Fool Poll: How Should the Senate Vote?

Two days after the House of Representatives voted down the proposed financial bailout plan, the Senate will meet this evening to vote on a similar proposal. Similar, but not completely the same.

The bill now includes a new provision that proposes raising FDIC deposit insurance from $100,000 per account to $250,000 per account (all backstopped by the Treasury). The idea here is to quell consumer angst over bank failures, which can cause customers to flee. This kind of run-on-the-bank behavior eventually sealed the fate of Washington Mutual (NYSE: WM  ) and Wachovia (NYSE: WB  ) . Raising the insurance limits will affect all banks, from those hanging on by their fingernails like National City (NYSE: NCC  ) , to powerhouse bargain-hunters like JPMorgan Chase (NYSE: JPM  ) and Bank of America (NYSE: BAC  ) .

Other than the new FDIC rule and a few other consensus-building piggybacks, the proposed bailout hasn't changed since it got a dramatic facelift over the weekend.

So, Fools, what do you think should happen tonight? Please take a moment to weigh in via our poll below, and throw in your two cents in the comment section if you feel so inclined.

Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. JPMorgan Chase and Bank of America are Motley Fool Income Investor recommendations. The Fool has a disclosure policy.


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Comments from our Foolish Readers

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  • Report this Comment On October 01, 2008, at 1:58 PM, Darwood11 wrote:

    I believe the plans contain serious flaws.

    I have read the House version and first, I do not think taxpayer funds should be allocated for the purpose of purchasing the assets of “any” financial institution, and specifically “foreign authorities and central banks.”

    Second, I do not think that taxpayer funds should be used for the purpose of hiring firms to help manage the assets of companies the government basically nationalizes. This has the potential of providing federal funds to the firms that contributed to, profited from or participated in the system failure.

    Finally, I think the primary purpose of the plan should be to address the problems of the taxpayers who are being asked to pay for this plan. I do understand there is more than enough blame to go around, and that many people were stupid or at the very least ignorant, and possibly millions participated in some form of fraud. However, this is a reward to the people who promoted and profited from this situation.

  • Report this Comment On October 01, 2008, at 2:21 PM, GWKolb wrote:

    Sadly, for all those voting against the bill, I think they miss the underlying point.

    John Keynes (I believe) once said "When the facts change, sir, I change my mind. What do you do?"

    Well, the facts have changed.

    I watch the spread between investment grade corporate debt and high yield corporate debt as an indicator of future stock market performance and future business activity. From all the research I have read, this single spread is the most instructive as a leading indicator of things to come. As an example, this spread widened dramatically over 8 months ago, suggesting there was trouble ahead and a need to be cautious.

    (At the Fool, I do not think you discuss the importance of these spreads enough.)

    The bottom line is this: that spread I mentioned (which can be found for free on Bloomberg.com) is at an unprecedented 775 bps. That means a "productive" growth company must pay almost a nearly 8 full %age points more than a "financial" company to fund their business (on a monthly basis!). These companies can no longer fund themselves at levels that are sustainable. This forces bankruptcy (or at a minimum heavy downsizing). Further, investment grade has spiked dramatically higher than 10-yr treasuries over the last few months suggesting the problems have spread to high quality financial firms and the highest quality "productive" firms. It is becoming unsustainable for banks and those businesses to fund their day to day operations.

    No one is lending to anyone. Firms currently hold $70 B in Treasury securities but are doing nothing to lend them or liquidity to others (Why? Because nobody understands anyone else's exposure). They are hoarding things.

    If something is not done to a.) restore confidence, and b.) get credit flowing again, we will suffer grave consequences.

    While I am a free market supporter (and abhor the idea of bailing out people who "bought" too much house) what cost to us all are we willing to pay for inaction? Further, pure free market thinking ignores two facts currently at play: 1.) even free markets do not always function efficiently (plenty of examples) and 2.) "free market" ignores the rule of each game that set market participant actions (i.e. bad regulation and standards in this case).

    We need to get liquidity moving or we could suffer serious consequences including bank failures (on a daily basis), increased business bankruptcy, and higher unemployment. All leading to a protracted recession or worse.

    Will a rescue package stop a recesssion? No. But it will also us to stop the bleeding at get down to fixing the actual problems. It will prevent us from suffering much worse.

  • Report this Comment On October 01, 2008, at 2:27 PM, emetryx wrote:

    I believe in trickle up, not trickle down. We all know the latter doesn't work, another one of the big lies sold to the American people.

    Henry Ford was criticized for giving his workers better pay. When asked why, he said "How can they buy my cars if I don't pay them enough?".

    So there you have it. Give the $700B to the working class, not the greedy scoundrels that got us into this mess.

  • Report this Comment On October 01, 2008, at 2:47 PM, tumachar wrote:

    Govt giving private sector 700B to go lend will not help. This money will be quickly used up to capitalize further derivatives on the books of banks/financial instituations.

    The better alternative with least/no cost to taxpayer would be

    1. Increase FDIC limits to instill faith

    2. Let corporations needing to raise capital, issue bonds. Create a Govt entity to insure the bonds. Give these debt holder first preference in case of liquidation.

    The effect would be that Govt would not be involved. The insurance by Govt will require oversight of companies.

