Bailout: The Sucker Punch

I know many people are convinced that something akin to a financial apocalypse will occur if the $700 billion bailout isn't rammed through quickly.

Some major questions and issues about our socioeconomic situation are getting lost in all the panic and noise.

The big sucker punch
On one side: "Save the banks; ask questions later." On the other: "But what about the poor homeowners, losing their homes?"

Although attention is being paid to "the taxpayer," I can't understand why more emphasis isn't put on the biggest victims of all, those poor suckers who:

  • Save money, even with no incentive to do so since interest rates are ridiculously low, and possibly don't even utilize credit card debt.
  • Rent and refused to buy overpriced homes with some cockamamie mortgage scheme, and have been waiting for a major price correction so they can achieve the American Dream the proper way.

I'm sorry, but they're really getting the shaft, even if their fiscal conservatism and cheapness just look so darn un-American to many people these days. You know, "the paradox of thrift" and all that. Add in runaway inflation from printing out money, and the potential for major tax increases to pay for our profligate ways, and these people are really getting the business.

The geniuses -- Wall Street and individuals -- who got us into this mess probably looked down their noses at these "infernal" savers and "cheapskates" for not tinkering with their own personal capital structures in a more sophisticated manner. Now they're trying to cheat those people out of affordable homes by making an artificial floor in the prices. Thanks, guys.

American dream ... or nightmare?
Furthermore, all this bellyaching about lost homes ignores that many of the "homeowners" were participants in an unsustainable bubble, and many would never have gotten homes they couldn't afford if lending standards had been reasonable, and "exotic" mortgages hadn't been vogue.

Meanwhile, I suspect many of the foreclosed-upon will simply rent, maybe even smaller places that are within their means. May I speak as someone who rents an apartment and say that that's really not the most horrible fate in the world?

Anybody remember decades ago, when -- gasp! horrors! -- children sometimes shared bedrooms, fought over one TV (or in later years, one computer), and the typical family home had only one or one-and-a-half bathrooms?

I guess some people must think that sounds like living in the woods or something, huh? When did we all go nuts?

Our long national hallucination
Fed Chairman Ben Bernanke warns that we risk a recession if the bailout doesn't go through. Well, as far as I know, recessions are a natural part of the economic cycle. We may be in for one giant economic spanking, but I kind of suspect it's deserved and will happen eventually, regardless.  

Bernanke's "nightmare" scenario included households having a hard time getting credit. A common example lately is how people need really good credit scores to, say, buy a new car.

And why is that a nightmare, again?

Of course, the implication is that companies like poor Ford (NYSE: F  ) , Chrysler, and General Motors (NYSE: GM  ) will suffer if folks who are already in way over their heads can't buy new cars. This will extend to all kinds of things we want instead of need, but of course, keeping up with the Joneses has been awfully good for our consumer-driven growth, until recently.  

I can't help but wonder if the point of the bailout is to take the deflated bubble, which was inflated by easy credit to begin with, blow a little air into it, and apply a patch that just won't hold. Is the real point that we have to return to loose lending to maintain our economic "growth"?

How much would our economy have grown since 2001 without all the debt-fueled spending? I feel like the real message right now is that the party's over, but nobody wants it to be. (And it was an acid-trip bender to begin with -- nothing that happened was actually real.)

For the love of bubbles
Our current "moral hazard" has far wider implications than simply talking about mammoth bailouts for companies like Fannie Mae, Freddie Mac, AIG (NYSE: AIG  ) , Goldman Sachs (NYSE: GS  ) , or Morgan Stanley (NYSE: MS  ) .

As much as Berkshire Hathaway's (NYSE: BRK-A  ) (NYSE: BRK-B  ) investment in Goldman Sachs may provide some semblance of confidence, we still need to ask some really important questions of ourselves, given that we're maybe applying extremely expensive Band-Aids to huge, gaping wounds in our collective reasoning and spending habits.

