may find interesting in that is goes some of the way to expose the mechanisms at play within this decision making process of Govt/Business. We've been discussing this in a social justice group for months now and its important to note that this is not the first bail out, albiet the others seem to pale by comaprison by the magnitude of this "historical" amount.

Wag the Dog: How to Conceal Massive Economic Collapse by Ellen Brown

Global Research, August 14, 2008

"I’m in show business, why come to me?"

"War is show business, that’s why we’re here."
– "Wag the Dog" (1997 film)

Last week, Fannie Mae and Freddie Mac had just announced record losses, and so had most reporting corporations. Unemployment was mounting, the foreclosure crisis was deepening, state budgets were in shambles, and massive bailouts were everywhere. Investors had every reason to expect the dollar and the stock market to plummet, and gold and oil to shoot up. Strangely, the Dow Jones Industrial Average gained 300 points, the dollar strengthened, and gold and oil were crushed. What happened?

It hardly took psychic powers to see that the Plunge Protection Team had come to the rescue. Formally known as the President’s Working Group on Financial Markets, the PPT was once concealed and its very existence denied as if it were a matter of strict national security. But the PPT has now come out of the closet. What was once a legally questionable "manipulator" of markets has become a sanctioned stabilizer and protector of markets. The new tone was set in January 2008, when global markets took their worst tumble since September 11, 2001. Senator Hillary Clinton said in a statement reported by the State News Service:

"I think it’s imperative that the following step be taken. The President should have already and should do so very quickly, convene the President’s Working Group on Financial Markets. That’s something that he can ask the Secretary of the Treasury to do. . . . This has to be coordinated across markets with the regulators here and obviously with regulators and central banks around the world."1

The mystery over what was going on with the dollar the first week in August was solved by James Turk, founder of GoldMoney, who wrote on August 7:

"[T]he banking problems in the United States continue to mount, while the federal government’s deficit continues to soar out of control. . . . So what happened to cause the dollar to rally over the past three weeks? In a word, intervention. Central banks have propped up the dollar, and here’s the proof.

"When central banks intervene in the currency markets, they exchange their currency for dollars. Central banks then use the dollars they acquire to buy US government debt instruments so that they can earn interest on their money. The debt instruments central banks acquire are held in custody for them at the Federal Reserve, which reports this amount weekly.

"On July 16, 2008 . . . , the Federal Reserve reported holding $2,349 billion of US government paper in custody for central banks. In its report released today, this amount had grown over the past three weeks to $2,401 billion, a 38.4% annual rate of growth. . . . So central banks were accumulating dollars over the past three weeks at a rate far above what one would expect as a result of the US trade deficit. The logical conclusion is that they were intervening in currency markets. They were buying dollars for the purpose of propping it up, to keep the dollar from falling off the edge of the cliff and doing so ignited a short covering rally, which is not too difficult to do given the leverage employed in the markets these days by hedge funds and others."2

Just as central banks manipulate currencies in concert, so gold can be manipulated by massive selling of central bank reserves. Oil and any other market can be manipulated as well. But markets can be manipulated by only so much and for only so long without fixing the underlying problem. There is more bad news coming down the pike, news of such magnitude that no amount of ordinary manipulation is liable to conceal it.

For one thing, roughly $400 billion in ARMs (adjustable rate mortgages) have or will reset between March and October of this year. Assuming 3 to 6 months for strapped debtors to actually hit the wall with their payments, a huge wave of defaults is about to strike, continuing through March 2009 – just in time for the next huge wave of resets, in option ARMs.3 Option ARMs are loans with the option to pay even less than just the interest on the loan monthly, increasing the loan balance until the loan reaches a certain amount (typically 110% to 125% of the original loan balance), when it resets. The $800 billion credit line recently opened to Fannie Mae and Freddie Mac may be not only tapped but tapped out, at taxpayer expense. The underlying problem is little discussed but impossible to repair – a one quadrillion dollar derivatives scheme that is now imploding. Banks everywhere are facing massive writeoffs, putting the whole banking system on the brink of collapse. Only public bailouts will save it, but they could bankrupt the nation.

Just like inflation is an enabler to control the masses nationally, this "intervention" controls the global market. The Australian dollar, being at its strongest peak of around 97c against the US dollar "mysteriously" dipped back to around 85c and is "predicted" to further decline to 60-70c in a couple of months, ironicly in line with this "intervention" despite our big ecomonic "boom" being in full swing.

Unfortunately, the average Joe are mere pawns within the matrix. Ideally YES govts should be there for the people but realistically NO, I don't believe they have the peoples interests at heart, despite being the elected representative mechanism thereof.