    This would also mean the risky derivatives remain on the books of companies that issued them.

    I also strongly believe that companies should abondon the practise of paying executives and employees in terms of stock options/awards. Only cash compensation should be allowed.

  • Report this Comment On October 01, 2008, at 2:59 PM, Spoot1 wrote:

    Instead of the bailout, the government should buy the forclosed homes from the banks at a discount. Then finance the owner at a rate they can afford with the provision that they pay back extra when the home is eventually sold.

    Solve this problem at the root and at no long term cost to the taxpayers!

    700B buys 3.5 million 200K homes which is more than are in forclosure!!

  • Report this Comment On October 01, 2008, at 3:09 PM, MisterTull wrote:

    Honestly speaking, I don't know much about economics. From my experience managing my own household finances, I know that I cannot solve a debt problem by acquiring more debt. With all the fancy lingo and obscure jargon economists use, the basics are still the same. No politician wants a disaster to be written under his or hers name, and this bailout plan is very simply buying this administration time to pass the ball to the next administration. This is why this plan seems so irresponsible to me. The root problem; materialism, over consumerism and a dogmatic belief in ever expanding markets till perpetuity will never be addressed by any politician in America because it runs counter to the current American ethos. It will take America to hit a wall in order to get its priorities straight and this is exactly where we are heading, bailout plan or not.

  • Report this Comment On October 01, 2008, at 3:31 PM, synergydance wrote:

    Like a lot of Americans, I know absolutely nothing beyond what I see on reality television and "Gossip Girl," which generally don't cover Wall Street. But I do know that politicians, and to a surprisingly large extent these Foolish staff writers, need to stop reminding us that we don't know what trouble we're creating by refusing to want to help thousands of innocent, unfairly maligned, suffering serial gamblers who now might not be able to afford that $12 million, 50,000-square-foot summer home in the Hamptons.

    What you are seeing is a lot of repressed outrage coming to the surface -- so widespread and nonpartisan that I wouldn't be surprised if Ralph Nader finally won, rather than "spoiled," a presidential election a month from now.

    That $700 billion belongs to us, and if Congress wants to give it away, they need to give it to . . . us. All of us. I might've been kidding about reality TV and "Gossip Girl," but I'm not kidding about that.

  • Report this Comment On October 01, 2008, at 3:33 PM, GMSInvesting wrote:

    First off, Cash only compensation would create even more agency problems in which executives would strive for short term gains at the expense of long term profits and stability. If you didn't realize that is how this whole mess started.

    I believe financials are in over their heads and lifelong bank tellers and processing clerks who did nothing to add to the current crisis could lose their entire retirement funds as many have with Wachovia.

  • Report this Comment On October 01, 2008, at 3:45 PM, kljminer wrote:

    I supported the action of committing spending to the buy the untradable markets and like stated by many analyst and today by Warren Buffet the if the money is deployed properly it should be a net gain for the government.

    In addition I support the addition of the increase in FDIC to $250,000 to cover small businesses. Although I do believe the FDIC should be allowed to increase premiums to cover this additional insurance.

    I no longer support the bill as it stands now because of all the irrelevant add ons to the bill which have not been properly debated and have no business being stuck onto this bill. These currently include the alternative minimum tax provisions, renewable energy subsidies, and most of all forcing insurance companies to cover mental health benefits.

  • Report this Comment On October 01, 2008, at 4:27 PM, tumachar wrote:

    Cash only compensation will not create problems, because payment can only be less than or equal to the company profits. Also, since company has to report profits it will not give them all away..

    Agreed there is a potential that "C" level people may fudge the numbers or grow profits faster, but that is not entirely upto them.

    The board and execs taking large cut would put company at disadvantageous cash position. And everything will be known about their compensation.

    The current system of paying execs in equity creates lot of backdoor pay. Often times execs can be paid many times more than the cash they helped company create due to change in stock price.

  • Report this Comment On October 01, 2008, at 4:43 PM, lachoyatw wrote:

    In theory it's not a bad idea - "invest" in these illiquid and supposedly undervalued assets so financial institutions can resume their normal operation and restore economic growth... and we tax payers may even make a profit from this! *sarcasm*. If this works out the way it's suppose to then I'm all for it... problem is, there are just way too many uncertainties involved for this to be put on the tax payers...The 700B figure was a guesstimation... 700B today but maybe they will say 1T tomorrow... who knows? How are they going to determine the market value for these poisoned securities? Who is going to manage this fund? The same people who put us here in the first place right? Do we trust them with our 700B? What about the institutions that practiced discipline during that period and should now be rewarded because now they should have less competition and more customers? What about all the people that restrained from getting an ARM loan and was forced to rent because housing prices are artificially bloated and not affordable unless using ARM? Do we truly learn the consequences of our actions if we don't pay our dues? I think a recession is inevitable and necessary, we are way past due for a market correction. Our national mentality of spending what we don't have need to stop... starting with Uncle. It creates too much artificial demand (inflation) which eventually results in excessive supply as the invisible hand tries to correct itself... I personally have about 80% of my assets in the stock market and am hurting like you all, but I support what's better for our economy in the long run even if it means short(er) term pain...

