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?

The bigger problem, though started because, Fanny Mae and Freddy Mac bought all the mortgagesincluding the dodgey ones and then, with the gov't as gaurantor, sold them as AAA rated investment packages (because the US gov't has an AAA rating) to investment banks etc who had no way of knowing that the packages were actually total time-bombs.

Yes, BGD - agreed that everyone will pay at some point in the time but I think most people would prefer a longer period of slow down during which time they have the ability to adjust rather than a short, intense and incredibly damaging slowdown, during which uncertainty reigns and nobody can readjust their lives.

Expat - the difficulty,as bubbaluv alludes to, is not the fact that the banks made bad loans. The default rate is currently still relatively low and banks are not losing money on the mortgages (yet). What is killing the banks and the financial institutions in the absence of liquidity in the market caused by uncertainty (which the Paulson deal aims to solve)

Just as an aside, the problem is not that these mortgages were all sold as AAA. Investors knew that a fair portion of these mortgages weren't worth the paper they were written on. The problem is that these mortgages were sold into investment vehicles (SIVs) of which a portion was AAA, A, BBB. etc and the final tranche was equity and people thought they could estimate loan losses far more accurately than they could. People thought, for example, they were holding BBB paper, but it turns out they were holding BB-. Once that happens then the entire structure collapses (for many reasons too dull to go into).

I agree with c'est la vie.

From my very simplistic perspective, this is a well disguised attempt to shift the buck from a lot of very powerful vested interests to the good old taxpayer. They want to offload it as quickly as possible before the music stops.

I have never had any time for American conspiracy theories but this is completely corrupt. Banks failed in Japan in the 90s when they had a similar bubble in debt and asset prices. The illusion that had been created of unsustainable wealth was finally dispelled.

If the whole Western economy/banking system collapses, let's be honest here. Yes it will affect the working poor in America and over here, but the non-working rich will be the worst affected.

When you have very little to lose, you have less reason to fear losing it. Bring it on. Goodbye to the unsustainable illusion of wealth on the part of the idle rich.

I'm sorry, but using the taxpayer to pick up the tab for years of fraud and greed on the part of bankers is shocking at best and criminal at worst.

Meant to add, this is just the start. "Economic growth" in the West has just been an illusion, paid for by unsustainable debt levels.

The liquidity problem now is just the first sign of a huge adjustment. Without these huge fake amounts of 'money' (i.e. debt) flooding into the economy, there will be a recession anyway.

We will need to learn to live within our means as a nation.

This bail out is, in my view, a thinly veiled attempt to saddle the taxpayer with the problem, rather than the mega-power-structures that have evolved around all this money.

The policians are all in this up to their eyeballs. Where is democracy????? Where is the challenge? Where are the opposition?

cloudhopper you are so right the good years have all been funded by borrowing.Anyone can 'have it all' on credit but there is always a payback time and unfortunately its now.Rising house prices have made us all feel 'rich' but we have never had the cash in our hands and now it is gone.

Thanks Noddy - am so opinionated on this one so half expected no-one to agree.

I think this is a big test of the stupidity of the American people if they fall for it. Personally I don't think they are either panicky or thick enough to fall for it.

The give away is the fact that they are talking about 'buying' the toxic debt. Why should they buy it? Inject cash in exchange for a large equity share in the current value of the company? Maybe. But this would require a write-down of the real value of the toxic assets, which it seems no-one likes the look of.

If the 'taxpayer' is going to take this huge risk, where is the reward? Where is the huge return that should come from such a risky investment?

Instead you have parasites like Warren Buffet buying back into the market on a tip off and a nod that some kind of cross-partisan deal has been agreed.

Cloudhopper. It is the working poor (as you term it) who will suffer most because they have the smaller finacial cushion to protect them. They have little or no savings. Or investments. Or pensions. Or insurance. Or equity in property. When things go wrong for them, they go wrong very quickly. If they lose their job, they struggle to find another. If the bank won't remortgage for them, they won't find another provider. If their credit cards default, the bailiffs will come round. The non-working rich, on the other hand, might suffer proportionately more, but will certainly nowhere close in absolute terms. Homelessness, repossession and personal bankruptcy are far closer at hand for the poor than the rich.

I'm not sure I agree cestlavie, but I respect your view. If someone has no pension, no savings, no equity, no insurance, no investments then they have the very least to fear from this situation. If you are living hand to mouth in the first place, this will go towards redressing the huge disadvantage that you have in the first place - the lack of assets and capital compared to others.

