President Bush and Warren Buffett on the Financial Crisis

"Believe me, I'd be fine if these companies fail, but the whole economy is on the line," President George W. Bush warned a congressman in Sep. 2008, according to his just-released memoir Decision Points. "The son of a bitch is going down if we don't step in."

He's not the only one who felt that way.                                                 

"All of corporate America's dominoes were lined up, ready to topple at lightning speed," Warren Buffett wrote in an op-ed for the New York Times this week. "Nor was it just business that was in peril: 300 million Americans were in the domino line as well."

Two famous men from nearly opposite political spectrums coming to the same conclusion: Government intervention was absolutely necessary to prevent the financial crisis from becoming a calamity.

"Only one counterforce was available, and that was you, Uncle Sam," wrote Buffett. "Yes, you are often clumsy, even inept. But when businesses and people worldwide race to get liquid, you are the only party with the resources to take the other side of the transaction. And when our citizens are losing trust by the hour in institutions they once revered, only you can restore calm."

Here's Bush again: "If we're really looking at another Great Depression, you can be damn sure I'm going to be Roosevelt, not Hoover." Speaking to the nation in a primetime Sept. 2008 address, he continued: "I understand the frustration of responsible Americans who pay their mortgages on time, file their tax returns every April 15, and are reluctant to pay the cost of excesses on Wall Street. But given the situation we are facing, not passing a bill now would cost these Americas much more later."

Enough ink has been spilled arguing whether bailing out the financial system was fair. The answer is clear: Of course it wasn't. It was ugly. It was costly. But Buffett and Bush tackle an important yet often overlooked topic: What would the cost have been had we not bailed them out?

No one knows. But here's a safe bet: Inaction would have cost far more than intervention.

Unemployment jumped from 5% in 2008 to 10% in 2009. Fewer people working meant that federal tax receipts plunged by $419 billion. Had there been no bailout, and unemployment instead jumped to, say, 12% or 15%, lost tax revenue would have easily tacked on an extra $100 billion or more per year to the deficit, compared with TARP's estimated final one-time cost of $50 billion. That even seems conservative. Bush's economic team reckoned that letting Ford (NYSE: F  ) , GM (NYSE: GM  ) and Chrysler go under, let alone the banks, would have lowered tax receipts by $150 billion per year. And don't forget the cost of unemployment benefits for all those lost jobs.

Then there's an issue my colleague Richard Gibbons once brought up. During the fall of 2008, the FDIC insurance fund only had enough money to back 1.01% of nationwide deposits. Had there been a widespread banking panic like those during the Great Depression, this fund would have been wiped out almost immediately. Then what? The FDIC would have sucked money straight from taxpayers' pockets, thanks to its $500 billion line of credit at the Treasury. There's another enormous cost TARP warded off.

How many of those criticizing the bailout's cost take these alternatives into account? Few. The real outrage of actual money spent overwhelms the intangible benefit of potential costs averted.

But forget costs. There's the larger issue of moral hazard. Bailing out bad behavior spits in the face of capitalism. That's why so many were opposed.

Bush gives his thoughts on this: "I decided that the only way to preserve the free market in the long run was to intervene in the short run." 

Buffett also weighs in: "In this extraordinary emergency, you [the government] came through -- and the world would look far different now if you had not."

Charlie Munger, Buffett's partner at Berkshire Hathaway (NYSE: BKR-B  ) , takes this a step further, repeatedly noting that Germany allowing its economy to collapse in the 1920s was a driving force behind the rise of Adolf Hitler. "So I think when you have troubles like that you shouldn't be [complaining] about a little bailout," he said earlier this year. Other historical accounts back this up. His point isn't literally that another Hitler would take over if we didn't bail out the banks. It's that financial collapse tends to lead to social collapse. 

On a less morbid note, the moral-hazard-fueled criticism that banks got off scot-free is slightly exaggerated. Citigroup (NYSE: C  ) shares are down 93% since 2007. AIG (NYSE: AIG  ) is down 97%. Bank of America (NYSE: BAC  ) , down 78%. Fannie and Freddie are both down 99%. Capitalism wasn't thrown out amid the bailouts -- just temporarily weakened. Companies that made bad decisions paid dear prices -- but not quite as dear as they should have. Letting that marginal moral hazard slip through was likely less costly and ultimately fairer to everyone else than the alternative. That's the point Buffett and Bush are in harmony on.

None of that is to say the bailouts were enjoyable. They were terrible. Hundreds should go to jail, said Motley Fool CEO Tom Gardner. And everything humanly possible should be done to ensure we never have to go down that road again.

But here's my guess: Had the government sat idly by during the financial crisis, the same people condemning its decision to intervene would instead be criticizing it for being asleep at the switch.

What do you think?

Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics.

Fool contributor Morgan Housel owns shares of Berkshire Hathaway and Bank of America preferred. Berkshire Hathaway is a Motley Fool Inside Value recommendation. Berkshire Hathaway and Ford Motor are Motley Fool Stock Advisor picks. The Fool owns shares of Bank of America and Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On November 19, 2010, at 10:55 AM, lution wrote:

    "the moral-hazard-fueled criticism that banks got off scot-free is slightly exaggerated. Citigroup (NYSE: C) shares are down 93% since 2007. AIG (NYSE: AIG) is down 97%. Bank of America (NYSE: BAC), down 78%. Fannie and Freddie are both down 99%. Capitalism wasn't thrown out amid the bailouts -- just temporarily weakened."

    Yes, they are but the execs that helped drive us to those levels are still sitting on their millions and lining up to pay millions in bonuses again this year. All on our dime.

  • Report this Comment On November 19, 2010, at 10:59 AM, TMFHousel wrote:

    lution,

    No doubt. The link after that paragraph, Tom Gardner's article "Hundreds Should Go to Jail," is a great read.

    -Morgan

  • Report this Comment On November 19, 2010, at 12:47 PM, PeyDaFool wrote:

    Really interesting article, Morgan. I would have never thought to use both Bush and Buffett and their respective thoughts in the same article.

    You even made Bush sound fairly reasonable and intelligent in your quotes which, by any measure, is no small task.

  • Report this Comment On November 19, 2010, at 1:06 PM, TMFHousel wrote:

    "You even made Bush sound fairly reasonable and intelligent in your quotes which, by any measure, is no small task."

    Heh, it wasn't easy. Although to be fair, as someone who is hardly a Bush fan, I was marginally impressed with his book.

  • Report this Comment On November 19, 2010, at 2:25 PM, PhulishMortal wrote:

    "But here's my guess: Had the government sat idly by during the financial crisis, the same people condemning its decision to intervene would instead be criticizing it for being asleep at the switch."

    This statement is undoubtedly true, and it is the source of one of my major frustrations these days. It has become nearly impossible to have any sort of productive give-and-take on economic matters without experiencing an immediate devolution into backbiting and grotesquely insulting polemic. (I have often wondered what would happen if I started up an economic discussion board that disallowed any posts containing certain words like, say, "Republican," "Democrat," "conservative," "liberal," "left-wing," "right-wing," etc. My guess is that wouldn't be many people who could complete a sentence.)