  • Report this Comment On October 01, 2008, at 4:49 PM, lilcheddar wrote:

    I agree with roger54, I have a home that was built in 04 and it chills me to wacth the value decline and not to be able to sell it for what I paid for it and at least make a few dollars off of it. A 401(k) that just lost $15,000 and not to mention my student loan that could keep me in debt for the next 30 years! Someone bail me out! NOW!

  • Report this Comment On October 01, 2008, at 4:49 PM, ferg6 wrote:

    We hand Paulson and his bandits the money, even in smaller increments, and it's just the beginning. They will be back for more, the cost will exceed a trilliion, come February, Paulson will go back to Goldman or a similar organization and be paid bundles - probably part of the bailout fund.

    Paulson and fellow bandits should be barred from any financial jobs forever.

  • Report this Comment On October 01, 2008, at 4:51 PM, dfjones244 wrote:
  • Report this Comment On October 01, 2008, at 4:56 PM, veeveeorr wrote:

    I too do not like the so-called bailout without pre-conditions.

    Let the Govt. buyout the sick financial companies.

    The people who were responsible should be either in jail or should be barred from Government and the Wall Street for the rest of their lives.

    (Does that include Bush & Cheney?) They can return as re-born xians after 20 years of exile and preach trickle down economics, in stead of the Good Book, and be given food and shelter and nothing else.

    If the culprits have any assets, let them be confiscated by the buyers of their folly; that is US.

    The Representatives who voted to continue an illegal war with re-doubled vigor should be defeated, if not imprisoned. BTW, where did that money come from? Isn't it the taxpayers' money?

    This crisis is worse than the fear generated by the Pentagon in re: Saddam. (Where is Rumsfeld hiding these days?) This crisis is going to hit everyone of us, if not immediately. If we let it go, and play the waiting game, by the time the Rip Van Winkles of the Congress wake up, our children would be learning Arabic and Chinese!

    Finally, where are those two Ph.Ds who wrote that the Stock market was undervalued, and vociferously yapped that it should be around 30,000? Are they enjoying their returns from the book and are hybernating to to write another best fantasy-thriller?

    veeveeorr

  • Report this Comment On October 01, 2008, at 4:58 PM, donohkat wrote:

    I would really like to hear some alternatives from those who voted the bailout down. Handing money to the general public is a crazy idea - the last tax "rebate" set a dangerous precedent and expectation, every time something goes wrong, Uncle Sam sends everyone a check?

    I would like to see a bit of common-sense oversight added into this legislation, such as not giving out mortgages to people who can barely afford them now when they know they will be unaffordable in a couple of years, or no-money-down mortgages, meaning people have no real incentive to make sure they are buying something they can afford, because they have nothing to lose. It shouldn't need legislation, just common sense, but there it is.

    The FDIC insurance increase makes sense, it hasn't been changed in almost 30 years, but the premiums should reflect the new coverage.

    While I am very much in favor of finding green solutions, it doesn't belong in this bill. Most of the time, the public is completely unaware of the pork in a bill - this one is just too much. Since there's lots of money floating around, why don't we give a piece to some friends? Sickening.

  • Report this Comment On October 01, 2008, at 5:05 PM, jingoism wrote:

    The comment from emetryx hit the nail on the head. All these years, the government has done everything possible to implement "trickle-down" economics. Now, not only did it not make things better for business; in cutting back on things the whole population benefits directly, it has made it difficult for the public to support ("buy from") business.

    The feeding frenzy when the crumbs started falling over the edges of the tables could not last long, because meanwhile, consumers were robbed of all their supports! Milton Friedman economics and ideological attempts to implement them are not reality-based - they are ideologies that certain people have blind faith in.

    I don't wish to imply that emetryx has the same views as me. I cite emetryx' comment to the limited effect that emetryx supports "trickle-up" economics. Emetryx cites Henry Ford's response to criticism that he was paying his workers too much to the effect that if he doesn't pay them enough, they can't afford to buy his cars. Great quote! I'd love to hear the critiques of my expansion from this quote of Henry Ford; these days, falsely implying that views like mine reek of socialism will not do.

    The public is strapped. They won't even be able to buy goods made in China, eventually. Giving them tax rebates was none other than providing them gifts from their grandchildren, who will be paying for these excesses. Now, they can't even afford to help their children and grandchildren with college tuition. I don't know what redeeming value this legacy of the past has left to America.

    In a matter of decades if not less, the people of Iraq could be better off than the people of the United States. Already, the public of Europe and much of developed Asia is better off, in the sense that they have national health plans and can see the doctor.

    Hopefully - most likely, in light of America's history of innovating - we can come up with the economics to cure the follies of the past decade. I think that we need to get back to "trickle-up" economics.

  • Report this Comment On October 01, 2008, at 5:08 PM, Talisman28 wrote:

    There's a missing piece in the package: legislation that positively prevents continuation of federal programs and policies that incentivized the bad behavior to begin with. In the name of "affordable housing" and "equitable outcomes" we have encouraged loans to those who could not repay them by offering implicit government guarantees. Yes, the free market needs regulation against deceitful and dishonest practice. But haven't we had enough experience with centrally planned economies in the world to understand that when the gov't places a thumb on the scales to pick winners and losers, we're all likely to lose?