The rich will get richer, the poor poorer and the status quo maintained.

However, knowing this, I firmly believe now is the time to move toward preparedness, rather than falling into a "self fulfilling prophesy". Collective investment models, buying groups, bartering systems, refined lifestyle choices are some examples of where and how the average Joe can strengthen their position within this environment to minimise the impacts that are looming.

I hope this makes sense, there's a lot to unpack and digest.


Jason said...

These weren't really private sector companies. The problem has many aspects however one of the BIG issues overlooked is that these two companies were run by Democrats.

Bill Clinton used the "Community Reinvestment Act." This law was then used by "activists" and "community organizers" (like Obama?) to coerce lending institutions to make these bad loans ... millions of them.

Two of Obama's advisors who were top dogs at Fannie Mae and Freddie Mac made off with MILLIONS while ripping off the public and donating money to Obama's campaign. Obama made thousands from these two companies.

This is exactly what happens when government gets involved forcing companies to do what they want. These companies were forced into making loans to people who were NOT qualified and now voila! We have a meltdown.

Keep government out of the free market! Government wrecks it! This is a great example of it.

Not to mention McCain WARNED about this exact thing happened twice over the past five years in the Senate and was shot down by greedy Democrats who were making bank!

Vote for Obama who's advisors used to make millions working for Fannie Mae and Freddie Mac and who himself benefited from these companies while they were going bust!

SocraticBass said...

As a proponent of small government, I believe what’s happening now is 100% unacceptable. Tax-payers should be outraged. The current bailouts combined come real close to $4,000 for every man, woman, and child in the United States when divided out. I’m not sure about other families, but my family of four would love to get a check for $16,000 this year. Talk about a “stimulus” package.

That said, we need not forget the real reason why we have this problem: Americans are living in debt. Not just a little debt, but massive debt. White, black, and Hispanic alike are smothered with credit card applications, buy now -- pay later opportunities, college students are pounded with free gifts for getting a credit card on campus, and nearly half the advertisements on television contain the words, “No credit? Bad credit? No problem!”

Newsflash: bad credit and excessive debt are problems. Proverbs says, “The borrower is slave to the lender.” With this current bailout, we see that even people that don’t borrow frivolously are slaves to the lender to – with our tax dollar.

Several things caused this problem. First, you had a massive push from the Left in this country at the end of the Clinton era to guarantee that home loans would be made available to our working poor. A noble cause indeed, however, the problem was that greedy companies were not going to make high risk loans to high risk buyers without attempting to at least cover their butts with a high interest rate. I’m about as centrist as it gets in my politics, so here’s my opinion, two things on this point – first, to the Left, you don’t do people any favors by encouraging them to acquire even more debt than they already have. Second, to the Right, you don’t do yourself any favors by allowing greed to guide your decision-making, particularly when you mask it as an attempt to “help the working poor.”

In hindsight, a better solution would have been to prop up the housing market with these dollars, not multi-million dollar corporations. I wonder how that $4,000 per American would have been better spent if allocated directly to home-owners to save their homes from foreclosure, rather than to the billion dollar companies that now own far too many defaulted American properties? Talk about a transfer of wealth, ladies and gentlemen we’ve just witnessed the Federal government acquire PRIVATE PROPERTY with our tax dollars. Understand the gravity of this, please. In hindsight, a better solution would be to abolish all subprime interest rates right now and replace them with a reasonable fixed rate, coupled with a housing market bailout to American families directly so they could save THEIR OWN PROPERTY.

The above paragraph doesn’t change one thing though – we shouldn’t have to prop up anyone’s bad decisions – be they corporate greed; or Americans up to their eyeballs in debt. Americans borrow too much. The idea of living simply and within our means is all but a foreign concept. In many ways, this market deserves to crash, if for no other reason than to teach big money business that greed never pays, and to teach every American Joe out here in our great nation, that debt is a killer of men’s souls.

kissmyblakarts said...

...we've just had a hour of television programming titled "Surviving the US Crisis"..basically it was don't panic but also don't check your superannuation because its pretty much gone for the minute and may take years to recover. Also, expect to be working well into your 70s. A bit of a shame if you were planning to retire soon.

While I feel enormously for the people on the ground who have lost homes and are financially devestated, I am so loathe of how intrinsically linked we all are - how fair is it that people in Australia have to suffer for the foolishness of the US Economy and Govt????

Anonymous said...