    The subject of what benefits and costs have been averted is a crucial one; unfortunately, it is very difficult to analyze to any degree and any discussion about it is likely to go up in flames.

  • Report this Comment On November 19, 2010, at 2:30 PM, Stonewashed wrote:

    I think the only people who owe me money now are the very ones who got bailed out and are covering their arse.

    Trying to use arbitration clauses dragging in subcontractors "to negotiate" when they don't want to pay contractors.

    All they are doing now is fine tuning their ability to get away with it, when it come time to pay the vendors in new construction or foreclosures.

    Examples

    Contractor beware: that "flow-down clause" may not flow as far as you think

    http://www.lexology.com/library/detail.aspx?g=cf75527d-791c-...

    On top of massive mortgage fraud

    Fraud on the Court By Mortage Companies

    Anonymous writes "I have 3 loans that had the security instruments (in GA they are called Security Deeds) “transferred” by so called VPs of MERS. On looking up who the VPs actually were, it turns out they were actually either employees of the Loan Servicer (Chase Home Finance, LLC) or junior associates at the foreclosure mill firms. The big “mills” here in Atlanta are called McCalla Raymer and Johnson Freedman who work in close concert with another service firm called Prommis Solutions (located right next door to McCalla Raymer here in Atlanta).

    They push thru 1000s of non judicial foreclosures a month with bogus Vice Presidents signing off on do*****ents.

    Anyway.. I have proof of the fraudulent assignments, and the people who are “Vice Presidents” of MERS, a tiny company in Maryland with about 40ish employees according to their website, and depositions by their CEO (R.K. Arnold). Under MERS’ own membership guidelines, this is impermissible as only genuine officers of the loan servicing company can act as “Vice President” of MERS (per video deposition of CEO of MERS R.K. Arnold, Circuit Court of Montgomery Co, AL, Sept 25, 2009. (Civil action number CV-08-900805.00)

    http://4salenews.com/

    I don't know about Bush and Buffett, but I guarantee you, everybody who was getting paid, isn't now and the culprits are taking advantage of the high cost of litigating.

    What is happening is the bailout money is paying for relocating the banks and GMs operations overseas at not only taxpayer expense, but the vendors.

  • Report this Comment On November 19, 2010, at 2:35 PM, bhessel wrote:

    Memo to Morgan Housel: the weight of any particular argument is not materially affected by the agreement with it—or disagreement to it—of George W. Bush.

  • Report this Comment On November 19, 2010, at 2:59 PM, TMFDiogenes wrote:

    Agree that the moral hazard point is sometimes overhyped, but it's important to keep in mind that while shareholders may(?) have learned their lesson, creditors and executives made off quite well, with bonds and bonuses intact and (so far) no criminal proceedings against anyone at the tbtf's (except a mid-level Frenchman).

  • Report this Comment On November 19, 2010, at 3:30 PM, BMFPitt wrote:

    "the moral-hazard-fueled criticism that banks got off scot-free is slightly exaggerated. Citigroup (NYSE: C) shares are down 93% since 2007. AIG (NYSE: AIG) is down 97%. Bank of America (NYSE: BAC), down 78%. Fannie and Freddie are both down 99%. Capitalism wasn't thrown out amid the bailouts -- just temporarily weakened."

    That's just patently absurd. Citigroup shareholders have 7% more value than they should. BofA have 22% or so more than they should. The idea that Fannie & Freddie shareholders haven't been wiped out makes me feel physically ill. If you think that these actions have not done grave harm to American capitalism, then you don't know what capitalism is. Most people seem not to.

    And for that price, the country is WEAKER than it would have otherwise been. The bailouts and stimulus were like giving Red Bull to a cancer patient and saying that it looks much more alert and active an hour later, and it was a much better option than chemo. The single most important function of capitalism is creative destruction, and mortgage-industrial complex that failed so colossally needed to die a fitting death. The fact that it has lived on and even been strengthened is a serious threat to the nation. We have passed "reforms" which have codified "too big to fail" into law, and made future crashes and bailouts an absolute certainty.

  • Report this Comment On November 19, 2010, at 4:02 PM, Borbality wrote:

    Good story. It's nice to see some of the projections on what could have happened without the bailouts and stimulus. Everyone (including politicians who know better) goes on about how much it cost and how big the deficits are now, but they seem to forget why it was necessary and what might have happened without it. I'm not fan of economic catastrophe or debt, but it's wrong to underestimate the trouble we were in and say we should have let things play out.

    I just think it's mostly pointless to complain about the Fed's actions when there's no way to know what would have happened without them. Also, as I had expected and as we can assume from Bush's writings, the outcome would likely have been identical or very similar under a republican president, making the argument more annoying.

  • Report this Comment On November 19, 2010, at 4:10 PM, langco1 wrote:

    two years later the country is still sinking deeper into a depression and buffetts company berkshire is number 16 on the list of companys cutting the most jobs....

  • Report this Comment On November 19, 2010, at 4:32 PM, onlyoneFool wrote:

    "Hundreds should go to jail, said Motley Fool CEO Tom Gardner."

    Some of us would feel a tad bit better if that actually had been the case. . . .

  • Report this Comment On November 19, 2010, at 5:26 PM, reddycare wrote:

    none of this would have happened if the then president George W Bush would have not started the 2 wars and refunded the people $300,

    Going to war with no war tax, or having means to pay for the war, and above all no exit plan.

    .

  • Report this Comment On November 19, 2010, at 5:37 PM, Hoochiam1 wrote:

    Where were you 3 months ago? This all comes too late. The animals are going to be running the zoo now, and it will be ugly.

  • Report this Comment On November 19, 2010, at 5:41 PM, TMFHousel wrote:

    "Where were you 3 months ago? This all comes too late."

    Bush's book came out last week;Buffett's op-ed came out on Wednesday.

  • Report this Comment On November 19, 2010, at 5:43 PM, dweinsto wrote:

    where was the approval of government intervention before the whole thing hit the fan? buffet and munger and bush and cheney all profited from the disaster that WE have to pay for. they should be in jail and have to pay back all their salaries for the last ten years.

  • Report this Comment On November 19, 2010, at 6:26 PM, bretco wrote:

    No punishment for the scoundrels in finance, little punishment for the negligent politicians, pain for shareholders, pain for the resultant unemployed, pain for the next several generations of taxpayers, probable pain for the baby-boomer retirees and soon-to-be retirees and we haven't even hit the deflation or inflation phase yet.

    Greenspan is correct, we do need some controls but who will fight the lobbists and special interests to get them? Are we reduced to Teaparty wackos carrying the torch for transparancy and fairness?

    A sad state of affairs, for sure. Great article BTW.

  • Report this Comment On November 19, 2010, at 6:30 PM, damastr wrote:

    Excellent post Morgan!! There will be some folks who will never get convinced that bail-out was the right thing to do no matter what argument is provided. But this one would surely convince a few who are unsure.

    I am constantly surprised at people pointing fingers at Warren Buffett and questioning his integrity. The guy is giving away all his wealth to charity and doesn't even want his name on a charitable foundation (giving it away to Bill Gates' foundation saying that it is doing a great job of giving away money). What else can one expect from him is beyond comprehension.