  • Report this Comment On October 01, 2008, at 5:13 PM, rabba wrote:

    Increasing the FDIC insured amount is bogus. The FDIC is in trouble now and raising the insured amount does nothing for the normal person and is not necessary.

    While we need to do something, this bill is not it. The taxpayer should never take on these toxic securities.

    If necessary, we should loan money to the banks and take a senior position in front of all other bondholders and shareholders. We should collect interest and as a kicker we could take warrents.

    Every time something has been done in a hurry it has been a disaster.

  • Report this Comment On October 01, 2008, at 5:18 PM, pmbarrett wrote:

    This is such a sad story. Our government officials are going to keep trying to pass this scheme, by loading it up with pork, until it finally gets passed. Just look at what the Senate bill has compared to the House bill that was rejected. Why is AMT, raising the FDIC insured limit and the various extensions attached to the bailout bill? These could have, and should have, been passed without the bailout. Now that the House has seen what the mental midgets in the Senate have done, they will start adding their own pet projects to the bailout.

    There will not be a credit crisis. If people can see decent returns by buying quality debt, they will jump back into the market. Things will slow down for a while, but at least our children and grandchildren won't be on the hook for the irresponsible behavior of our elected officials of the last 20 years.

  • Report this Comment On October 01, 2008, at 5:20 PM, amcress wrote:

    How about this for a different take: Yes the causes of the crisis are very complex, from a certain point of view, like modeling the physics of why a car left the road and ended up at that particular spot in the ditch. From a different point of view, however, say if the driver was drunk, the why is easier. And the details of how to fix the car can be even more complicated. However we don't need the physical explanation or the repair plan to decide whether to pay for the drunk's damages. So don't try to snow me with how complex the financial dynamics are as a way to sell the bailout. The main question is do we trust these drunks with the piggy bank. Not me.

  • Report this Comment On October 01, 2008, at 5:26 PM, GoNuke wrote:

    read the post by GWKolb

    We have a serious liquidity crisis now.

    We need to address it now.

    The proposed intervention is probably the low cost solution.

    The cost of intervention will go up with time.

    The cost of not intervening will dwarf the cost of intervening.

  • Report this Comment On October 01, 2008, at 5:36 PM, TooMuchAFool wrote:

    I voted "build a bomb shelter" in jest and protest, but after reading the comments here, perhaps I will actually do so.

    The pent up anger here is frightening. People with little real understanding of the consequences would prefer to see the U.S. economy in flames just to get back at those they call "fat cats." They don't seem to understand that when the fat cats fall, the rest of us get crushed. When the economy comes to a standstill, the trickledown effect will be a deluge for those of us near the bottom of the economic heap.

    I would remind those who are outraged because they are having trouble making payment on a poorly advised mortgage, that it is much, much harder to make that payment when you are standing in a very long unemployment line.

    Your anger may be well justified, but a rational solution is needed (soon!) to forestall an escallating economic crisis.

  • Report this Comment On October 01, 2008, at 5:38 PM, carmelmayor wrote:

    Pass this bill and get it over with know. Enought of this political bs get it done.

  • Report this Comment On October 01, 2008, at 5:44 PM, GWKolb wrote:

    Look, just like everyone else, I am against the "greedy scoundrels" being bailed out. What many firms did was not only irresponsible but completely despicable.

    However, everyone who is "blaming" those "greedy scoundrels" is missing the root problem.

    Arguably (here we go controversial), this mess got its roots in obscene housing policies by the Clinton administration, the creation of Fannie and Freddie as we knew them, consumers who bought into the hype, and terribly low interest rates for way too long. Nobody here seems to think that ALL homebuyers that made bad decisions contributed to this. But hey, it's wrong to accuse our everyday brethren even when in the wrong, am I right?

    While firms that lent to unqualified buyers need to be held responsible (write-downs, equity, replacement of management) the bottom line is that your next door neighbor that owns a small business will feel the affects of the credit market seizing and may very well go under if something doesn't improve and improve soon.

    I just think action needs to be taken to help work this out. We had a Great Depression BECAUSE of inaction. After action is taken, we can root out all that were involved and revamp the regulatory structure.

    Why not do what Sweden, Finland and the like did? It's very similar to the proposal IMO.

  • Report this Comment On October 01, 2008, at 6:03 PM, vest0r2 wrote:

    The sky is falling. Give those corporations all your money, RIGHT NOW, it's the only possibly solution!

    This is no time to THINK

    This is a time to ACT

    My God, man, are you a patriotic red-blooded American or AREN'T YOU?!

    (ahem.)

    People aren't buying the BS this time. Let it crash. My heart goes out to that CEO that took home $38 million based on SIX WEEKS WORTH OF WORK. Awesome.

    Anger from the 98% at the 2%? Now why would that be? And we're waiting for the Millionaire's Club of the US Senate to vote up or down? Oy.

  • Report this Comment On October 01, 2008, at 6:03 PM, tazar wrote:

    There will be no winners no matter what we do. Helping to save our financial system now will cost untold dollars (surely 700 billion is just a guess, no one really knows). However, if we don't do something now, we (and the rest of the world) could possibly fall into a severe recession/depression. How far have our misdeeds traveled? Definitely to all corners of the world. Greed and trust in our economic system has caused this dilemma. We aren't the only guilty party here, foriegn countries were just as happy to risk their capital in our risky ventures (they liked the returns also). I would hate to see us take the whole ship down with us. Wow, we did see this coming, just didn't think it would happen! No matter how this turns out, we lose. We definitely lose any credibility from now on.