I know people are coming down on all sides of this issue. My Foolish colleagues are sounding off: Chuck Saletta doesn't like the bailout (honestly, neither do I), Morgan Housel is for the bailout, and David Lee Smith has some good questions about the bailout. Even our co-founder, Tom Gardner, weighed in with an idea for Washington to consider when it made its bailout decision.

I think we need to ask ourselves many, many questions: Why are we in love with bubbles and speculation, and why do we try to convince ourselves they are sound investment strategies? And should our economic well-being be so reliant on being hopelessly in the hole? Given the last 10 or so years, these are essential questions.  

I'm not getting a clear idea that this bailout will address an important issue: We need to become a nation of savers again, not debtors, and that applies to the government, companies, and individuals. I hope that becomes part of the conversation, because bailout or not, our attitude is unsustainable.  

I've had a lot of questions lately:

Berkshire Hathaway has been recommended by Motley Fool Inside Value and Motley Fool Stock Advisor. The Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletters today, free for 30 days.

Alyce Lomax does not own shares of any of the companies mentioned. The Fool has a disclosure policy.


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  • Report this Comment On September 25, 2008, at 1:08 PM, DerrickMck wrote:

    It is interesting that when the Canadian real estate boom of 1986 to 1991 ended and prices dropped within months, there was no relief for home owners who purchased homes at the peak- they rode it out.

    It is also interesting that the negative real estate scenario has been happened throughout the world, without government rescue- a global bubble .

    Imagine the poor investors Chinese who extended themselves (speculation) in a stock market that is now down 66% and there is no government rescue. We should be thankful that we were not allowed to invest directly.

    The point is - as investors every one take their lumps, why is it different for the US market that a bail-out is required? We know the answer, that is why we should always invest in the US stock index.

    -a novice investor

  • Report this Comment On September 25, 2008, at 1:09 PM, dpro0102 wrote:

    Umm - take a look at this article - titled, "Record Christmas bonuses on Wall Street", and dated 12/27/2007. Note that Bear Stearns and Lehman were awarding themselves RECORD BONUSES, fueled mainy by DEBT SPECULATION and RISING ENERGY COSTS. Now - we are bailing them out because of their Debt Speculation? Can they at least return the $30 BILLION in bonuses - or ~5% of the bail-out - FIRST?????????

    Atricle Here:

    http://dev.wsws.org/articles/2007/dec2007/wall-d27.shtml

  • Report this Comment On September 25, 2008, at 1:30 PM, wuff3t wrote:

    Excellent article. As someone who has been trying to do things "the old-fashioned way", ie renting and saving until prices normalise and I can afford to buy a property at a reasonable price and without overstretching myself, it disgusts me that we are once again pandering to the irresponsible tendencies we have seen from people at all levels (homeowners who could never really afford their homes as well as the Wall Street gamblers who have exacerbated market bubbles). How on earth are people expected to behave responsibly if you bail them out every time they behave irresponsibly?

    If America's financial problems really are that bad then maybe it's time to pull the troops out of Iraq and Afghanistan, let the rest of the world sort its own problems out and spend the money on shoring up the US economy instead. The UK could do a lot worse than follow the same course of action.

  • Report this Comment On September 25, 2008, at 2:15 PM, EddieVanBlundht wrote:

    Does every columnist have to paint homeowners with the same two brushes? Sure, there are tortoises and there are hares, but most of us -- the people I know, anyway -- own homes because we love homeownership, not because we're greedy chumps buying into a balloon, and not because we're value shoppers trying to time the market to get in at the bottom.

    I don't pretend to know who the winners and losers of the bailout will be, but I don't feel any pity for people who stayed on the sidelines waiting for a bottom that never came, any more than I feel sorry for flippers who got burned. Those people are investors first and homeowners second, and that's the way the cookie crumbles.

