The DOW closed down 770 points today, 7 %. NASDAQ closed down almost 200 points, 9.1%
The Bush administration's $700B bailout plan failed to pass the House vote. 228 against. 205 for. Only 66 Republicans backed Bush's plan. 132 Republican House members voted against it.
What do YOU think? Should the government provide a bailout at all? Or can the the credit crisis and the market recover on its own?
Anyone wanna talk about it?
13 comments:
Ummmm, well...
Part of me wants to say, "Let the big greedy suckers fry and sorry for those who took out 300,000 home loans on a 20,000/year salary..."
But then, a part of me wants the gov. (our tax money) to buy up the bad debt and resell it in a few years and make the money. Either way, if you've got money to invest, NOW IS THE TIME. Apple is at 103 bucks a share, for NO reason. You could probably come close to doubling your money in a year off that stock alone.
To be honest, I think this is an issue that very few people even begin to understand. That certainly includes me.
And I would add many of our politicians to that list, also -- not to be cynical, just to be truthful about it. The economy is huge and complex and even people who study it for a living come to radically different conclusions about cause and effect as it relates to economics on a grand scale.
Apart from the complexity of the underlying economics, I realize we're also talking about the malfeasance of the people who head these corporations, and possibly politicians and regulators who were supposed to be monitoring these things.
It's a little hard to sort out with all the finger pointing going on. I was hearing more than five years ago from some Republican-leaning people I know that this was coming. There's a very interesting video out there of the hearings from 2004 where many politicians responsible for monitoring this in Congress denied there were any problems:
Nothing Wrong at Fannie Mae, Freddie Mac
Not sure what to make of that, but it's certainly interesting, and something I'm not hearing very much about from our usually-vigilant media watchdogs (cough, cough).
I honestly don't think anyone really knows what the results will be if we let the markets just play themselves out and make the corrections the way markets are supposed to do naturally, versus if we provide a bail-out payment to try and "stabilize" or artificially prop up parts of the market. It seems like people are in panic mode now, and that's often worse for the economy than the actual market forces themselves.
For example, we heard this week that there was no actual fuel shortage in Tennessee following Hurricane Ike. The reason all the stations ran out of fuel and prices shot up is because everyone panicked, and topped off their tanks as often as they could, expecting a shortage. Runs on the banking system work the same way. Much of the economy is influenced by the moods of investors and consumers.
You ask someone how they are doing personally and they might say "OK", but how the economy at large is doing and they'll say "Terrible", because that's what they're hearing on the news. I don't think it's a coincidence that this is all hitting at election time either. That's not to say that I think there's a conspiracy, because I don't. But it is to say that people get very twitchy during election season, and politicians try to turn every current event to their own advantage.
I'm generally a strong advocate of free markets, but I don't think they have much of a choice. They've got to intervene in some way to calm the panic. So I'd say some sort of package is regrettable but necessary. Hopefully in the long run the government won't lose too much of our money. (Eventually they'll be able to sell off most of the "toxic assets" they're buying.)
I want to be clear though that I think the people who took out mortgages they couldn't afford are equally at fault with the bankers who loaned the money. In a perfect world they'd both pay the price and not the rest of us. I mean, sheesh! Whatever happened to income guidelines, credit checks, 10% down and fixed rates? The borrowers and the lenders both took foolish risks.
The part of me with a one-income family, house, and two kids wants a bailout/rescue plan for our own personal comfort and financial stability.
But, the logical side of me thinks that those who run the struggling companies are just, in fact, human. And, humans often have to learn things the hard way. . .not by being rescued from our consequences.
Plus, is this just another band-aid for a problem that needs to hit rock bottom before it can rebound?
Joe is collecting reasons against the bailout at his blog.
I lean against. The notion that markets can't recover from this without massive government intervention is, I think, a little too farfetched.
The problem (as best I understand it) is that there are assets that have value, but nobody wants to touch them at any price. The desired fix is to have a "market maker" who will buy them, so that they will start trading at near their fair value again. Presumably, other buyers will follow.
I'm not convinced there won't be opportunists who buy, even without the government taking the lead. The credit market just isn't that bad.
As I type, Tuesday 1:38 PM Eastern time, the Dow's up 3.4%, the NASDAQ up 4%.
Who knows where it will end up at the end of the day, but the swings we've seen for the past two weeks are unheard of. The market's down 4% percent one day, up 4% the next, down 7 % the next, up 4% the next. Crazy.
When Lehman Bros. went under, it was sad here in the city, with so many people out of work. And I, along with everyone else, wondered what about the domino effect of this and the forclosure rate would be. Really, it all started years ago. And we're seeing the domino effect now. But the government, pres and banking committee and the treasury secretary, have been so dramatic in their language. Saying words over and over like crisis, depression, the worst since..., if we don't do something... That it makes you wonder, if they hadn't used such strong language, if the market would be less panicky. And if the reason for their language isn't to convince, through fear, the whole nation to beg for this bailout plan.
I heard an explanation that this problem at its core is all about greed. Not just greed of the execs at the top, but also greed on Main Street. Greed from the lender AND the consumer who wants more than he can afford.