  • Report this Comment On October 01, 2008, at 6:13 PM, robertf36009 wrote:

    1. The "credit crises" has been created by the large banks for the large banks for the express purpose of forcing a bailout by uncle sugar. 2. throwing money at this problem without resolving the underlying causes will only make room to throw more money later. 3. Letting the same people who created this problem for their own bennifit will result in them creting a solution for their own bennifit. 4. No amount of over sight will be adaquate if the overseers don't have over sight to prevent them from proffiting from what they are supposed to be over seeing. 5. Once the large banks understand that no bailout is forthcomming they will begin to lend again but perhaps more responsibly after all they are still banks and can't continue doing business without actually doing business. 6. Businesses that have to continualy borowe money to continue doing business need a new business model.

  • Report this Comment On October 01, 2008, at 6:18 PM, keddie1 wrote:

    You didn't include - "Go back and come up with a decent bill" as one of the options.

    I get it ... someone has to do something... and soon....

    But this latest bersion... 450 plus pages of which only the first 111 have to do with the financial system... the rest are all "add ons".... 340 plus pages of add ons.... Holy emerald city Batman...

    The failed house version is better than the Senate version in that the house didn't load it up....

    I guess Senators just have a short attention span and forget what they are suppose to be doing... either that or the given the extra three days the lawyers had time to wade in..

    One way forward it for the Senate to pass this version..... the House then takes a revote on their version ... and passes it... Sending the whole thing to the committee that resolves the differences between the two versions.... They strip out all the crap..... and what we are left with might be ok...

    The House version also executes the plan in stages and orders the Secretary of Treasury to make mid course corrections... where as the Senate version allocates the 700B... and away we go.... It does ask for the details of how the secretary is going to run the program.. to be figured out over the next 45 days ... and no later than 2 days before he starts spending money...

    I'm ok with all that alternative engegy stuff... but as its own bill...

    And given what's going on I guess the last 60 plus pages of Mental Health stuff is because we are all going to be so stressed out...

    Honestly... American Democracy at work..

    ---

    Seriously I do have a question... If the Bill requires that we.. the tax payers... who are going to own mortgages ...are required per HOPE and this bill (both versions) .. to reset mortgages to the current interest rates... and the principle to 90% of the current home value (for those folks that we are going to allow to keep their home).... how then do the tax payers make money.. as everyone has been saying... Remember, Paulson is also saying that we are going to buy the mortgages at slightly more than current asset value... so were does this ... profit come from... in fact the Senate bill clearly recognizes the potential for a loss since there is a provision to levie an assessment on the participating firms in five years for the amount that we don't get back...

    so how does that all work...

    The Senate version also defines the executes who are limited by the restrictions to the top five (5) executives for the Golden Parachute restrictions.... and the top three for the compensation restrictions... and I get it that the captain is responsible for the ship.... But what about all the traders who bundled the securities such that one can't tell what's in them.... the purchasers who did not due diligence to make sure that was some value in the asset bundle... and so forth...?

    Also the senate language waters down the clause about retrieving compensation paid on the basis of fradulant reports...

    If all of that can get fixed in the compromise committee ... fine....

    except for the HOPE ..... I see no assurance that this is going to help the average joe...

    One strong possibility is that the Secretary spends the 700B... and the financial institutions continue to ... "NOT LEND"...

    The Senate version does put the burden on the financial institutions to demonstrate the value of the asset and to justify the amount the secretary is going to pay them...

    There needs to be assurances that the plan is going to work.... so... before the financial institution gets the money they need to come with the list of new loans that they are going to make to allow folks to buy things and conduct business so that the economy gets rolling again.... else .. they just going to suck up the 700B and keep it...

    The can't be just an asset buy-out... it has to be a complete EXCHANGE..... if we take the assets.. then you Mr Financial institution are going to start lending to businesses..

    apologies for rambling....

  • Report this Comment On October 01, 2008, at 6:20 PM, traderkch wrote:

    I'm personally against the "Bailout" I much prefer just "Loans" to the culprit greedy ones. But, in fairness here is a quote from John Mauldlin's Investor Insights and "Outside the Box". Everyone should read this material. The whole report he refers to is also available on the link at the end of the piece.

    Banking Crises Around The World

    by Philippa Dunne and Doug Henwood

    October 1, 2008

    Do government bailouts in times of banking crises work? Philippa Dunne & Doug Henwood of The Liscio Report highlight a major study of 42 fairly recent banking crises around the world. Result? Some types of government intervention work and some don't. One characteristic that is needed though is speed. Dithering, a la Japan, is a recipe for disaster. This is a brief summary of the report (to which they provide a link) and their conclusions as to the basic outlines of what the US should do. Given that Europe is already in the throws of its own bank crisis, and the rest of the world could experience problems, this should be useful reading. They also provide graphs of banking crises and comparisons with developed countries and the resulting market experience.