  • Report this Comment On November 19, 2010, at 6:35 PM, NITTANYRAY wrote:

    What was bad about Tarp was that the politically connected were saved and their competitors were flushed down the toilet.

    Lehman Bros. didn't have the insiders pulling for them but Goldman Sachs did.

    We know what happened to both.

    Also Buffet had already loaned money to Goldman so their survival was his biggest concern. Basically he got bailed out by tarp. I would think it was a good thing too if I had money at risk.

    As far as Bush wanting to be FDR instead of Hoover, he needs to read up on what FDR did to prolong the Great Depression. I don't think I would want to be compared to either of those Presidents.

  • Report this Comment On November 19, 2010, at 6:55 PM, brizzlekizzle wrote:

    This is a weak stance on life, assuming that freedom is less valuable to safety, but I know there are so many weak people in this country that this kind of thing will keep happening.

  • Report this Comment On November 19, 2010, at 7:24 PM, grantrick wrote:

    Wasn't it another Republican President in the 1970's who said, "We're all Keynesians now" ..?

  • Report this Comment On November 19, 2010, at 7:43 PM, ilovesumm wrote:

    Well I'm glad the guys that pushed us under the water( Bush and govt) were the guys that rescued us.

    Buffett would have lost an enormous amount with his weighting in financials and insurance had the govt not stepped in.

    Sorta like when Buffett lost his credibility defending Moody's. His opinion depends whether he owns the stock.

    Perhaps Buffets praise should be more like Dear Uncle Sam , Thanks for Saving My Ass

    Neither of these guys are hero's if you look at the whole picture .

    See Barry Ritholtz article below for a reply to Buffett's Dear Uncle Sam called Dear Uncle Sucker

    http://dailyreckoning.com/dear-uncle-sucker/

  • Report this Comment On November 19, 2010, at 8:19 PM, bcpoulsen wrote:

    Do we really want Washington picking the winners and lossers. This mess didn't start in Sept 2008 when Mr. Bush said "The son of a bitch is going down if we don't step in". The problem is that the federal government has been "in" for way too long - trying to work their magic to engineer that perfect society. And the same people that caused the problem are quick to use our money to jump in and apply the same tactics to "fix" the problem while making matters worse. The Government has its place in regulating commerce and ensuring a level playing field, otherwise step out of the way and let free enterprise work.

  • Report this Comment On November 19, 2010, at 9:14 PM, anne1730 wrote:

    Please leave Mr. Bush alone ; It makes me sick.

    Did any one asked "why the Melt down ???"" What about all those highly paid public servants;

    Why don't we sue them just like to doctors ;

    What about rating agencies ; why didn't we go

    after them Moody but we can't afford to hurt Mr. B. None of these guys lost money or endup in

    Jail . Just like Mr. Bush for killing innocent Iraqis ;

    destroying Infra structure , making millions young moslim women in prostitution etc Rich &

    powerful people get away but sooner or later

    they have to answer to our creator & there will be no spinning & currupt judges. AMIRANA

  • Report this Comment On November 19, 2010, at 9:44 PM, mythshakr wrote:

    It's not that i minded the bailouts, it's just that they were way too cheap. Whatever you think the terms and conditions of any loans those financial institutions would have made to businesses or individual in their condition and situation should have been the conditions imposed on any bailouts. Usury interest rates and payment penalties and personal liabilities to both principles and counterparties should have been part and parcel of any bailout.

  • Report this Comment On November 19, 2010, at 10:06 PM, Ladybird22 wrote:

    "President" Bush? You mean Cheney's mouthpiece? Two oil men in the White House (at once) laxed all domestic drilling rules,made fools out of old farmers when they signed bad leases and now all of Bush's & Cheney's coharts are fat,rich and happy! Land has been desecrated, century-old homeplaces uprooted and still we fight abroad losing precious American lives over control of crude.

    And, yes, Clinton created the ongoing mortgage crisis. Losing a home is tragic by any measure! (This is a non-partisan ranting).

    As cute as Ben Bernanke was in that Mexican hat as a waiter in college, he is nothing more than a fox in this good 'ol boys' henhouse. Stop, please stop, giving the investment houses and insurance companies billions of dollars in breaks! This reminds me of czarist Russia where only the elite had sway.

    I am still preparing to be rich and studying to get ahead; but one more article like this and I'll move to Australia, Canada or Bora Bora.

  • Report this Comment On November 19, 2010, at 11:34 PM, shotel wrote:

    "I would have never thought to use both Bush and Buffett and their respective thoughts in the same article."

    Wrong.

    He used Bush, Buffett, and Hitler in the same article.

    Housel preemptively accelerated the reductio ad Hitlerem invocation, which simply means there is zero substance to his discussion. I only have time to review a couple of the lies and distortions posited here, but two jump out:

    1.) "...TARP's estimated final one-time cost of $50 billion." AKA: "The costless TARP argument."

    Debunk a.--the Fed’s policy over the past two years of selling short-term debt and buying long-term debt has played a big role in restoring bank profits, so they can pay back TARP debt. But when the Fed eventually reverses this policy, the “inflation tax” generated will be another way that taxpayers get the bill for TARP.

    Debunk b.-- The decision to "bailout" the Wall Street banks gave them a claim to the economy's wealth that they would not otherwise have, that they did not earn, nor were entitled to. As a result, they are richer than they otherwise would be. If the market had been allowed to "constructively destruct", the shareholders of these banks would have lost all their holdings, their top executives would be walking the unemployment lines, and many of their creditors would have been forced to accept less than 100 cents on the dollar for their debt. This would mean that they would not have claim to trillions of dollars of the economy's wealth which they now have.

    Their wealth will reduce the resources available to the rest of us. Because the CEOs at Goldman, Citi and the rest have their hundreds of millions in wealth, as do their shareholders, they can command resources (e.g. homes, risk capital, labor) and thereby prevent the rest of us from enjoying the same resources. In short, the government's bailout indeed cost us some of our wealth, even though on paper it may seem cheap.

    Almost everything written here is a distortion of the facts. A reductionist slight of hand aimed at readers who need simple answers to complex questions. The implied fear of some averted Madd-Max style apocalypse is laughable on its face. Perhaps the author can point us to their articles published pre-2004 that predicted and forewarned readers of a coming economic bubble collapse?

    ...No, sadly he can't. Bush can't. Buffet can't. (I did) Yet somehow we are to believe they all know what they are talking about now.

  • Report this Comment On November 20, 2010, at 12:04 AM, ArmaCano wrote:

    'Hundreds should go to jail.' Why doesn't Tom get a list together of some of the culprits with a petition indicting them and have it signed by Motlley Crew suscribers then send it to Congress. It's not too late, at least before they create another depression.

  • Report this Comment On November 20, 2010, at 12:53 AM, njdo wrote:

    No, I have to disagree with both the so-called financial genius Buffett and the dummy Bush. Government intervention was needed when this crisis was in its incipient stages not on the very eve of this fateful event. Frankly, Bush is a joke, weak willed and stupid and not fit to have ever ruled the republic. He was president for 8 years, so he just doesn't have any excuses for not "getting it done"... done right, that is. I'm not buying his book and I don't want to hear cheap rationalizations about why things didn't turn out the way they should have. Without his ex-president father and family connections this dolt obviously never would have been elected and history will not judge him kindly. Buffett on the other hand has chosen to play on the sidelines following a simple set of rules to make a lot of money. Unfortunately Buffett hasn't assumed as activist a role in politics as some other wealthy investors like George Soros, who has plenty of skin in the political game and Bill Gates. People wiht real intelligence and money need to get back to the table and start running the show instead of leaving government to the servile bootlickers in Congress who are running the country into the ground as never before.