A Political "Solution"
Thomas Sowell
Tuesday, September 23, 2008

Who was it who said, "crack-brained meddling by the authorities" can "aggravate an existing crisis"? Ronald Reagan? Milton Friedman? Adam Smith? Not even close. It was Karl Marx. Unlike most leftists today, Marx studied economics.

Is the current financial crisis going to lead to crack-brained meddling or to some rational actions? Predicting what politicians are going to do is risky business. We will have to wait and see.

Saints are no more common on Capitol Hill than they are on Wall Street. We can only hope that the political "solution" does not turn out to be worse than the problem.

There are times when government intervention can make things better. But that is no guarantee that it won't make things worse. As they say, "the devil is in the details"-- and we don't know the details yet.

Probably most members of Congress don't know the details yet-- and many may still not know the details when the time comes for them to vote on this bailout.

Taking an optimistic view, this biggest bailout of all time may stop the problems in financial markets from spreading into the general economy-- which is currently nothing like the disaster area that the media portray it to be.

Ninety percent of the people on this planet would exchange their economic situation for ours in a minute. The media love hype, and have been dying to use the word "recession" all year but nothing has happened that meets the definition of a recession.

The American economy is growing, not declining. Our unemployment rate is up to 6 percent but there are countries that would be delighted to get their unemployment rate down to 6 percent. Our inflation rate is up a little but many countries would love to get their inflation rate down to where ours is.

Why then is there such a mess in the financial markets? Much of that mess is due to the very people we are now turning to for solutions-- members of Congress.

Past Congresses created the hybrid financial institutions known as Fannie Mae and Freddie Mac, private institutions with government backing and political influence. About half of the mortgages in this country are backed by these two institutions.

Such institutions-- exempt from laws that apply to other financial institutions and backed by the implicit promise of government support with the taxpayers' money-- are an open invitation to risky behavior. When these risks blew up in their faces, Fannie Mae and Freddie Mac were taken over by the government, costing the taxpayers billions of dollars.

For years the Wall Street Journal has been warning that Fannie Mae and Freddie Mac were taking reckless chances but liberal Democrats especially have pooh-poohed the dangers.

Back in 2002, the Wall Street Journal said: "The time for the political system to focus on Fannie and Fred isn't when we have a housing crisis; by then it will be too late." The hybrid public-and-private nature of these financial giants amounts to "privatizing profit and socializing risk," since taxpayers get stuck with the tab when high-risk finances don't work out.

Similar concerns were expressed in 2003 by N. Gregory Mankiw, then Chairman of the Council of Economic Advisers to President Bush. But liberal Democratic Congressman Barney Frank criticized Professor Mankiw, citing "concern for housing" as his reason for supporting Fannie Mae. Barney Frank said that fears about the riskiness of Fannie Mae were "overblown."

Maxine Waters and other members of the Congressional Black Caucus have also been among the liberal Democrats defending Fannie Mae. Just last year, Senator Charles Schumer advocated legislation to allow Fannie Mae and Freddie Mac to increase their already huge role in the mortgage market. Republican Congressman Mike Oxley has also defended these hybrid financial giants.

Both Fannie Mae and Freddie Mac have been generous in their contributions to politicians' political campaigns, so it is perhaps not surprising that politicians have been generous to them.

This is certainly part of "the mess in Washington" that Barack Obama talks about. But don't expect him to clean it up. Franklin Raines, who made mega-millions for himself while mismanaging Fannie Mae into a financial disaster, is one of Obama's advisers.

Anonymous said...

How Wall Street Can Bail Itself Out Without Destroying The Dollar

by Thom Hartmann

For Grover "Drown Government In The Bathtub" Norquist, this bailout deal will work out very well. At a proposed cost of $4,780 per taxpayer, it'll further the David Stockman strategy of so indebting us that the next president won't have the luxury of even thinking of new social spending (expanding health care, social security, education, infrastructure, etc.); taxes will even have to be raised just to pay for the bailout. It'll debase our currency, driving up commodity prices and interest rates, which will benefit the Investor Class while further impoverishing the pesky Middle Class, rendering them less prone to protest (because they're so busy working trying to pay off their debt). It'll create stagflation for at least the next half decade, which can be blamed on Democrats who currently control Congress and, should Obama be elected, be blamed on him.

But there's another way: Create an agency to fund the bailout, loan that agency the money from the treasury, and then have that agency tax Wall Street to pay us (the treasury) back.

It's been done before, and has several benefits.

In the United Kingdom, for example, whenever you buy or sell a share of stock (or a credit swap or a derivative, or any other activity of that sort) you pay a small tax on the transaction. We did the same thing here in the US from 1914 to 1966 (and, before that, we did it to finance the Spanish American War and the Civil War).

