[Vision2020] Why are we bailing out all these large corporations?

Mon Sep 22 00:15:07 PDT 2008

Andreas,

What you are talking about doing is socialism. A State run economy. We know this doesn't work. Printing up an addition $700 billion is only going hurt those that rely on a strong dollar. The dollar bill will be worth little than the cost of printing a dollar. The retired, and those living on a fixed income or disability cannot earn more dollars, so inflation hurts them. I see no reason to drastically cut their lifestyle to help the millionaires and those with huge stock investments whom took huge risks knowing the consequences. 

Let the greedy bastards that swam way out there against all common sense with no life vest SINK on their own. Is see no reason to drown with them. If you give them first class tickets on a five star cruise-liner back, the next batch of idiots will just swim out further in deeper waters expecting the same treatment. 

I feel no sympathy for big risk takers that lose. Even less for those at the top of the food chain.
The BEST thing for the future of our free economy is to allow bad businesses to sink so the good ones can rise and thrive. There are lots of good business men and women out there, they should not be playing second fiddle anymore to these big losers. 

So what if we go into a recession. I don't think it is such a bad thing that people learn to do without a latte every morning for a few years. God knows, the last Depression created the greatest generation of people this world has ever seen. Maybe we should be building character instead of debt for change. 

Best Regards,

Donovan

--- On Sun, 9/21/08, Andreas Schou <ophite at gmail.com> wrote:

From: Andreas Schou <ophite at gmail.com>
Subject: Re: [Vision2020] Why are we bailing out all these large corporations?
To: "Tom Hansen" <idahotom at hotmail.com>
Cc: "Vision2020" <vision2020 at moscow.com>
Date: Sunday, September 21, 2008, 6:24 PM

Tom --

I'm going to have to (probably) agree with Jeff on this one. FDIC only
insures consumer banks, and SIPC provides a very limited amount of
protection -- it only insures investors against assets endangered by
the failure of a brokerage, rather than against the assets themselves
dropping in value. Neither has a lot to do with the utter market
collapse that's going on around us right now. Some of it could've been
prevented by re-regulating the financial markets; other elements have
always been poorly regulated.

The first problem was the explosion in subprime and exotic mortgages.
Here, part of the problem was the incentive structure for mortgage
brokers: individually, they received a commission on the mortgage;
however, since the mortgage frequently no longer belonged to the
original broker when the borrower defaulted, they didn't care. So long
as the housing boom was moving fast enough to get the mortgage off the
balance sheet by the time it came due, no one cared*.

The second problem was the explosion in the sale of mortgage-backed
securities. This, essentially, was a trillion-dollar attempt to spin
straw into gold. Large banks packaged high-risk mortgages together in
such a way as to -- supposedly -- balance the various risks against
each other in such a way as to make the investments safe. They then
leaned on the ratings agencies to rate these securities either AA or
AAA (essentially, as safe debt to purchase), which they did.  One
would think that the financial geniuses that run Wall Street would
know that there's no honest way to make 2 + 2 = 5. But there you have
it.

Third, leverage. The debt to asset ratio being carried by Wall Street
was ludicrous. The SEC had granted exemptions for the big five
investment banks, allowing them to take out loans at anywhere from
30:1 to 40:1. Of the five companies granted that exemption, only one
-- Goldman Sachs -- is still in anything resembling a decent state.
The higher your leverage, the more you depend on outsmarting the
market to outrun your debts. Worse, *your* debts are in someone else's
accounts receivable column. If you drop into bankruptcy,
congratulations: your creditors can all take the number in their
accounts receivable and divide it by the amount to which you're
leveraged. This causes ripple effects across the entire financial
sector.

I've got no problem with the government spending taxpayer money to
bail out Wall Street. The CDOs (mortgage-backed securities) that the
government is thinking of purchasing probably do have some underlying
value. But if we're going to be buying a ton of bad debt, we should be
canny consumers: we don't take on $700 billion worth of debt without
getting something in return. An equity stake in every company from
whom we buy CDOs should be fine. The US taxpayer having a seat on the
board of directors of every major Wall Street firm would also provide
an elegant solution to the regulation problem: each firm is regulated
(by a federal trustee) to the extent it couldn't keep its own house in
order*.

-- ACS

* Incidentally, despite what John McCain's commercials might be
telling you, Fannie Mae and Freddie Mac had very little to do with
this business. The definition of a 'subprime mortgage' is a mortgage
which neither Fannie nor Freddie would take. Fannie and Freddie's
problems were largely caused by (a) investor panic, (b) their
attempts, while wearing their 'private corporation' hats, to compete
at a level of risk higher than they ought to've, and (c) a massive
liquidity crisis caused by everyone wanting to sell mortgages and no
one willing to buy.

** Also incidentally, as a US taxpayer, you might be happy to know
that since the AIG bailout, you now own a one-three-hundred-millionth
stake in Manchester United, which I am told is a soccer team. They
used to be a property of AIG: now they're yours. They're quite
good.\

On Sun, Sep 21, 2008 at 5:35 PM, Tom Hansen <idahotom at hotmail.com> wrote:
> Paul -
>
> It is my impression that this economic crapshoot was instigated by
> deregulation of the industry under both Reagan and Bush Sr..
>
> It used to be that it was difficult (stringent requirements and constant
> federal monitoring) for banks, S&Ls, and other financial institutions
to
> qualify for FDIC/FSLIC "protection".  Once Reagan removed these
requirements
> and Bush Sr. drastically limited (if not eliminated) federal
> monitoring, banks approved loans to people/businesses that possessed no
> viable capability of ever repaying the loans and investment firms made
> investments that would make third-world countries cringe.  These financial
> institutions were not concerned about going "out of business",
not as long
> as they had that FDIC/FSLIC sticker on their doors.
>
> So, as Bush Jr. tries to pass himself and potentially McCain (who
> coincidentally has been in the Senate since Nixon left the White House) as
> heroes to the American people, remember who made this all possible.  Hint:
> It wasn't Obama.
>
> Tom Hansen
> Moscow, Idaho
>
>
>
>
> ________________________________
>> Date: Sun, 21 Sep 2008 16:59:05 -0700
>> From: godshatter at yahoo.com
>> To: vision2020 at moscow.com
>> Subject: [Vision2020] Why are we bailing out all these large
corporations?
>>
>> If a large corporation is about to go bankrupt because they loaned
money
>> without proper collateral behind it and without a determination that
the
>> person taking out the loan could reasonably pay it back, shouldn't
we
>> let it crash and burn? Isn't that what is so casually referred to
as a
>> "market correction"?
>>
>> I've heard it stated that there is something different about this
>> situation - it's more dire and it could have a snowball effect on
the
>> rest of the economy or even the globe. Does anyone here know enough
>> about this to explain that?
>>
>> What is so important about this situation that would result in the
>> necessity for an Iraq War-sized expenditure?
>>
>> Or is it a case of the rich looking out for the rich, which I'm
>> half-tempted to believe is the case.
>>
>> Paul
>>
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