  • Report this Comment On November 20, 2010, at 3:29 AM, ET69 wrote:

    As a Socialist ,I agree that without the bailout the economy would have gone into a real depression...and it still might. As much as the above readers hate Karl Marx they really should read him . After all he understood capitalism better than anyone.

    Also while you are at it check out Lenin and Trotsky. They understood what was going on in capitalism too. Lenin wrote a lot about financial imperialism . You might as well read them because its for damn sure your so called experts of today sure got it all wrong and are still clueless. What' ? You don't like "old school" economists or 'commies'? Well then be confused and clueless and stuffy.

  • Report this Comment On November 20, 2010, at 7:39 AM, JDEvolutionist wrote:

    Interesting article and comments - all with elements of truth and all flawed to some degree. Behind it all is a vast burden of debt and at the moment both in the USA and many of the European nations the debt is still rising. Ultimately it is going to have to be re-paid and that is going to bring sorrow to a lot of people and not necessarily to those who were both responsible for and benefitted from it; on the contrary, on the people who were deceived, the people in whose name the debts were corruptly taken out, namely the citizens of the countries now struggling under the burden of debt. But those citizens, in a democracy, do still have power - they need to start exercising it. They should start with the taxation of bankers and lawyers - the real parasites of the capitalist system, whose excesses have lead to the cancerous growth of greed within society as a whole. That needs to start pretty soon or the whole thing is going to start falling apart!!

  • Report this Comment On November 20, 2010, at 9:02 AM, TMFHousel wrote:

    "Housel preemptively accelerated the reductio ad Hitlerem invocation, which simply means there is zero substance to his discussion."

    I should have noted that Munger's point is not that another Hitler would be born if we didn't have a bailout. It's that financial collapse frequently leads to social collapse -- a point that history backs up pretty concretely.

    Thanks for the comments, all.

    Morgan

  • Report this Comment On November 20, 2010, at 9:07 AM, tdiaczok wrote:

    Exactly how much power do people have in todays democracies which are controlled by the huge one party, two headed politcal system ? Also how much power have people actually given up in todays political cimate through apathy ?

    It seems things are too comfortable at the moment for too much action by citizens, but they'll make up for it later.....

  • Report this Comment On November 20, 2010, at 11:09 AM, FriarTuck100 wrote:

    We got caught up in our shortsightedness, but I still don't see anyone in jail over selling this junk. Dodd may be retiring, but Barney Frank was re elected. We may have avoided a catastrophe, but we haven't learned anything.

    You can continue to blast Bush, but I felt safer with him in charge and we are both proud to be Americans and refuse to apologize to anyone for the successful great country we live in!

  • Report this Comment On November 20, 2010, at 11:13 AM, hot1053 wrote:

    I have too much to say on this article of the bailout to post here as I've done a lot of research on it.

    1. The bailout was the cause of the long term problem.

    That's no conspiracy theory, unless you think reading the morning paper is a conspiracy. The banks should have been allowed to go under just as they were allowed to during the S&L crisis. The world didn't end then instead the system cleaned itself out and the good banks picked up the new business and got stronger.

    With the bailout, the banks added even more leverage with their newly received money by buying more banks (their competitors) that were in worse shape than they were and to top that off over 15% of the money (over $100 billion of what was to be a $700 billion dollar bailout) has been paid annually as bonuses to top level executives. This was more bad money chasing worse money. Sure, there's news of bailouts being partially paid back, but they continue to get into worse financial shape with the robosigning scandal, trying to dodge that scandal and future scandals by trying to sneak by legislation such as H.R. 3808 which would have made it retroactively legal for banks to not properly notarize loan documents previously not legally notarized. When add more bad leverage to an already big problem, matters only get worse.

    2. Mortgages were not the issue then, but they are increasingly becoming the problem now much more than before.

    They have lost many of the mortgage notes, improperly rated notes, and in many cases illegally changed title. Instead of the U.S. telling them it's your problem sort it out yourselves or let the responsible banks take your customers, they introduced the Financial Reform Act of 2010 making it even harder for the fiscally responsible banks and credit unions to compete with large banks by adding more worthless rules, regulations, paperwork, and extra employees to deal with these new rules that favor large banks.

    3. The bailout wasn't just one, there are many other bailouts going on with other legislation and through the federal reserve.

    Why is Warren Buffet praising the bailout and other bailouts? Look no further than some of his top companies that received bailouts. AIG was the first to receive billions, then came WFC, USB, MI of which MCO (a previous large holding of Buffets) kept their ratings of these firms artificially high. Buffet's financial holdings would be significantly less if these bailouts didn't occur. He pretended that derivatives weren't the problem, but they always were.

    The bailout money was used to reup reserves, buyout competitors (which is buying even worse bad leverage), and pay record bonuses (over $100 billion a year!) instead of fixing mortgage problems. The banks were at that time more overleveraged with derivative bets not troubled loans.

    4. The Fed keeps printing more money and keeps giving it to banks.

    The fractional reserve banking game has been around for years allowing leverage as high as 40 to one on accounts to banks lent by the federal reserve. To make matters worse they are buying their mortgage back securities.

    5. The U.S. Banks are now not viewed as the responsible, conservative, sound institutions they were believed to be.

    This has not boded well for the U.S. at all. As we spent more money and introduced more legislation to help the banks we are more and more are getting viewed as an insolvent nation. Obviously we have an social security, medicaid, and healthcare reform to help that too, but when you keep giving an always broke drunk more money to help him out and he doesn't pay his bills, he stays broke and a drunk until he dies. It just prolonged the problem and made it easier for him to stay drunk.

    6. Unemployment is 10% (adjusted), but it's really over 20% unadjusted.

    For years, the way unemployment has been changed to look good to keep our credit ratings high and people unaware of the unemployment problems we face today.

    Money also isn't being lent out as it used to be. Just ask a pool of small business owners, the banks are tighter than ever. The banks are buying treasuries with 0% loan from the fed which extends their problems and the US's problem longer over the horizon.

    7. The estimated cost of $50 billion is no way just $50 billion.

    Try more like $50 trillion over the long haul as now the idea of bailouts are being pushed on the public in a way to make it appear that they are ok to do. In other words ok to bail everyone out via 99 week unemployment benefits, banker bailouts, insurance bailouts, auto-industry bailouts, foreign country bailouts, etc.

    8. The bailout saved the FDIC.

    Really? All the FDIC had to do was raise what they collected to a fair value of being member FDIC and demand that banks deleverage from 40 to 1 (or really unlimited to 1 on derivatives) to say 10 to 1 or be excluded as member FDIC or pay higher fees to the FDIC to be insured. Instead what is the FDIC doing now? Allowing virtually unlimited protection to depositors!