For us, this Securities Turnover Excise Tax (STET) was a revenue source. For example, if we were to instate a .25 percent STET (tax) on every stock, swap, derivitive, or other trade today, it would produce - in its first year - around $150 billion in revenue. Wall Street would be generating the money to fund its own bailout. (For comparison, as best I can determine, the UK's STET is .25 percent, and Taiwan just dropped theirs from .60 to .30 percent.)

But there are other benefits.

As John Maynard Keynes pointed out in his seminal economics tome, The General Theory of Employment, Interest, and Money in 1936, such a securities transaction tax would have the effect of "mitigating the predominance of speculation over enterprise."

In other words, it would tamp down toxic speculation, while encouraging healthy investment. The reason is pretty straightforward: When there's no cost to trading, there's no cost to gambling. The current system is like going to a casino where the house never takes anything; a gambler's paradise. Without costs to the transaction, people of large means are encourage to speculate - to, for example, buy a million shares of a particular stock over a day or two purely with the goal of driving up the stock's price (because everybody else sees all the buying activity and thinks they should jump onto the bandwagon) so three days down the road they can sell all their stock at a profit and get out before it collapses as the result of their sale. (We ironically call the outcome of this "market volatility.")

Investment, on the other hand, is what happens when people buy stock because they believe the company has an underlying value. They're expecting the value will increase over time because the company has a good product or service and good management. Investment stabilizes markets, makes stock prices reflect real company values, and helps small investors securely build value over time.

Historically, from the founding of our country until the last century, most people invested rather than speculated. When rules limiting speculation were cut during the first big Republican deregulation binge during the administrations of Warren Harding, Calvin Coolidge, and Herbert Hoover (1921-1933), it created a speculative fever that led directly to the housing bubble of the early 20s (which started in Florida, where property values were going up as much as 70 percent per year, and then spread nationwide, only to burst nationally starting in 1927 as housing values began to collapse), then the falling housing market popped the stock market bubble and produced the great stock market crash of 1929. That speculation aggregated enormous wealth in a very few hands, crashed the housing and stock markets, and produced the Republican Great Depression of 1930-1942.

Franklin D. Roosevelt, as part of the New Deal, put into place a series of rules to discourage speculation and promote investment, including maintaining - and doubling - the Securities Transaction Excise Tax. Other countries followed our lead, and the UK, France, Japan, Germany, Italy, Greece, Australia, France, China, Chile, Malaysia, India, Austria, and Belgium have all had or have STETs.

Perhaps the most important benefit of immediately re-instituting a STET in the USA, however, isn't that it would raise enough money to bail out the banks and billionaires (and after that crisis is covered, could pay for a national health care system), or that it would encourage investment and calm down markets. Those are all strong benefits, and absent the current Republican Administration bailout proposal would stand-alone strongly.

But the Republican Bush Administration is currently suggesting that we borrow $700 billion (or more) from China and Saudi Arabia and other countries and investors, add that to our national debt, and repay it with interest (making the actual cost over the next 20 years over $1.4 trillion). This is what Republican Herbert Hoover tried in 1931 when he first created the Reconstruction Finance Corporation (later totally reinvented by FDR) to bail out the banks in 1931. Hoover's RFC bailed out the bankers, paid off huge salaries in the banking and investment world, bought him a few months (maybe that's the real goal of the Bush/McCain Republicans now - just hold things together until after the elections), but ultimately led to the failure within two years of virtually all the banks in the United States. The bailout failed.

Similarly, in 1998 the Japanese banks were facing a serious crisis of liquidity as the result of a bursting housing bubble in that country. The Japanese government used public funds to re-float a number of large banks that year, and it similarly failed. In one example out of dozens, in 1998 135 billion Yen were given from public tax funds to Ashikaga Financial Group, but the company limped along for a few years and in November of 2003 collapsed again, requiring a second infusion of a trillion yen from public coffers. And, as the BBC reported in a 30 November 2003 article ("Japan Bank Bail-Out 'A One-Off'"): "But experts warn that Ashikaga could be just the tip of the iceberg." Professor of Finance at Tokyo University Takehisa Hayashi said, "It will come as no surprise if we see another Ashikaga case in the near future." And they did.

Japan continues to limp along, as a result of bailing out banks rather than fixing structural problems. (At least the Japanese had enough savings to use their own money, instead of debt, to bail out their banks.)

So bailouts don't work, and never have. And they also have the side effects of damaging a nation's credit, sucking up its taxpayers resources, and (when done with debt) weakening its currency.