    One major point? This is like the old Fram oil filter commercial line "Pay me now or pay me later." As this study points out, the tax payers and citizens of the US (and the world) are going to pay for this crisis in one way or another. Either a major recession (with high and persistent unemployment), reduced incomes and tax collections or a collective efforts to stabilize the banking system. The costs of inaction are much higher. It is not a matter of cost or no cost. We are going to have to pay in one form or another.

    We cannot avoid the costs given where we are today. The time to avoid cost was years ago reigning in Freddie and Fannie and proper oversight of the mortgage industry. We (Congress) missed that opportunity. (Sadly, we are going to re-elect the very leadership to both parties largely responsible for the neglect. There is plenty of blame to go around. No amount of partisan finger pointing by Speaker Pelosi shifts that blame.) However, we can choose the form of the cost will be paid in. Personally, I prefer collective efforts to 10% or more unemployment and the risk of an extended recession and its costs. I know this is not pure free market theory, and sticks in the craw of many of my readers, but when many of my neighbors and friends will be unemployed and businesses are suffering theory will not make a very good meal. Congress must act now. This report is a good reminder of what has worked in the past.

    My thanks to Philippa and Doug for allowing me to send this as a Special Outside the Box. You can see their work and blog at http://www.theliscioreport.com.

    John Mauldin, Editor

    Outside the Box

  • Report this Comment On October 01, 2008, at 6:22 PM, CaptDLight wrote:

    1. Only give the money with an NEW oversight Board in place.

    2. I suggest W. Buffett, A. Greenspan and B. Clinton as the first Board members.

    3. Make triple legal penilites to those that rip off or inside trade.

    4. Stop short selling until the markets return to prior levels.

  • Report this Comment On October 01, 2008, at 6:28 PM, deltagee wrote:

    On the one hand, I was glad to see congress listening to their constituents. For a moment I almost felt like we were a true democracy. On the other hand, this seems to be a case where one needs to vote one's conscience after weighing the facts regardless of constuency as I think the public in general is mis-informed about the intent of the bill (to get the credit system working again) by the way the media has portrayed it ( a bailout of the rich and greedy). What I am most concerned with however, is that how can we be so sure the net effect will not be negative? The economy is a complex system and nobody can tell exactly what all the secondary effects might be or what negative incentives will be produced from this. It seems to me that the people in the government who seem be to so sure that this is the right thing to do should also have known that we were headed here in the first place. If they did know and did nothing then that was outright immoral. If the didn't know then what makes them so sure they are right this time around?

  • Report this Comment On October 01, 2008, at 6:33 PM, spongeworthyusa wrote:

    The senate bill's differences with the house bill are lipstick on a pig. It should be voted down.

    I like Reps. DeFazio, Kaptur, et al.'s alternative plan which was presented yesterday on CSPAN. No one is talking about any alternatives to the pig presented by Paulson.

    Paulson should resign due to his shameful performance during this episode.

  • Report this Comment On October 01, 2008, at 6:44 PM, discdropr wrote:

    I've read Denninger's proposed solution (http://www.denninger.net/letters/fixit.pdf), and as far as I can tell (I'm not economist) it makes sense and costs taxpayers nothing. what we need is to get these financial institutions back to following sound financial practices. Get these derivatives and shenanigans back on the books and make them deal with it.

  • Report this Comment On October 01, 2008, at 7:34 PM, soccerref100 wrote:

    It frustrating listening to the senate debate and hearing nothing but rhetoric about how much the bill passage is needed, and how much it is not needed. I'd love to hear some actual figures in regards to:

    How much in deposits over $100K is now at risk? How much in deposits in MMF's is at risk? How much less credit is available today as opposed to one year ago for small businees loans, education loans, etc? Is it too much for BofA and others to pick up the lending slack?? I know people that just bought a house and got a very good mortgage rate...no credit crunch there.

    Please give me some hard facts and $$ estimates of money lost and lending power lost so I can decide if I'm for this bill or against it.

    On a lighter note, I just remembered back to other private commercial properties that we (the federal government) have owned in the recent past...one was a topless bar in Washington DC, and another being the Mustang Ranch brothel in Nevada...I wonder how many places like this we'd be bailing out?

  • Report this Comment On October 01, 2008, at 8:06 PM, 123go100 wrote:

    Bailout-rescue-call it what it really is - the greatest swindle ever pulled off. Paulson and his Walll street puppeteers are pulling strings so fast no one has time to catch their breath. All Bush and most of Congress have time to do is think about the money lobbyists are pushing into their pockets. Tonight, we find out who in the Senate has the guts to stand up and say no, or who wants to get his or her share of the swindle. And Friday we will do the same. God can't help us, but strong wills can.

    Do I have a better plan - sure - will they ask me - when you have the greatest swindle going, you don't stop. There is no end in sight, short of dumping tea into Boston Harbor.

  • Report this Comment On October 01, 2008, at 10:39 PM, biotech4ever wrote:

    Great, add 300 more pages of crap to the first bill. This has turned into a Frankenstein Bill that I pray is turned down again. I'm sick of the "hold a gun to our head" mentality of Bush, Dodd, Frank and Paulson. Everyone of them should be thrown in prison.

    The world didn't end on tuesday like they said it would. Yes times will be tough, credit will be tight but let's get the bad times over with now rather than artificially fixing things in the short-term with this insane bill that will destroy us in the long-term.