    Potential costs were averted, but only the costs you can only see as far as the palm of your hand touching your nose. Now the potential cost is the entire U.S. Dollar being shredded and watching the once scary looking old, 1970's betting, gold bugs, who kept their gold while saying the sky is falling, the sky is falling for decades, finally get to do their gold dance and sing that they were right.

    9. Germany didn't allow it's economy to collapse. We are.

    The rise of Hitler wasn't due to the collapse, it was due to overly high war reparations and an overly high control of Germany by the winners of WWI. People said enough is enough, we want Hope, we want change just as they did with the election of Obama. Obama is not Hitler, but people desperate for change supported someone who promised change just as Germans supported Hitler who promised change, but who sadly got the wrong change. Historical accounts don't back this up as a little bailout and a good fix for the system period.

    10. The companies that were bailed out did not suffer at all. The shareholders did.

    There are two things to look at when you look at a to see if public company is suffering whose share price is down. One is the compensation to executives suffering? Two is it still business as usual?

    Bank executives are not suffering. All they will do when the stock price is down issue (and reissue) options at lower prices. Most executives have not suffered large pay cuts, but are again, are still getting paid huge bonuses.

    Banks are not suffering. They are getting bigger and are experiencing less competition.

    Where is the shareholders compensation? They are losing it all, they don't get bailed out, rather, their ownership gets diluted as more stock options are issued and more shares are sold via secondary offerings and other share classes. Capitalism wasn't just weakened, as you'll soon see, it was thrown out unless you are a person of power and influence.

    Morgan thanks for the opinion. When you have the time, I would like to do my first dueling fools post with you. I don't know how to go about it, but I would love to help get people more educated about what happened.

  • Report this Comment On November 20, 2010, at 11:23 AM, TMFHousel wrote:

    "Buffet's financial holdings would be significantly less if these bailouts didn't occur."

    So would yours. So would everyone else's. I think that's his point.

  • Report this Comment On November 20, 2010, at 12:26 PM, JDEvolutionist wrote:

    One of the most corrupting influences in modern financial structures has been the ill advised utilisation of 'percentages' in determination of just reward for work done.

    In combination with inflation, it has worked tirelessly to totally distort the meaning of a fair and to bring justifiable capitalism to its knees.

    Note: - it does not really matter what the political system is - Capitalism, Communism, Democracy - the fundamental flaw in all of them is the almost unavoidable (to date) tendency with time to bring about increasing levels of corruption amongst the people in power.

    A 2% raise in pay for a person earning 20,000 per year is a rise of 400, for a person earning 2,000,000 its 40,000 (the pre-raise pay of 2 people) - but executive pay in recent years has been rising at a far higher percentage rate than the average workers pay, to the point that on a compound (yes that financial term that is used to describe the maximisation of return on investment) basis the differentials are almost incomprehensible. That's absurd and is corruption at its worst.

    A house originally costing 200,000 that was (not now) worth 500,000 3 years later and whose legal costs of selling are 1%, originally cost 2000 to sell and 3 years later cost 5000. No more work was involved, so the extra 3000 going to the legal profession was just more cream for no effort. That says nothing of the increasing burdens of debt on the borrowers. Who do they borrow from? The increasingly over rewarded institutions (run for the benefit of their 'fatcat' executives) that have capitalised on the use of percentages as the weapon of choice in their 'Bonny and Clyde' rampage of corruption, rape and plunder of the average citizen.

    Those are just two examples of the distortions, invoked and encouraged by the money-men, to line their pockets at the expense of the masses.

    These same villains will continue their life of crime by whatever means they can (QE, QE2 .....QEx.) for as long as they can. They need to be stopped, brought to account and made to repay their ill gotten gains. The longer they continue with their activities the greater will be the suffering of the masses that will follow; probably not for the abusers though, they will just up and away with the spoils and start their enterprises somewhere else.

    Unless, that is, we start to see the truth of the situation in the very near future.

  • Report this Comment On November 20, 2010, at 2:17 PM, KVoce2 wrote:

    I agree with you and Buffett. The cost of inaction would have been far greater. But implementing changes to prevent such future excesses must occur. Banking institutions obviously need better oversight to avoid greed's nasty insertion into the process.

  • Report this Comment On November 20, 2010, at 2:34 PM, Momoneypls wrote:

    A major underlying cause of the financial crisis was the meltdown of the mortgage banking environment. Wall Street bankers have rightfully taken a lot of heat for their loose lending practices and for constructing investment vehicles partially composed of very risky mortgages that were sold as safe / conservative investments. However, little notice has been given to the underlying cause of the mortgage banking meltdown, that is, government intervention in the market via the Community Reinvestment Act (CRA). The CRA was passed by Congress to "encourage" bankers to lend to Americans who didn't necessarily have the financial resources to take out a mortgage under the previous, more conservative lending practices of the past. Congress, in its usual mode of buying votes, passed the CRA ostensibly to help out the folks. But the actual result was quite the opposite, as the mortgage meltdown caused high unemployment, mortgage defaults and home foreclosures on a scale not previously experienced. The only solace is the recent admission by Barney Frank that perhaps he made a mistake in voting for such practices and voting against more stringent regulations for Freddie and Fannie. Of course, he & his colleagues don't seem willing to correct those mistakes. For more on the topic refer to the white paper by Univ. of Texas Econ professor, Stan Liebowitz at the following link:

    http://johnrlott.tripod.com/Liebowitz_Housing.pdf

  • Report this Comment On November 20, 2010, at 2:37 PM, PrincipleOf3rds wrote:

    I 100% feel we needed a bailout, the issue I have is the method of bailout used (money) and where they money went.

    The "people" were ultimately responsible for the "equity" shortfall as housing prices tanked. The correct response with the "housing crisis" bailout money should have focused on putting the "people" at ease, while still making a "small" amount of money. Here is the plan I would have implemented:

    1. Create a "Mortgage Crisis" Department

    2. Launch operation "Home Run" which refinances troubled mortgages using 3% interest and 50/50 amortization table. Period. What is that you say....

    Let's say you purchased a $250,000 house at the peak with zero down, using an interest only loan, at 7% APR. The housing market turns and within a year the houses value is down to $200,000 and sliding. This homeowner is underwater and stuck.

    The government refinances the home at the sale value of $250,000 on a 30-year fixed. The interest is 3% and the mortgage payment consist of 50% to principle/50% interest.

    This approach does several things

    1. Lowers the monthly mortgage (from $1660 to $1055)

    2. Builds or makes up the lost equity faster ($527.5/month) and allows additional principle payments or consumer spending assuming the homeowner could afford the original mortgage

    3. Bails banks out by taking the "toxic assets" off their balance sheets, and making sure the money gets to the where its needed. Please note, the government wouldn't provide the banks a lump sum during the refinance process, they would provide a down payment ($61,000) and then pass the government backed guaranteed payments through to the financial institutions. If they (banks) don't like the deal then "NO BAIL OUT" and the bank is wiped off the face of the planet anyway, with the government stepping in and buying the assets at a discount during liquidation of the banks "toxic assets".

    4. Loan tracks inflation so the governments investment is "zero" growth. However, Uncle Sam could make this up by reducing the mortgage interest tax deductions and increasing corporate income taxes on large unscrupulous banks.