So let's go back to what we know works. After Hoover's 1931 bailout of the banks failed, FDR did a cold reboot of the entire system, putting into place strong rules to prevent speculative abuse. And he doubled the STET tax, both producing revenue that more than funded the Securities and Exchange Commission and further prevented a repeat of the speculative bubble of the 1920s that led directly to the Republican Great Depression.

We've done it before. We financed the Spanish American War and partially financed the Civil War, WWI, and WWII with STETs. We stabilized our stock market with a STET from the mid-30s to 1966, and other nations are doing it today. It's time to do it again, this time using the STET so tax Wall Street can pay for its own bailout.

Thom Hartmann (thom at is a Project Censored Award-winning New York Times best-selling author, and host of a nationally syndicated daily progressive talk program on the Air America Radio Network. His most recent books are "The Last Hours of Ancient Sunlight," "Unequal Protection: The Rise of Corporate Dominance and the Theft of Human Rights," "We The People: A Call To Take Back America," "What Would Jefferson Do?," "Screwed: The Undeclared War Against the Middle Class and What We Can Do About It," and "Cracking The Code: The Art and Science of Political Persuasion."

Anonymous said...

Click here to learn what caused this economic crisis!

Anonymous said...

Bailout Politics
Thomas Sowell
Tuesday, September 30, 2008

Nothing could more painfully demonstrate what is wrong with Congress than the current financial crisis.

Among the Congressional "leaders" invited to the White House to devise a bailout "solution" are the very people who have for years created the risks that have now come home to roost.

Five years ago, Barney Frank vouched for the "soundness" of Fannie Mae and Freddie Mac, and said "I do not see" any "possibility of serious financial losses to the treasury."

Moreover, he said that the federal government has "probably done too little rather than too much to push them to meet the goals of affordable housing."

Earlier this year, Senator Christopher Dodd praised Fannie Mae and Freddie Mac for "riding to the rescue" when other financial institutions were cutting back on mortgage loans. He too said that they "need to do more" to help subprime borrowers get better loans.

In other words, Congressman Frank and Senator Dodd wanted the government to push financial institutions to lend to people they would not lend to otherwise, because of the risk of default.

The idea that politicians can assess risks better than people who have spent their whole careers assessing risks should have been so obviously absurd that no one would take it seriously.

But the magic words "affordable housing" and the ugly word "redlining" led to politicians directing where loans and investments should go, with such things as the Community Reinvestment Act and various other coercions and threats.

The roots of this problem go back many years, but since the crisis to which all this led happened on George W. Bush's watch, that is enough for those who think in terms of talking points, without wanting to be confused by the facts.

In reality, President Bush tried unsuccessfully, years ago, to get Congress to create some regulatory agency to oversee Fannie Mae and Freddie Mac.

N. Gregory Mankiw, his Chairman of the Council of Economic Advisers, warned in February 2004 that expecting a government bailout if things go wrong "creates an incentive for a company to take on risk and enjoy the associated increase in return."

Since risky investments usually pay more than safer investments, the incentive is for a government-supported enterprise to take bigger risks, since they get more profit if the risks pay off and the taxpayers get stuck with the losses if not.

The government does not guarantee Fannie Mae or Freddie Mac, but the widespread assumption has been that the government would step in with a bailout to prevent chaos in financial markets.

Alan Greenspan, then head of the Federal Reserve System, made the same point in testifying before Congress in February 2004. He said: "The Federal Reserve is concerned" that Fannie Mae and Freddie Mac were using this implicit reliance on a government bailout in a crisis to take more risks, in order to "multiply the profitability of subsidized debt."

Chairman Greenspan added his voice to those urging Congress to create a "regulator with authority on a par with that of banking regulators" to reduce the riskiness of Fannie Mae and Freddie Mac, a riskiness ultimately borne by the taxpayers.

Fannie Mae and Freddie Mac do not deserve to be bailed out, but neither do workers, families and businesses deserve to be put through the economic wringer by a collapse of credit markets, such as occurred during the Great Depression of the 1930s.

Neither do the voters deserve to be deceived on the eve of an election by the notion that this is a failure of free markets that should be replaced by political micro-managing.

If Fannie Mae and Freddie Mac were free market institutions they could not have gotten away with their risky financial practices because no one would have bought their securities without the implicit assumption that the politicians would bail them out.

It would be better if no such government-supported enterprises had been created in the first place and mortgages were in fact left to the free market. This bailout creates the expectation of future bailouts.

Phasing out Fannie Mae and Freddie Mac would make much more sense than letting politicians play politics with them again, with the risk and expense being again loaded onto the taxpayers.