US Government's $700 billion bank bail out.

[Swedes]

It's so wrong. The vast majority of the money will bail-out people who really don't need government support. I think they should fund their welfare system (to the tune of $700 billion if necessary) so that there is a safety net for people at the bottom who really do need government assistance. The shareholders and the like should be allowed to lose their shirts as I'm sure they have a spare in the wardrobe. I'm not sure it matters that the odd bank will bubble under.

Am I the only free marketeer?

[Bubbaluv]

If you were going to lose your life savings you might feel differently?

[LadyMuck]

But if the shareholders are the pension funds that are meant to be supporting people for up to 30 years or more of their life?

A safety net can only be so big.

That said I'm not enthusiastic about this move at all. I just haven't heard a better plan.

[Earlybird]

Swedes - a great deal of why it needs to happen is to stop foreclosures on homes, which are currently happening at a rate of 10,000 per day in America. So, it will benefit those 'people at the bottom' as they will be able to stay in their homes if the government takes on the mortgages in default and then reduces the interest rates.

And why exactly should shareholders be allowed to 'lose their shirts'? If you'll pardon me saying it, only a person with nothing to lose would ever make such a statement. Many of us worked and saved hard to purchase those shares which were our provision for the future.

[Earlybird]

By the way, as a person who has taken on a mortgage I could afford on terms I could afford, I am not thrilled at the concept of bailing out the subprime mess. I feel that there is an issue of institutional responsibility (how could they issue so many dodgy mortgages to people who should never have qualified), and an issue of personal responsibility (did people not think what they'd do when the fixed rate period expired?? Or how they'd manage if interest rates went up??).

BUT - I see that letting all these people/institutions flounder and sink in their toxic debt will have dire consequences for our society both economically and socially.

And I do think there need to be some stringent regulations put in place for future regarding issuing credit in future, and the amount of collateral needed to secure the debt. And while they're at it, think they need to completely revamp executive compensation as some were paid obscene amounts for getting us into this mess.

[Bubbaluv]

Anyway, the purpose is not to protect the shareholders, it is to protect the stakeholders (people with bank accounts, savings etc). If they were protecting shareholders they would have bailed out the investment banks too.
Earlybird, shareholders shouldn't be protected as the point of investing in shares is that you reap the rewards of higher returns on your investment (in good times) and carry the risk of losing it all if things go bad. There are lower return, lower risk investments to chose if you don't like it.

[Bubbaluv]

Anyway, the purpose is not to protect the shareholders, it is to protect the stakeholders (people with bank accounts, savings etc). If they were protecting shareholders they would have bailed out the investment banks too.
Earlybird, shareholders shouldn't be protected as the point of investing in shares is that you reap the rewards of higher returns on your investment (in good times) and carry the risk of losing it all if things go bad. There are lower return, lower risk investments to chose if you don't like it.

[IorekByrnison]

It does seem as though you are the only free marketeer about at the moment, Swedes. Most have gone strangely quiet lately.

I don't know what the answer is, but I keep hearing suggestions that it was the lack of intervention on grounds of moral hazard after the 1929 crash which led to the Great Depression (as opposed to a regular recession). I don't know how comparable the current circumstances are, but this is surely the thinking behind Hank Paulson's plan?

[Swedes]

Earlybird - I am a shareholder. But if my investments started bubbling under tomorrow, I wouldn't expect to be bailed out by the government. Similarly, when my investments are doing very very well, I don't want to hand them over to the Government because they fall outside the graph of expectation. I didn't see shareholders, pension funds and banks sharing their spoils in the good times.

If people lose their pensions that is very unfortunate and I'm very clear that the state should provide for these people in their old age - that will almost certainly result in a reduced lifestle compared with what they had anticipated had their investments grown as planned. But still, that's the nature of risk.

[Leoloopydoo]

the whole financial system worldwide is at risk of collapsing which will affect every single one of us and as usual the very poor will be sure to suffer the most. THey still don't know how bad this will get and are putting a security net in place to prevent it getting worse.

The good times also has a ripple effect through the whole economy which has an impact on us all. Not every shareholder, investor, saver or employee in the financial industry is rolling in money.

[Bubbaluv]

The mortgage bundles the investment banks bought (which have since proved such a problem) were rated as AA investments because they were sold through US government backed institutions. Part of the problem was that the investment banks had no way of knowing, therefore, that they were buying such risky assets. So the US govt has a big part to answer for in starting this crisis, and I think that's part of the reason that they are trying to limit the fall-out.

[Tortington]

i can see why, but i am with swedes on this one.

either we live in a capitalist society or we dont, governments should not put taxpayers money into sustaining businesses, if business and banks fold then tough - thats capitalism

[expatinscotland]

I agree, Swedes (don't faint! )

Either have it be free market or not.

No bail outs or heavy regulation.

The golden parachutes and bonuses with no accountability is a slap in the face to the taxpayer.

And they know it.

[expatinscotland]

I hear a lot of the public aren't very happy about the entire bailout, Cali.

Don't know if that's true, but if it is, it's not entirely unexpected.

[Bubbaluv]

I agree that either it's a free market or it's not. But when the crisis is created by government intervention then it's not.

[expatinscotland]

Not surprising, Cali. Americans do NOT like being taxed extra for the most part, especially to bail out capitalist endeavours, as many of them do espouse capitalist values such as you mess up in business and your business folds as a result, that's your bad.

[Leoloopydoo]

I agree that there should be accountability, there should be legal action taken against a lot of people who got paid a lot of money for getting us into this mess and I don't agree with golden parachutes, but I don't see this as golden parachutes (maybe I am just badly informed). I think the US gov is in a panic as they don't know how bad this will get. It has been a huge and unexpected shock how far its gone already and nobody knows how much further it can go. If the US gov (who is in a large part responsible) doesn't have something in place then the global economy could collapse, its the worst case scenario they want to prevent.

[Earlybird]

Perhaps the 'experts' who now are pushing for bailouts are over-reacting about the potential severity. But I doubt it. I do not believe the 'man in the street' realises the ramifications for all of us if these massive banks/companies go under.

[Leoloopydoo]

Exactly what I think Earlybird.

[Swedes]

Earlybird. Well of course that is possible. And in that case I understand if it's a lesser evil.

[Bubbaluv]

It's interesting that everyone attacks the investment bankers in this situation. Tall poppy syndrome?

[Threadwworm]

Earlybird's point about foreclosures seems like the strongest argument in favour of the US govt's action.

It does seem to have the crazy consequence, though, that a govt historically so uncomfortable witht the welfare state is now the world's largest operator, in effect, of a state-owned social housing scheme.

[Swedes]

Free markets need to find their own level, they should be allowed to sometimes contract.

[Earlybird]

There is alot of finger-pointing and 'blaming' going on at the moment, and it seems there was/is a great deal of 'rot' in the system:

Republicans are saying a bill to limit/prevent this sort of situation was presented and voted down by the Democrats a few years ago.
Others are talking about filing lawsuits for fraud at the companies that are failing - that they misrepresented their liabilities, and acted irresponsibly.
Others are blaming Hedge Funds who spread misinformation about the companies, and then profited by 'shorting' the stocks.
More are blaming the Security & Exchange Commission (SEC) for removing certain regulations that prevented 'naked shorting' and removing the uptick rule (which I don't really understand) back in August....and that is the point when the stock prices/these companies really started to suffer. (All shorting of stocks was banned late last week)

It is a huge mess, and many factors are to blame. It's an economic 'perfect storm'.