I've thought so many times lately, Geez if we'd all just follow Proverbs nobody would be in this mess. And really, it's true. Credit isn't bad. Mortgages aren't bad. Loans and securities aren't bad. Short selling might not even be bad. (Still trying to understand short selling.) Naked short selling I know is bad. But anyways the point is: manageable debt is understandable, borrowing money is not bad. But living above your means BECAUSE of credit availability is not OK.
So really, I have no idea what is best, bailout or no bailout. I suppose time will tell. But if we don't all learn from this, we're crazy.
I'm enjoying reading what you all think.
I also heard a comment the other day on the news from a normal Joe Shmoe on the street...he said he was against the bailout plan because all it did was keep the rich being rich. I don't think he was talking about golden parachute plans, because supposedly they have been excluded from the plan.
If we let the market correct itself, we open up opportunities for less rich people to invest. And those that made poor choices and risky decisions pay the consequences. When someone sells an asset, someone gains it. When prices fall it's a bargain and an opportunity for someone else to make some money. That's the whole idea of the free market, right? Why is it so necessary to let the same people stay on top?
I don't know half of what I'm talking about, so y'all clue me in.
It was so fun to be in the dressing room during all this. You could tell people really wanted to get angry and rant about it, but nobody understands it well enough to say anything!!
I just started educating myself about the whole housing mess/Fannie/Freddie/subprime/etc stuff on Monday. Trying to get a big-picture view of it.
It's taken two SOLID days of studying and asking questions and I STILL don't understand it all. Every time I get close, something else gets thrown in the mix.
Basically, it's a tangled web of greed and corruption with a whole lot of people who wanted to get rich quick and buy fancy things with money they didn't have. Now it's time to pay the piper and we all have to clean up this mess.
It's gonna suck any way you slice it. We do the bailout, we send a message to the banks that they can do this stuff again. We don't do the bailout and we have the possibility of another Great Depression on our hands.
Christian financial advisor Dave Ramsey has an alternate proposal he is touting. It would provide government insurance for the risky mortgages if the lenders are willing to refinance the bad loans at a fixed rate (he says 6%) and give up their golden parachutes. He also wants to eliminate capital gains taxes completely to flood the market with capital and allow companies to value the mortages at the market value of the underlying real estate.
Ramsey says this approach would be cheaper and fairer. What do you think?
I don't know how I feel. Even with a husband who has been in the mortgage business for six years I don't understand a lot of what is happening. I do know that he will be unemployed at the end of the month, and that is undoubtedly a result of the subprime/credit crisis, even though he rarely deals with subprime borrowers. These are tough times and there is no one solution.
So I have nothing to add to the conversation, sorry for taking up comment space. ;)
Nicole,
First of all, I'm very sorry to hear about your husband's job, and I pray that the right opportunity comes along for him in the very near future. Sometimes the greatest blessings arise out of the saddest of circumstances.
And second of all, you're always welcome to take up comment space here!
Bill,
The Common Sense Fix does seem kinder to the borrower and tax payer, giving the borrower a chance at a stable lifestyle while retaining responsibility of debt. It puts responsibility on both parties, lender and borrower, to pay the consequences of taking high risks. Borrower still pays interest while lender receives less than expected. Basically it's forcing U.S. citizens to work out the problem on their own, while supplying a government rescue "in case" plan. Sounds good to me. I guess my question would be: Does it solve the problem quick enough? Payments would be steady and actually made, but would the liquidation needed for banks to operate well for immediate credit availability happen fast enough to allow for the credit freeze to be eliminated?
That's my first thought.
I love the no capital gains tax. But I doubt Congress would go for it without a time stipulation. No capital gains tax for how long? Indefinitely seems too good to be true. =-) If not an elimination of capital gains tax, how about a decreased tax for short holdings? Would maybe encourage fast liquidity in the market?
I don't know.
What the h--- do I know.
Roy,
you said, The problem (as best I understand it) is that there are assets that have value, but nobody wants to touch them at any price.
That makes sense. Just trying to understand further. No one wants to touch them because they're not secure anymore? Or because they can't? Assets as in the houses themselves? So like, for example, a borrower forcloses on a house, the lender then owns the asset (house) but are out a bunch of $, and there's nobody (home owner or other bank or securities whatever) willing to refinance that mortgage with the bank to get it paid....is that right?
And are the assets we're primarily talking about houses and stocks?
Oh sorry, one more question.
And why isn't there anyone out there to buy the assets at any price? There's no one besides the feds that will find the bottom price and be willing to pay it? Or is it that the bottom price is too low for the current holders of the asset?
No one wants to touch them because they're not secure anymore? Or because they can't?
In all investments, there's risk. Normally, market players (including banks) balance risk against reward and come up with a value they consider an asset (like a loan) to be worth.
But in this environment (of panic), the big players are too worried to take any risk. So the government plan is to take on all the risk itself, so that the players can get back in the game.
What kind of deals the government can get for shouldering all the risk is the sticking point. They should be able to get good deals and end up making money. But they're the government, so they are more likely to screw it up.
There are, of course, some investors who are willing to buy things, but the lion's share of the money that's usually flowing through the system is in the hands of banks who are paralyzed with fear.
There are many opportunities in the market for someone who is bold and shrewd. Being foolhardy can still get one burned, though.
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