Thread: Political Question - Or Is It?
09-26-2008, 10:23 AM #1
- Join Date
- Mar 2002
- Loco madidus effercio in rutilus effercio.
Political Question - Or Is It?
Man. I never thought I would actually think about politics, let alone actually try and seek guidance or disucss such a thing.
Ok, here goes:
While I have not tried to fully inform myself on the particular topic, President Bush's decision to offer a multi-billion dollar bail out has received a great deal of critisism. I understand that critisism, this is a very unorthodox approach to a problem.
The thought (I suggest) behind it is this: This planet and most western industrialized nations have experienced at least two major economic crashes in the past 150 years. Right? So my interpretation of this bail out scheme is that it could be (Maybe?) an attempt to prevent another major economic crash. The idea being that if the government takes a proactive approach, by pumping money into some of the major corporations, it might be enough to keep things going more or less "normally" - I think. It can be proven historically, that there has been no such offering (that I am aware of) like this before. The other methods - let the corporations fend for themselves have proven that to be a poor course of action.
I don't do politics and I dislike ecomomics on an equal level, but this is my interpretation of current events. Maybe some of the better edjumicated amongst us have more learned understandings?
Not looking for political rhertoric or other BS comments. Please keep your thoughts and comments to the specific topic at hand. And thanks in advance.
09-26-2008, 01:54 PM #2
Basically, the Government allowed many banks to write loans/mortgages to people who could not really afford it, based on the hope that the value of these peoples collateral would stay the same and/or increase. When that did not happen, these people were unable to pay their debts back. With a large enough number of these, the banks were then running short of "funds" as well.
The proposed plan is to buy those in debt loans/mortgages from the banks, allowing the banks to continue offering loans/mortgages (to people that still can't afford it) and continue to hope that their collateral increases in value. At that time, people can pay back the banks, the banks can then payback the Govt.
All the while, the underlying problem of people borrowing more than they can afford......will continue. This plan won't fix that problem, it will only delay the end result for a while longer and leave us with an even larger debt that will still need to be paid by everyone."This thread is being closed as it is off-topic and not related to the fire industry." - Isn't that what the Off Duty forum was for?
10-01-2008, 02:14 PM #3
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- Mar 2002
- Loco madidus effercio in rutilus effercio.
Apparently I'm not the only one thinking in that direction:
Economic experts talk to both sides of crisis
Tom Abate, Chronicle Staff Writer Wednesday, October 1, 2008
(09-30) 19:14 PDT -- As an anxious world waits and wonders, Congress prepares to reconsider the $700 billion question: Should taxpayers prop up the financial sector? And, if not, what's the alternative?
"This is the first time since the 1930s that the sanctity of our banking system has been threatened," said San Francisco money manager Carl Kaufman, who nevertheless opposes the plan defeated in the House on Monday. "It treats the symptoms and not the disease."
On the opposite side of the debate is Pacific Gas and Electric Co. chief executive Peter Darbee, who once worked with Treasury Secretary Henry Paulson at Goldman Sachs. Darbee said his former colleague has devised a package to protect the economy rather than coddle financiers.
"Not to move ahead with a program of this nature will likely prolong and deepen the impact on the general economy, having very serious financial repercussions," said Darbee, adding: "This is not about a bailout of Wall Street. This is about doing something to ensure confidence in the American economy."
The Chronicle asked economic opinion leaders: Should taxpayers prop up the financial sector? And, if not, what's the alternative?
Bill Kornitzer, mutual fund manager, the Buffalo Funds, Kansas
I don't think the plan does what they want it to do, nor have they described the problem they want to solve. The real problem that I see is some of these financial institutions are under-capitalized. They don't have enough equity to support the loans they have made.
The government's financial leaders want to inject capital into the system without scaring the public, and the way they have proposed to do that is buying these mortgage-backed securities and paying more than they're worth. I think the government could do nothing and in the long run it would be all right. But more big financial institutions might fail, and there could be serious ramifications or unintended consequences, leading to a series of contagions that could end up in a depression-type scenario.
As a middle course, the government should guarantee all depositors in these financial institutions so we don't have to worry about runs. And the Federal Reserve should continue to make funds available to banks through lending windows. Let the financial institutions that are going to fail, fail. Within a year it will sort itself out.
John Shoven, director, Stanford Institute for Economic Policy Research
If the choice is between doing nothing or doing this package, or something close to it, we should do this. The plan has been improving and will get better. I like the idea of raising the Federal Deposit Insurance Corp. guarantee to $250,000.
What I'm worried about more than anything else is unemployment. Right now we've got 7.7 percent unemployment in California, and it's heading in only one direction, up. We need to do whatever it takes to get the credit markets flowing.
Jon Fisher, software entrepreneur and business professor at University of San Francisco
I am anti-bailout. At the same time we are considering this $700 billion financial sector bailout, Congress approved $25 billion in financial aid to the automakers and it got very little attention.
Our biggest problem in this country is that we prop up companies that do not deserve to be companies. We should have some sort of a plan to revive the financial markets, but it should not involve having the government take over companies.
Government should continue to work behind the scenes to encourage the stronger financial institutions to take the weak companies out of the field. We should let free market forces blow the nonperformers away.