    Let's not forget the best contrarinan indicator out there -- Jim Cramer. He said failure would result in The Great Depression II. It won't folkes, it will be tough but we'll get over it and the bad banks will fail and new ones will rise.

    Goverment intervention caused all this and government intervention will just make it far worse.

  • Report this Comment On October 01, 2008, at 10:48 PM, MMArant wrote:

    I have a few questions.

    Where are the market reforms for issues getting us here?

    Why such a drastic move in a matter of days to avert disaster? (The US Govt must really have enjoyed the whitewater trip to the falls!!)

    Why not give more conservative measures an opportunity to improve liquidity and restore faith? (elimination of capital gains taxes for example that just might encourage private investment) A few months of pain may just teach some well needed lessons.

    Put Congress on notice not just with elections but with their taxpayer based golden parachutes for their performance (read pensions).

    I am in no way ready to push our economy over the edge, however a socialistic fix with such massive centralization of power does not represent American principles.

    This is a patch on the Titanic instead of drydock repairs.

  • Report this Comment On October 01, 2008, at 11:30 PM, Stubeeef wrote:

    Great, I now own a million homes, I mean future rat infested crack houses. For another trillion we can mow them down and fill landfills with the epa's blessing (making our notes the zero we already know they are), or spend $2 trillion and fix'em back up to sell to illegal immigrants for a $1.00.

    I'm just glad the government is now going to monitor the situation, they are so good at that.

    Every time I see & hear Barney Frank talk - I know I am living in a sitcom.

    God bless America, we can use the help.

    I was thinking about things last Sunday, should I head to WalMart and grab a couple of guns and all the ammo I can afford; or should I grab powdered milk, pasta, assorted seeds and fertilizer to grow crops in my urban sandbox? I then realized I had gotten back to basics alright: Guns or Butter!

  • Report this Comment On October 02, 2008, at 1:32 AM, soccerref100 wrote:

    Well, I do notice some comments how people are upset about the falling values of their homes.

    I know we all need shelter, and I do have a little sympathy for some that had to buy when prices were outrageously high, and could only buy high-end stuff because it was all that was available. But I have no sympathy for those that tore down perfectly good 1500 to 2000 sq. ft. homes to build their castle.

    I think this whole mess was caused by greed and unjustifiable real estate values.

    Someone bought a 1-acre lot next to us for $35,000...and I live in real RURAL America...and put about $300,000 into a fancy home, that has been on the market for three years straight. For that, I have no sympathy at all.

  • Report this Comment On October 02, 2008, at 2:13 AM, moneybags343 wrote:

    Read GWKolb's posts. They clearly outline the problem.

    What all the outraged people against the bill don't mention are the consequences or a larger recession. Yes, people should be outraged, but the CEOs will still get money regardless and when the problems in the credit markets cause companies to downsize, and unemployment goes up, we'll all be much angrier. In the meantime, the CEOs and other wealthy Wall-Streeters will be fine. We're damned if we do, and much more damned if we don't.

  • Report this Comment On October 02, 2008, at 6:04 AM, none0such wrote:

    Ah, how similar is this bill to the various other bills to have already been rubber stamped by this administration ... just about every way. I said no to the transportation bill, farm bill, health bill, energy bill and they just keep coming up with new ways to give hand-outs (just wait for the health bill 'balloon payment' clauses to take effect. Conveniently, this will take effect after Dub-ya leaves office - I guess they didn't want to repeat Reagan's health bill repeal - remember that one?). As people keep looking to GWKolb's posts to explicate the reason for this hand-out, please remember that this individual has stated a VESTED INTEREST in detecting growth companies: during recessions and depressions companies shrink and go out of business - NEWS FLASH - this is a natural market force; do not attempt to adjust your capitalist view of the world but subscribing to doctrines of fear.

  • Report this Comment On October 02, 2008, at 7:43 AM, hikerdude7088 wrote:

    People have to remember that this is not just affecting the U.S. and there is more than one way to skin a cat! If the world doesn't like the way we play, they can do many things to correct our behavior. We screwed many countries with our ponsi scheme of mortgages. We tried to free up capital from them in a dishonest way. It is just pay back time. We must remove the war mongers and the anything goes business guys from control and get back to having an honest and conservative monetary policy. China did not like being taken advantage of:

    http://watchingamerica.com/News/7388/the-new-money-power/

  • Report this Comment On October 02, 2008, at 8:53 AM, John53705 wrote:

    I believe the changes are enough to warrant passing the bill, but I would like the media and honorable members of congress to go after whomever inserted the pork projects, including wooden arrow subsidies and assorted other projects that have nothing at all to do with our liquidity crisis. The senators that requested these add-ons, and presumably held out their votes of approval as the price for these spending items need to have the very bright light of day shown on their tactics. In a time when our nation needs to ask more of our citizens in terms of character as well as financial discipline, this was truly disgraceful

  • Report this Comment On October 02, 2008, at 9:19 AM, robertf36009 wrote:

    If China wants to pull their funds and look elsewhere for profits fine. Pay them with the bad paper Barney and Betty are trying to foist off on us.