The poor will have to be housed by governments anyway. How much would it cost for the state to buy people's houses from them at the current market value, let them default on the loan and allow them to pay rent on it. The last thing a poor person needs right now is an unsustainable debt on the roof over their head.

We already have working tax credit here, which is designed to bring salaries up to a working wage. Maybe if there wasn't such a huge gap between rich and poor, the poor wouldn't have such a hard job acquiring the resources needed to live without top ups from the state.

Interestingly, I've had more offers of credit cards during this "credit crunch" than ever before.

cestlavie, just remind me how the $700bn is going to help the working poor? The ones with no assets, no insurance, no equity, no pension, no investments......

And what assumptions are you making about the effect of this bail out?

Um, we don't have the bailiffs come round in the US.

I've been a working poor in the US.

Still trying to see how taxing the American working poor even more to fund the bailout is going to help them.

You're right Cloudhopper, in the long term this does indeed allow for the more equitable redistribution of resources from both a political and economic perspective.

The key issue, however, is that this is a long term solution. In the short term the poor will be far worse off - as Barbara Ehrenreich said the poor "are only one paycheque away from bankruptcy". The rich, on the other hand, can sell second houses, pull private tuition, cash in investments (at a lower level) - they may be worse off comparably but they're still clothed, fed, sheltered and actually, probably still have their pensions, insurance and investments albeit to a smaller degree.

Equally, the state cannot step in in the short term. The PSBR is already way over forecasts, the capital markets are liquid and there are substantial existing commitments for government expenditure. There is absolutely no way they could make any meaningful contribution to the poor (be it housing or anything else) any time soon.

To me, the key thing is to navigate the current financial crisis as effectively as possible and minimise the fall out to all parties (because there is actually no way of limiting it just to groups of those people believe may 'deserve' it). Once this is done, then we can use the lessons learned to make things more equitable.

one thing that has been tightened up in the US are the bankrupcy laws.

didn't used to have what is basically the IVA route here.

you could very easily just file for and get Chapter 7, personal bankrupcy.

restrictions have since been made.

but it is vital to understand the differences between the American and British mindsets here.

being taxed more highly and told it's for the greater good is not something that sits well with most Americans, who quite ironically do hold a more capitalist perspective on things than most Brits and as such don't tend to be the most compassionate lot.

the last thing many will want to see is higher taxes to pay for what they see as the cock ups of others without their also seeing blood running as a result of it.

their tax structure is also different (yuk, i still have to file a tax return every single year for there no matter that i haven't set foot there in years).

Well, if the state is so over-leveraged already, and I agree it is, how can it legitimately inject $700bn of cash into the system? Whose cash? We all know that this will have to be borrowed from either the Far East or oil wealth in the Middle east. Thus compromising the already teetering American democracy.

Power corrupts, and absolute power corrupts absolutely. I don't buy any of this from politicians. This is about covering people's backsides.

The $700bn assets are toxic because they are worthless. No-one wants to buy them because they cannot quantify their worth. Why should the taxpayer buy them?

The bankers, executives and shareholders who benefitted from the good times are the right people to take the hit now. Yes they may bring us all down with them.

But this is like putting a sticking plaster on an amputated limb.

and there is NO guarantee that a bailout will work at all.

that it will have the desired affect.

like Peter from Dragon's Den was saying last night on 'Crunch Time', the confidence is already gone.

yet if the bailout goes through, it will still need paid for.

the American taxpayer will still have to foot the bill.

so it's, 'Do we take a chance on this and if it doesn't work we're still stuck paying for it, or see what happens?'

they don't like paying lots of tax, that's why services are much more limited there.

Okay Cloudhopper, this is the likely effect of there not being a bailout. Value of assets fall sharply almost across the board - shares, corporate bonds, bank loans, almost everything that isn't government backed. Capital markets constrict even more than currently. Banks stop lending to each other meaning that provision of money to individuals and companies becomes even more restricted. Terms on which money is made available to individuals and companies become far more punitive. What are the likely effects of these things:

• more banks become insolvent thus restricting liquidity further (creating a vicious circle) whilst the people in those banks are laid off (cleaners, receptionists, executives, all of them)

• more companies across the entire economy go into liquidation and more people become unemployed (cleaners, receptionists, executives, all of them)

• mortgages, credit cards and loans are made available on increasingly punitive terms and only to people with strong credit ratings; people looking to refinance are unable to

• house prices fall further and more steeply

• value of peoples' investments fall sharply

Of these, the first three have far more worse and immediate effect on the poor than the rich. The first two are typically worse for the poor than the rich due to lower levels of savings, lower financial flexibility and (generally) far lower labour mobility. The third, in particular, will be devastating for poorer people trying, for example, to remortgage and probably push an awfully large proportion into default - that's before you talk about the fact that proportionately, the poor have a much greater reliance on credit cards, hire purchase and loan funding than the rich.