    5. It would have stabilized the housing market and potentially reduced the overall drop in equity.

    6. And most importantly, it would have provided a light at the end of the tunnel for these home owners, keeping the American dream alive.

    I'm not an economist or finance person, so I'm sure there are a lot of holes in this plan. I look forward to your constructive criticisms.

  • Report this Comment On November 20, 2010, at 3:57 PM, BruinAlum77 wrote:

    It's amazing. In spite of all the historical data and opinions coming from all parts of the political spectrum, there are people who still believe the bailout was not a necessary evil to avert another Great Depression.

    The greatest danger for the future is having 30% of the population living in a completely separate reality and supporting the politicians and policies that have decimated our manufacturing base, outsourced millions of jobs, allowed large corporations a license to steal and even kill, as long as they have a healthy stock price. I used to think that once Bush was gone, the country would return to sanity. Sadly, he is little more than a reflection of the ignorance, gullibility and apathy of our population.

    Even Reagan, in response to crisis, raised taxes, withdrew troops in response to terrorist attacks, and used diplomacy to work for nuclear non-proliferation with the Russians. Are these same people going to say that Saint Ronnie was just another commie-pinko socialist libtard?

  • Report this Comment On November 20, 2010, at 4:49 PM, langco1 wrote:

    instead of having buffetts money i would rather have the money he spent to get the fake good guy image!buffett is responsible for more ruined lives than WWII !!

  • Report this Comment On November 20, 2010, at 6:31 PM, otto32848 wrote:

    I think it's a bit early to be patting each other on the back. Nothing has been corrected, if we're lucky we'll be like Japan. I don't think we're going to be that lucky. I have no idea from where the optimism comes. Maybe you believe the phony unemployment and inflation stats. Maybe you believe the Fed chairman is a magician. I believe the U.S. is on the fast track to economic destruction. These magic tricks have just delayed the inevitable and while magic may look real, it's fake.

  • Report this Comment On November 20, 2010, at 8:01 PM, polenium wrote:

    A lot of good economists and pundits strongly disagree. The "finger-in-the-dike" theory of free market religion (the system will heal itself if you give it more money) completely ignored the systemic problems that caused the meltdown. Attempts at regulation were co-opted by the now flush criminal class and we stand here today with the treasury empty facing a long term downturn.

    Warren Buffet made out like a fat cat in a cheese factory by investing heavily in Goldman Sachs knowing that two of Sachs best friends (and authors of the meltdown) were in the White House watching his back. Bush got a 7 million dollar book deal for disabling the SEC and letting his pluto policy advisers give all our money to the bums.

    Seizure of the banks by the govt. would have dislodged the criminal class from the executive suites, cleaned up the balance sheets, provided loans for rebuilding the economy. Right now these unrepentant crooks are using our money to gamble instead of loaning it to businesses and individuals who would create jobs.

    The FDIC are experts at tracing the paths of loans and it is highly unlikey that foreclosure fraud would be a systemic problem if they had been allowed to do their jobs. Right now trillions of bad debt overhang the world economy like the Sword of Damocles.

  • Report this Comment On November 21, 2010, at 1:49 AM, fjconstantino wrote:

    I recently wrote this about the letter Warren Buffett published in the New York Times. Read below:

    BUFFETT HITS IT DEAD ON THE NAIL

    During Times of Great Distress Only Government Can Help

     

    November 17, 2010

    BECKLEY, W.Va. - I was starkly reminded this morning of the grave days of September 2008.  As I read this morning's New York Times, I read an opinion piece written by my professional role model, Warren E. Buffett.  This letter was thanking Uncle Sam for saving the world economy in late 2008.  Mr. Buffett reminded me of those extremely dark days in 2008. I sat up many late nights watching CNBC as the largest crisis in generations unfolded on live television. This was a crisis like none had seen since my grandparents lived through the Great Depression.  The evening Lehman Brothers failed most people did not grasp the gravitas of what was happening, nor should they have been expected to.

    Two years later we are able to look back on the actions the United States government took to stem the crisis.  As expected we all criticize aspects of the massive financial rescue. And I am thankful we are able to.  For sure the criticism recently has been escalating, as unemployment is still high and deficits loom large.  However, as we criticize let us not forget.

    In early 2008, when Bear Stearns essentially failed, I realized the system was no longer sound. Fast forward then to September of that year it became clear that Lehman Brothers would not survive. We were worried that insurance giant AIG would fail and I realized the situation was far graver than originally perceived.  Confidence in our banking system had ceased to exist. Likewise, businesses you and I depend on daily could no longer obtain short-term funding to continue operating.  It became crystal clear within days the entire market system that we know and love would fail.

    It is easier today to look back and think that we should have let the free market system work.  Let me tell you it could not work.  The free market system depends on cash, much of which is provided by short-term funding. When in true crisis, as we were, cash ceases to flow.  And cease it did as lenders and companies held on to every last dime they had.

    Had the government, including then Treasury secretary Paulson, Federal Reserve Chairman Ben Bernanke, and President Bush, not acted fast to provide a financial backstop like none the world had ever seen the world would indeed be a different place today.  Our retirement, bank accounts, wages, and jobs hung delicately in the balance.

    So yes it is our right, maybe our duty, to review and criticize all government actions; just remember in times of the greatest distress there is one government the world turns to for help. That is the United States government.

    Real world investor feedback provided by: Frank J. Constantino

    About Author

    Mr. Frank J. Constantino, of Beckley, W.Va., is an educated private investor with 14 years of experience. Constantino follows the financial and business industries closely and provides solid public opinion through social media. Visit his financial connoisseur Facebook page for trends and stories he is following: http://www.facebook.com/pages/Investopia/326995603888 or email him for additional commentary at fmccapital@yahoo.com.

  • Report this Comment On November 21, 2010, at 8:01 AM, mhfs1 wrote:

    Loss of manufacturing,over-regulation and to much government has crippled our ability to let capitalistism function.It looks like Ross Perot was right about the sucking noise!!!!!!!!!

  • Report this Comment On November 21, 2010, at 2:24 PM, langco1 wrote:

    buffetts geico insurance is one of the most corrupt companys on earth.this company needs to advertise 24/7 more than any other company on the planet just to replace its leaving customers!!!

  • Report this Comment On November 21, 2010, at 8:13 PM, jc09058 wrote:

    I believe summing up this article, despite all of the noise from other pundits, pro and con, comes down to this simple sentence.

    "It's that financial collapse tends to lead to social collapse."

    That would have been the real cost if no help had been given. I also believe the high end 15% unemployment level quoted above would have seriously understated as well.

    Sudden shocks followed by more sudden shocks did paralyze the financial system but think of what would have happen when the statement was released that the FDIC was broke and had to borrow money from the Treasury Department. I guarantee most of the people in this country would have stopped listening at "the FDIC is broke and ...." and ran to the bank to withdraw all of their money.

    The following runs on the banks would have put the bank runs between 1930 to 1932 to shame. Anything else done to stop it, just like then, would have resulted in more than just 10 years of the Great Depression.