  • Report this Comment On October 02, 2008, at 12:28 PM, adnilo wrote:

    They (Reps. and Senators) are being enticed to change their votes with goodies, yet the original proposal remains the same. Anyone fooled into changing their vote, didn't have the deep conviction that it wasn't right for the citizens of the country, if they can be bought with goodies. Shame on all of us for putting up with this wholesale abandonment of principles. This will become known in history as our "October Demise" should the bold people who stood up to this vote cave- as the Senate has already done.

  • Report this Comment On October 02, 2008, at 1:06 PM, MFMerlin wrote:

    The shorter bill in the House was BAD. The Senate added more bad language to make it worse, but perhaps hoping people wouldn't read the additional pages. This whole effort at 'terrorizing' the general population with predictions of immediate danger to the country's financial security smells to high heaven like the government's push to put us into two very bad and costly wars i.e. Afghanistan and Iraq. I'm skeptical at the very least.

    I'm all for 123go100's recommendation of doing the 'tea in Boston Harbor' thing - although I think we should come up with a modern day substitute for the tea.......

  • Report this Comment On October 02, 2008, at 1:37 PM, Kontara wrote:

    At the top of the list should be a five year moratorium on resets. Then I would believe that the bill was meant for the little guy.

  • Report this Comment On October 02, 2008, at 2:38 PM, theeconomicsguy wrote:

    Only an intellectually challenged individual would think that this new revised plan is better than the one that was rejected. Not only are we now adding $700 billion that will eventually have to be paid back by the taxpayers, but we are immediately giving tax breaks. Don't be naive. Eventually, taxes will go up. Maybe not next year, maybe not the year after, but eventually our debtors will demand payment. The only way this makes sense is if you plan to die before the check comes due, but even then, your children will be stuck with the bill.

    I am deeply disturbed by the outright refusal of the administration to consider alternatives to the plan. Individuals who refuse to listen to other points of view and dig in their heels generally have something to gain. Seems like this plan may be the best for the administrations interests, and not necessarily America's.

  • Report this Comment On October 02, 2008, at 2:39 PM, JMyrddin wrote:

    A number of people claim that those who oppose the bailout are merely being spiteful, or are holding to principle over pragmatism, etc. Not, mind you, that holding to principle over pragmatism is necessarily a bad thing, but admittedly it would be exasperating to those who don't share the principles.

    What I think these claims overlook, however, is that there is good reason to think the bailout or "rescue" bill, at least in its current form, won't actually work. The quote from a Treasury official that they were just looking for a really big number, rather than basing the estimate on anything in particular, is not reassuring about even the basics of the bill, let alone the various things tacked onto it. (To be fair, some of the things attached to it probably are needed; others, however, are junk.)

    There are people for it, but there are also reasonable and informed people who believe the effect will be nonexistent, limited, or temporary; that if it passes, the inflationary damage will still be in force when the bubble pops; or that to the extent things have locked up, much of it is because nobody wants to do anything if they think they might get a better deal from the government. In short, that the bill, based on an admittedly groundless estimate, will cause economic problems of its own And quite a few of these people have proposed alternative solutions.

  • Report this Comment On October 02, 2008, at 4:29 PM, wilddiscus wrote:

    Sadly this whole mess has one bright lining....It was the first time in a long time that People from both sides of the political spectrum broke ranks to really make their voices heard...It sent a message to Congress that people were not buying into the hype and just blindly trusting the powers that be to do whats in the average Americans real best interest.

    My personal view is that "We the People" elect our representatives to speak for us.... If we say no Bail out...then they should honor that ...or risk losing our faith... I have little faith in the Senate now...but slightly more in the House after many of them Listened to their constituents will. If this bailout is really necessary ...then they better do a darn good job of explaining why its needed...what will happen if not undertaken, and specifically how this will affect us all..They should also have plans outlined as to how they will address and prosecute whose accountable....which is something that is often said as unimportant...I feel its very important for closure to occur.

    Its highly probable that the bail out is unpopular with the average person because we have been lied to and misled for so long by the powers that be that this country's citizens fundamental faith in its political system and leaders is shaken and ruined..... Its hard to accept ""you need this 700 billion bailout...believe me" when their is no faith in our leaders.

    The powers that be should take home this as a lesson..Squander your citizens faith daily...and it won't be there when you really need it..

  • Report this Comment On October 03, 2008, at 3:12 PM, frankswd wrote:

    I believe that some action needs to be taken, yes. I really expect that the knee jerk reaction "bail out' plan isn't the only option or best one. I wish they would take enough time to have at least 3 solid different options on the table before going with this as an only option approach. Here’s some suggestions by people smarter than I.

    http://emac.blogs.foxbusiness.com/2008/10/03/forget-the-bail...

    I don't think the government is capable of tracking this much money in such a fashion so that crooked people don't profit handsomely. And one must consider that the larger the pot the more the dishonest people will make off with of our hard earned money.

    I feel the guilty should pay for their part in this more than the honest hard working tax payer, when ever, where ever, possible.

    I feel if you just gave the “average” people the cash instead of the banks, the most likely outcome would be that more toys would be bought and debts would actually increase due to poor money management. Isn’t that partly just how we got into this fix? People signing up for money they couldn’t afford!

    Fooles we are living in “interesting times” unfortunately!

    Frank

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