Jean Ross, executive director of the California Budget Project, Sacramento
It's a horrendous situation that could have and should have been addressed by appropriate regulation a long time ago. That said, some type of a bailout is clearly needed. Money does keep the economy moving, and clearly the shortage of capital has reached a crisis point. Businesses can't get lending. And without the money to make new investments, buy homes and get student loans, the economic downturn will worsen.
We need to take drastic steps to restore confidence. But there should be controls: no golden parachutes for the managers who got the financial sector into such trouble. And because the taxpayers are taking on substantial risk, the federal government should receive an equity stake so that the taxpayers will share in the rewards to the extent there is value in the assets the federal government takes on.
James Wilcox, banking professor, Haas School of Business, UC Berkeley
The turmoil in the stock market is a reflection of the greater problems in credit markets, which are nearly completely frozen. Credit markets are frozen because of the lack of confidence in the soundness of the banks and because banks are increasingly reluctant to lend in the face of a weakening economy.
Uncertainty about the market values of mortgage-backed and other securities translates into uncertainty about the soundness of the banks that hold them. The Treasury's buying up of mortgage-backed and other securities is meant to help reveal their values and thereby remove uncertainty about banks' conditions. A well-structured auction may not only reveal a fair price for these securities, but it will also protect taxpayers against overpaying for them.
The Treasury's temporary participation in these markets will help prime the pump so that private-sector buyers and sellers once again will make markets for these securities that will trade at fair prices.
Carl Kaufman, vice president, Osterweis Capital Management, San Francisco
I'm against the bailout as it now stands. The problem is that housing prices continue to fall. The symptom is that mortgage-backed securities and other complex securities owned by troubled banks are trading down. These securities are going to continue to trade down as long as housing prices keep falling.
What's the alternative? Right now, nobody knows how large the problem is. To get a better estimate, lenders should be required to foreclose on nonperforming loans. Then the government should step in, after proper appraisals, and buy those foreclosed properties from the banks. That injects capital into the banks, turns bad mortgages into cash, revives prices in many mortgage-backed securities and gives investors sitting on the sidelines some idea of their true worth. Because the government now essentially owns Fannie Mae and Freddie Mac, it can then write reasonable mortgages to get buyers back into homes at realistic rates, or sell them in bulk to institutional investors. That puts a floor under things and restores confidence.
Brian Bethune, chief U.S. financial economist, Global Insight, Massachusetts
We're in uncharted waters. The financial crisis has been ongoing since August of 2007, and the approach that the Federal Reserve and the Treasury have been using so far has not been working. That's what led to this particular plan.
The notion that this is a bailout is wrong. So far, the majority of the costs of these adjustments are being borne by the banking system. We think the face value of these mortgage-backed securities was originally about $1.4 trillion. We estimate that the banking system has already written off about $400 billion.
I think the banking system will have to take an additional $150 billion to $200 billion in write-offs. That would then allow them to sell these securities to the Treasury at a deep discount and therefore the residual risk to the taxpayer is relatively small.
Chronicle staff writer David Baker contributed to this report. E-mail Tom Abate at email@example.com.
This article appeared on page A - 1 of the San Francisco Chronicle
10-01-2008, 02:37 PM #4
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There are alternatives out there to the current plan. After looking at a couple of them, I do like this one:
Common Sense Plan.
A. Insure the subprime bonds/mortgages with an underlying FHA-type insurance. Government-insured and backed loans would have an instant market all over the world, creating immediate and needed liquidity.
B. In order for a company to accept the government-backed insurance, they must do two things:
1. Rewrite any mortgage that is more than three months delinquent to a 6% fixed-rate mortgage.
a. Roll all back payments with no late fees or legal costs into the balance. This brings homeowners current and allows them a chance to keep their homes.
b. Cancel all prepayment penalties to encourage refinancing or the sale of the property to pay off the bad loan. In the event of foreclosure or short sale, the borrower will not be held liable for any deficit balance. FHA does this now, and that encourages mortgage companies to go the extra mile while
working with the borrower—again limiting foreclosures and ruined lives.
2. Cancel ALL golden parachutes of EXISTING and FUTURE CEOs and executive team members as long as the company holds these government-insured bonds/mortgages. This keeps underperforming executives from being paid when they don’t do their jobs.
C. This backstop will cost less than $50 billion—a small fraction of the current proposal.
II. MARK TO MARKET
A. Remove mark to market accounting rules for two years on only subprime Tier III bonds/mortgages. This keeps companies from being forced to artificially mark down bonds/mortgages below the value of the underlying mortgages and real estate.
B. This move creates patience in the market and has an immediate stabilizing effect on failing and ailing banks—and it costs the taxpayer nothing.
III. CAPITAL GAINS TAX
A. Remove the capital gains tax completely. Investors will flood the real estate and stock market in search of tax-free profits, creating tremendous—and immediate—liquidity in the markets. Again, this costs the taxpayer nothing.
B. This move will be seen as a lightning rod politically because many will say it is helping the rich. The truth is the rich will benefit, but it will be their money that stimulates the economy. This will enable all Americans to have more stable jobs and retirement investments that go up instead of down. This is not a time for envy, and it’s not a time for politics. It’s time for all of us, as Americans, to
stand up, speak out, and fix this mess."They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety." -- Benjamin Franklin
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