    The best solution of a host of not so good solutions was made. Was it the best choice? We won't know unless you would like to repeat the last two years again. I can say, that this choice was better than the decisions made between 1929 and 1933, because we learned from that experience and made some better choices this time.

    When it happens again, yes, it will, we will be capable of better choices based on two experiences of gross financial collapse. Granted, we are only fixing those things that brought us down those two times and surely, next time it will be something else that we didn't think of that will surprise us.

    In the mean while, something was done and we are surviving. Let's pick up the pieces, learn from what happened and start moving forward again.

  • Report this Comment On November 21, 2010, at 10:42 PM, EDGEFIELD50 wrote:

    I agree, the crisis would probably have been worse without government intervention. However, the American Taxpayer took it in the shorts significantly more than the TARP recipients and their executives (including Buffet) who created the mess. The government (Bush, Paulson, Bernake, etc.) allowed themselves to be out negotiated (I'd like to believe in their stupidity, on the otherhand maybe they knew what they were doing -- protecting their "friends") by these irresponsible executives/companies who masterminded the meltdown. As an investor what kind of financial terms and conditions would you have required from these troubled companies? Certainly not those that were given.

    Finally, in this case, Buffet's and Munger's comments are self-serving and should be taken with a grain of salt. Had the goverment not stepped in they would have lost billions and rightly so.

  • Report this Comment On November 22, 2010, at 10:15 AM, steveelcpo wrote:

    If a bank or any company for that matter is "too big to fail", then it should be broken up into smaller pieces. Then, when corporate greed and CEO/Board of Directors incompetence make short-sighted decisions to increase profit with little or no thought about the long-term consequences, and the result leads to the kind of meltdown in 2008, these smaller banks can suffer the failure they deserve without taking down the entire economy. This used to be called anti-trust but is nearly non-existent now. As to Freddie and Fannie, let them fail and stop taxpayer bailouts. The problem is that even though I, as an individual shareholder may be angry at CEO's, my vote is nothing compared to institutional shareholders such as mutual funds and pension funds who own millions of shares, with no transparency on how those shares are voted. The incredibly low bar set to be eligible for "performance bonuses" require little more than showing up for work to get paid millions of $$. The financial meltdown is proof positive these greedy folks are undeserving of both their jobs and their bonuses, or otherwise they would have seen it coming and taken steps to avoid or minimize it.

  • Report this Comment On November 22, 2010, at 10:41 AM, mtf00l wrote:

    "If the American people ever allow private banks

    to control the issue of their money,

    first by inflation and then by deflation,

    the banks and corporations that will

    grow up around them (around the banks),

    will deprive the people of their property

    until their children will wake up homeless

    on the continent their fathers conquered."

    Thomas Jeffereson

    "Give me control of a nation's money

    and I care not who makes the laws."

    Mayer Amschel Rothschild

  • Report this Comment On November 22, 2010, at 12:08 PM, Pat4Ra wrote:

    The politicians from both sides and the newly elected so call tea party politicians almost all failed to create an atmosphere in which the public can be educated and to channel public outrage to bring the greedy, crooks responsible for the crisis to justice. Because practically all of the politicians are in the pockets of the big business.

  • Report this Comment On November 22, 2010, at 3:26 PM, enlightenMe3 wrote:

    Is anyone aware of any attempt at a thorough analysis of what would have happened without the government bailout? Even if the attempt has a "liberal" or "conservative" bias (terms which are nearly meaningless these days), it could give more specificity to this debate.

    I consider myself financially conservative, but I'm not a tea-party member. I believe the government is often inept, but that the free market doesn't solve all the problems it creates. I believe that business, while often inept itself, tends to be more efficient than government, but that efficiency sometimes means industries poisoning the great lakes to such an extent that health officials recommend tightly restricting your intake of fish that come from them.

    The purpose of that background is simply to show I don't have a particular axe to grind.

    I do tend to believe that the bailouts have been a mistake, that while they have eased near-term pain (most likely substantially), they will cause the pain to drag out over a much longer period of time and, if pain can be quantified, result in much greater net pain (over time).

    Assuming that everything Buffet and Bush say about the economy coming to a screeching halt without the bailouts is correct (and I think it is)--what would have happened over the next six months, the next year? Where would we be now? Would the economy have re-started somehow or would America have become and forever after remained a third-world country?

    Is it not possible that there would have been a big re-pricing exercise? Might not private capital have had the opportunity to buy businesses at large enough discounts that they could have fixed many of the problems privately that we're still trying to fix publicly, and probably will be for years? As a result might mainstreet America, for lack of a better work, have been better off in practical ways? For example, if some entity had been able to buy Citi assets (mortgages) for fifty cents on the dollar, wouldn't it have a lot of room to renegotiate those mortgages such that homeowners could afford the payments and the new owner would make money? Citi shareholders would obviously lose in this scenario, and the taxpayer as well by having to cover, through the FDIC, funds lost by Citi account holders. How would that cost have compared to the cost of the bailouts?

    Who else would have one and lost without bailouts?

    Would the dollar today be weaker or stronger than it is? Which of those alternatives do we want?

    Would not providing bailouts addressed the moral hazard question in a more satisfactory way? (In other words, would more bad guys and fewer good guys have been hurt)?

    These are simple questions that no doubt have complicated answers. Reasonable people will probably agree that no one can answer them with 100% certainty.

    That said, it would be instructive (and entertaining) to hear intelligent people from both sides of the debate provide in-depth, detailed analysis of what might have been without any bailouts.

  • Report this Comment On November 23, 2010, at 6:59 AM, junaidfarooq wrote:

    its like monkey vs saint...

  • Report this Comment On November 24, 2010, at 3:01 PM, guiron wrote:

    "The banks should have been allowed to go under just as they were allowed to during the S&L crisis. The world didn't end then instead the system cleaned itself out and the good banks picked up the new business and got stronger."

    That is not what happened. In fact the government did bail out the banks:

    "The federal government ultimately appropriated 105 billion dollars to resolve the crisis. After banks repaid loans through various procedures, there was a net loss to taxpayers of approximately $124 billion dollars by the end of 1999."

    from: http://en.wikipedia.org/wiki/Savings_and_loan_crisis

  • Report this Comment On November 24, 2010, at 3:10 PM, guiron wrote:

    "I believe that business, while often inept itself, tends to be more efficient than government, but that efficiency sometimes means industries poisoning the great lakes to such an extent that health officials recommend tightly restricting your intake of fish that come from them."

    What? So, efficiency of those industries means they get to ruin our natural resources, and our option is to restrict our intake of fish? You've got to be kidding. I'm not even sure what point you're trying to make, other than you like to be abused in the name of efficiency in business.

    Our Medicare health care system is the most efficient of all the options available, contrary to what some people might have you believe, with administrative overheads lower than any private health plan in the US. The VA system is vastly superior to most private options, which is itself an entirely government run health care system, from top to bottom.

    The idea that the government is not efficient is a canard and entirely false. Business is often efficient at making a profit, rather than providing the most efficient services- the two are not mutually inclusive. Making a profit is not the function of government, nor should it be, but the government does serve the people, and often it does so more efficiently than business.

    But don't take my word for it. Do your own research. Don't take people at their word when they say government isn't efficient, because they're factually incorrect.

