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?

Threadworm, Fanny Mae and Freddie Mac already were state social housing schemes (in effect). That's where the problems started!

And a bailout may not work, unfortunately.

An 'expert' said yesterday that the majority of the 'toxic mortgages' were issued in 2005 and 2006 and that they are mainly concentrated in California and Florida. Perhaps not a coincidence that those two states have experienced some of the largest jumps in property prices over the past few years.

I agree with Custardo and Expat (And Swedes)

Free markets should not be bailed out. It keeps the rich rich, the poor poor and maitains the status quo which may need to be readdressed.

My mother's sister sold a house in Florida last year for an absolutely sickening price over what she paid for it.

Granted, it's a lovely home and she's a trained interior decorator, but wow, that was a lot of money.

Bubbaluv - I don't think anyone's attacking investment bankers at all. Everyone who invested (staff, shareholders, pension fund managers, investors in those pension funds) took a risk and that risk was spelled out to them. They were required to sign on a dotted line "investments can go down as well as up blah blah". They could have opted for less risky investments eg government bonds but they didn't.

But the intervention was not to protect financiers from losses they should be prepard to sustain, surely. It was to prevent catastrophic world recession?

She could probably buy it back for a penny now Expat!

And when you say 'the market needs to find its own level' what does that mean? What needs does 'the market' have? It is there to serve a social purpose. To the extent that it fails to serve that purpose it needs to be distorted by regulation and intervention.

Threadwworm - In which case why not make those who can afford the loss actually make the loss. That should not preclude a bailing out for the greater good.

she has since used her share of the profits (with her most recent ex-husband) to reinvest in some rather wise purchases, Bubba, at auction .

she's ever been savvy with money and has an uncanny knack for stretching whatever means she has for maximum profit and effect .

it helps that she's been married 5 times, and each time to someone progressively wealthier.

i suppose the real question is: are recessions truly preventable?

But it wouldn't just be a case of individuals losing out, would it? Rather, institutions would go under, with social and economic consequenses that would be costly to everyone?

and is it always wise to try to prevent recessions on the pretext that it is for the greater good?

Threadie - What about the estate agents on the high street, for example? They are laying people off and closing down all over the place. Are the government thinking of intervening? This is what a free market does. It expands and contracts.

OK, for those who think a bailout shouldn't happen - let's play that scenario out....

People who can't pay their mortgages fall behind, and eventually default. The banks 'lose' on that home, and either hold it or try to sell it for less than it is worth. But, who are they going to sell it to? No one can get credit. Multiply that scenario by hundreds, and the banks fail and the property market implodes.

And then think about the family who defaulted on their mortgage. Their credit is ruined, so they can't buy anything else. They probably also have a great deal of other debt - credit cards maxed out, behind on car payments, perhaps they've taken equity out of their home, etc etc. So, declaring personal bankruptcy becomes likely. Their 'creditors' are then stuck for the debt and must absorb it. Multiply that scenario by many, many thousands.

All of these people who are in financial distress are not buying much more than essentials, so - cars are not being bought, neither are fridges, computers, washing machines, etc. No one is buying furniture or going to restaurants or buying anything but essential clothes/shoes. So retail sales drop dramatically and shops/retail chains begin to go out of business.

With no one to purchase the goods, factories close because there is little need to manufacture anything. Layoffs, redundancies, downsizing, etc, etc etc.

And where are people living? And how are they earning? What do they do and where do they go?

There are MILLIONS of people who may experience the scenario I've described above.

A bailout makes me mad as hell. But it is far better than the alternative.

Threadie - When you say institutions what do you mean?

'who are they going to sell it to? No one can get credit.'

There will always be people like Auntie and my dad to buy them.

I see where you're coming from.

But the problem I have with it is that a bailout doesn't guarantee anything, either.

Doesn't guarantee there still won't be a major recession, which worldwide is long overdue.

Painful, but an integral part of any capitalist society.

Perhaps the problem is with capitalism then?

Earlybird - Wouldn't it be more sensible for the government to buy the house as and when that happened? Why do they need to bail out the shareholders en route?

Expat - bet Auntie took her profits from the house sale and invested the money. And I bet that investment is worth significantly less today than it was 3 months ago. She may not now be as ready/able to buy as she was a few months back.

I'm afraid here, because of the hideous extent of my ignorance.

But: The notion of a completely pure free market is surely a fiction in any case. It's not as if it is apples that are being bought and sold. It is financial products -- which can only exist in a context of law and regulation. So it is not a question of the presence or absence of external forces on the operation of the market, but rather a question of their nature and extent. The govt has to decide how and when to shape the market.

So, a few unemployed estate agents, fine, no intervention. The collapse of a hideously mutually implicated global economy, not so fine, cough up $700 bill.

These people have got credit (cars, loans etc) secured against the value of their homes. The value of these homes has already fallen so they won't be buying any more cars or securing any more credit even if the government does take on the bad debt. I think it's a totally flawed plan.

She invested it abroad, Early.

And it's actually worth signficantly more.

She has the added benefit of having French/EU nationality.

That being said, she and my father have joint bought 3 homes at auction this year.

Foreclosures.

What I mean is, how can it be the case that as a matter of principle the market should be left to find its own level, when the market is a creation of law and regulation which exists only because it serves asocial function.

In many instances (perhaps all?), the government is loaning the money to these companies - not giving it. In the case of AIG, they will loan the company $85B for two years, and will charge an interest rate of nearly 12%. They also will hold 80% of the company as collateral in case the company is unable to repay the loan. So, the company essentially has enough money to operate for now, and will set about selling their assets - of course, in this market, the assets will be sold for a fraction of what they are worth. Some are saying that if AIG (as an example) can repay the loan, then the government (and taxpayer) will actually have made a nice profit.

And as for stockholders of that company - their stock was worth $70 per share earlier this year, and now is worth $4 per share. It was AAA rated (the highest possible) by credit agencies only a few months ago, so not considered by ANYONE a risky investment.

Wonder if AIG will now have to sell Manchester United?