The latter two do affect the rich more than the poor but it's not immediate unless you're trying to sell your house or liquidate your investments.

My point is not that the bail out is a good thing - as it stands it's a badly thought out thing which should take advantage of its position to get more long term concessions. My point is that it is a very necessary thing in some format very quickly. It's all very well to stand by the principle of "it's unfair to make the tax payers pay for the banks' mistakes" but you have to be bloody sure of your principles to do so whilst poor people go to the wall in their millions.

I still agree with cestlavie. Haven't you all read The Grapes of Wrath?

I laughed when I read in the paper this morning that, when asked HOW they came up with a figure of £700bn, a spokesperson said "we just wanted to give a REALLY BIG NUMBER" (my caps) ! Whaaat? Whaaat? If I were a US taxpayer I wouldn't be thrilled about this being plucked from the air. Haven't read thread yet, will attempt to skim read now.

Was forced to read The Grapes of Wrath in 10th grade American Lit.

It's a great book.

But hardly a guideline on which to base a country's major financial decisions.

What percentage of the American working poor have a mortgage?

Because the laws there are different, too, both with regards to getting a loan and all AND the tenancy laws are also vastly different.

Also huge regional differences.

cestlavie, I fail to see how the situation you have described can be avoided by this bailout. This latest one, remember, is on top of all kinds of maneouvres made over the past few years in order to avoid a recession.

In 2005 they lowered interest rates to an unnaturally low level for that point in the economic cycle. That led to a belief on most parts that the government would sanction almost limitless liabilities in future to avoid a downturn.

This latest bailout is more of the same. Sooner or later, the unsustainable false wealth that has been 'generated' in the last few years will be exposed for what it is - a complete sham. Someone will be left with the tab. At the moment that is the banks. The government is proposing to use 'taxpayers' money to pick up that tab.

Not current taxpayers, not current vested interests, but future generations. It is a zero net sum game. No more money can be created or lost - it is just a matter of where it lands.

You may feel the taxpayer is the appropriate person to pick up that tab. I don't. Those who chose to take a risk in terms of investments, property and whatever else did so with the intention of making a profit. Some you win, some you lose.

The 'taxpayer' never made that choice. Why should an outgoing president, one of the most corrupt in history, make that choice on their behalf?

Not one person has presented evidence that this will solve the problem.

From what I hear, this is seriously trashing out McCain's campaign, too.

Expats, what's the story? Regional differences much appreciated.

I'm long overdue a visit 'home'.

Am voting, however .

Expat: it's a good question on the number of people who do but I don't have the answer at hand - got various books on the subject back at home which are great reading for those interested e.g. "Nickel and Dimed", "The Working Poor" and "Deer Hunting with Jesus". Whilst I don't have that specific answer to hand, I think it's pretty hard to disagree with the statement that the poor are far more dependent on credit in all its formats than the rich and that restricting this credit will therefore affect them disproportionately. I can look up the specific stats over the weekend if you really want them.

From today's Times

"But there are good reasons for both sides to be wary of a hasty agreement. For instance, a Treasury spokesman, asked why the $700 billion figure to buy up bad debt had been chosen, told Forbes Magazine: "We just wanted to choose a really large number."

Riiiight. Well that's all right then!

Ten years ago, credit cards were charging over 20% per annum. Mortgages were much higher and climbing down from levels over 10%.

The idea that we can sustain cheap credit forever is false. We can't. Yes there has been a trickle down effect of that wealth (e.g. cleaners working in merchant banks). But far more of it has been extracted by the many, many 'middle' men now sitting on a notional fortune in property and investments.

The tap of cheap credit has finally been turned off. In simple terms, the music has stopped in a giant game of musical chairs.

The banks have been left without a seat, and they want someone else to take the hit. Because someone is going to take the hit.

That is what is so irritating about all of this. It is a huge great swindle. Don't fall for it.