  • Report this Comment On November 24, 2010, at 4:07 PM, enlightenMe3 wrote:

    @guiron

    Chill out there, friend. I think we're on the same side here with regard to the particular point you singled out. No, I don't think it's okay for industry to poison the lakes even if they are more efficient. On the contrary, my point was that even if industry is more efficient, it shouldn't be allowed to do things like that, and the government should make sure it doesn't.

    As for the rest of my post--I didn't really have a point. I was asking a question: Does anyone know of a detailed thoughtful analysis of what might have happened without the bailouts? Most of what I hear is a very general, "without the bailout, the economy of the United States and probably the world would have blown up." At most, I've seen things go a step or two beyond that and say credit would have dried up and businesses wouldn't have been able to make payroll. Things usually stop there. That's really just the beginning. A more detailed and extended consideration of how things might have gone without bailouts might push this debate beyond where it has been stalled for months--at a place where one side says the world would have ended and other says no, it wouldn't have.

    As for your point about government versus business efficiency, I pretty much completely agree. I meant business is efficient at making a profit. As you point out, that doesn't mean it's efficient at providing a service. Often it isn't--usually because it reduces services in order to increase profit. Thanks for drawing the distinction.

    Anyway, maybe my original post wasn't clear in some regards. Maybe, too, you jumped to conclusions about my opinions that aren't supported by what's in the post.

    Having hopefully cleared that up, I'll ask again--has anyone read anything that tries to imagine in detail what would have happened without the bailouts? Where would we be today if the taxpayers hadn't given one nickel to a single business and what would the road to that place have been like? Again, a a simple, "we'd all be eating each other, the end" isn't helpful. I'm looking for something that tries to set up all the dominoes and explain what would have caused each of them to fall, or--possibly--not fall.

  • Report this Comment On November 25, 2010, at 7:26 AM, Legendre52 wrote:

    When do bailouts stop?

    Do we help the mom (no offense mom) whose Avon business isn't doing too well? What about the Amway salesman? Or what about the local hairdresser?

    Who decides what company that ran itself into the ground or just couldn't make it is "too big" for us to let it fail? Barney Frank? Rangel? Pelosi? Bush? This also assumes that some companies are too small to help.

    How can a government state that a policy is good for some....but not others? Isn't that what government is supposed to prevent?

  • Report this Comment On November 26, 2010, at 11:46 AM, dhuddle wrote:

    Great article Morgan. I remember seeing GW on TV and it was the first time he looked scared, and Bernanke looked terrified. That convinced me that the economy was about to collapse. My business is off about 10% and I've lost 30% of expected growth, BUT if we had gone into a depression with 20% unemployment, I would probably be off 30%, had to lay employees off and a lot of people would have gone bankrupt. This way more people can survive. I HATE Wall Street and support a tougher regulations on them and on the Banks. To those of you who oppose rules - Would you want to play football without rules? Rules stop cheating and only cheaters or those who haven't been mugged complain about rules. We don't need unnecassary rules, but we ned rules to prevent cheating and another financial disaster. Sometimes I think Obama should have let the Banks go down the tubes. The public would have demanded the govt nationalize them and Obama would have been the good guy. All he had to do was drag his feet and that is how is it would have played out, That's how I know he isn't a socialist. Next time, I vote to nationalize the banks and reinstate Glass-Steagall before taking them private again.

  • Report this Comment On November 26, 2010, at 12:01 PM, Howard1ii wrote:

    I'm no fan of Obama, but it is good every once in a while to take a look back at when and how some of these things happened. Right now, everyone blames Obama because he is a "socialist", but in reality, everything I have read says we were on the brink of a global collapse and Bush and his guys made the right decision.

  • Report this Comment On November 26, 2010, at 12:02 PM, Larminat wrote:

    I think that since Government bailled the financial industry, it would be more than adequate and fair to ensure there is a cost associated to this over time.

    Just like when a country loses a war, or a ''Marchall plan'' is put together to help restore a economies after WW2 ( ie:European countries), the Financial corporations should be submitted to reimburse the entire bailout cost with interest to the Governments, as they were the instigators of the crisis. This could be accomplished over a few decades across the board on a worldwide basis.

    Furthermore, employees working in the Financial industry should also pay a few extra percentage tax points to the Government, as a penalty, so as to make sure the people in this industry feel the personal pain too. That way, we help ensure proper employee behaviors in the future and red flags can be raised, on time, and hopefully help prevent crisis.

    As for the Executive Officers, the Governments should tax highly any kind of Bonus given to them until the entire global baillout costs with interest has been reimbursed to the People globally. This goes well beyond the responsability of their own company. Since they were part of the global problem, they also need to be part of the global solution. The IMF could play a pivital role in managing this. Hence, the notion of submitting the Financial industry would only be a good start. The EU is open to it.

    Lastly, It is also understandable that Financial institutions that were properly managed and not exposed to bailouts be rewarded by not exposing them to the bailout effort. It will give them an edge in the marketplace while the culprits work their way through the bailout effort. The signal we send to the industry would be cristal clear- reward the good long term behaviors over time!

  • Report this Comment On November 26, 2010, at 12:24 PM, cooski wrote:

    Yeah, we bailed out Goldman Sach's (the real U.S. Government) and saved Buffet's ass so he can continue to be a genius. He is a self serving dirtbag as is Munger. Those guys could give a rats ass about their investors anymore.

  • Report this Comment On November 26, 2010, at 3:05 PM, BigIsBAD5466 wrote:

    The key should be, the big boy bankers should be punished, go to jail, stop passing "go" and getting rewarded for screwing up capitalism.

    Wasn't it Jefferson and Jackson that warned us about teh BIG BANKERS taking us all to the cleaners.

    Those radio talk show guys should read up on that part of our "constitutional" government and what our forefathers were thinking.

    Big is Bad. Who creates jobs, not the BIG BANKS, not the BIG CAR MAKERS.

    Provide assistance to small business and this economy will flourish.

  • Report this Comment On November 26, 2010, at 3:19 PM, Netteligent09 wrote:

    I keep thinking Osam bin Laden is the Worst because he caused the most damages for years to come. Now there are the worst kinds among our elite. Better yet, they have million in bonus and better lives.Simply amazing.

  • Report this Comment On November 27, 2010, at 4:02 PM, Dashboard27 wrote:

    MISSING THE POINT!

    Whether or not the bailout was "necessary" isn't the question at all.

    A) The Bush Administration and The Fed turned a blind eye to this impending catastrophe, despite warnings from people all around the country. In fact, the Bush Admin regulators sued State Governors to prevent them from acting on a local level to strengthen regulations on mortgages and credit default swaps.

    B) The Bailout conveniently furthers the Bush/Republican agenda of privatizing or wiping out Social Security altogether.

    C) No criminal investigation has taken place, even 3 years later. Tough regulations are a thing of the past. From blind eye management to paying off the reckless criminals "because we can't let them fail" just makes no sense. Unless you are benefiting from it, which Bush and the wealthy top 2% certainly are.

  • Report this Comment On November 27, 2010, at 8:37 PM, mjtri wrote:

    Many of those who were bailed out were homeowners. Do people really want them thrown in jail?

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