  • Report this Comment On September 25, 2008, at 3:05 PM, s2brutus wrote:

    Eddie,

    Respectfully, it's not about being "value shoppers trying to time the market to get in at the bottom." It's about buying what one needs and can truly afford, instead of buying what one wants and is only able to buy because of the bogus, bullsh*t mortgage lending schemes that have become so prevalent.

    :^)

  • Report this Comment On September 25, 2008, at 3:08 PM, Corporality wrote:

    As I read my ears pricked up. I've not heard so much common sense since I read Tom Paine. How refreshing! Bullseye Ms. Lomax, Bravo!

    Buying a home is just as must an investment as a derivative, home ownership is not an inalienable right endowed upon us by our creator.

    If you make a bad investment, are all your office mates going to take up a collection for you? Is your boss going to dock their pay, till you're sitting pretty again?

    We as a nation need to get a firm grip on our shoulders and push like heck, till our head pops out. Next, since we're way past a time out... we need to be administered a hearty spanking by the same free market we sang hosannas to so recently.

    Finally we need to learn from our mistakes and become a more responsible people, who expect nothing less than responsibility and accountability from our peers, that is, grow up.

    If we don't, then perhaps it's time for those of us who understand reason and logic, to pack up Troy and go found Rome.

  • Report this Comment On September 25, 2008, at 3:13 PM, s2brutus wrote:

    I swear Ms. Lomax must be spying on me! LOL!

    She just wrote the story of the last 17 years of my life. When I left college in '91, I lived with my folks for a few years to get a good little nest egg built up and to get my first vehicle paid for. I started renting in '95 while keeping an eye out for a good deal on some property to buy. I'm still renting in '08 due to the ridiculously inflated prices real estate commands.

    See, where I am experienced an inflated real estate market earlier than many places. I live in the small town in Mississippi where Worldcom (or WorldCON, if you prefer) started up. There was a rather skewed market locally due to money made by those who got in on WCOM early on and took some of those early profits and started living it up.

    So here I am. Still renting. Still trying to save money instead of borrowing and spending. And still - apparently - SCREWED!!

  • Report this Comment On September 25, 2008, at 4:47 PM, MitziY wrote:

    Thanks for a great article. We, too, do not use debt. BUT an even larger problem looming over all of this is that the US is less and less and nation that manufactures. Where will the good jobs come from? Not the service sector. As part of becoming more "realistic", maybe we need to accept lower wages, start/expand more businesses and create a solid bedrock for our economy, one that has been slowly eroding in recent years.

  • Report this Comment On September 25, 2008, at 5:33 PM, EddieVanBlundht wrote:

    Brutus, folks who buy what they need and can truly afford have my admiration and they'll do fine. I don't accept that they're victims, as the writer would have us believe, their time just hasn't come yet. But neither do I believe that everyone losing their homes necessarily made reckless decisions. Losing ones job due to a sinking economy has nothing to do with ones mortgage choices, for example.

    The author paints a simplistic, misleading picture. Yes, in fact we do need to protect the taxpayer, and yes, we need to stem the rate of foreclosures for the good of the economy, and if that means temporary disapointment for some people who might like homes to be a bit cheaper right now, well... I'm glad she's happy living in her apartment :-)

  • Report this Comment On September 25, 2008, at 6:19 PM, Atrossity wrote:

    VanBlundht,

    I'm glad you're happy living in YOUR investment; however, I'm not so happy that I want to pay your mortgage, anyone here eager to pay VanBlundht's mortgage???

    You've thrown a lot of names at the author's argument, including simplistic, misleading and used that most sophomoric of methods to mischaracterize your opposition's argument, the blanket statement, "everybody". I don't blame you for arguing in your most sophisticated way, why taxpayers should pay your mortgage; after all you obviously have your fellow American's best interests at heart. ;) If you're going to toss names around, you need to have the intellectual integrity to back them up. Otherwise your argument looks childish. Another blanket statement: “Losing ones job due to a sinking economy has nothing to do with ones mortgage choices, for example.” Yeah, that’s completely irrefutable, ha.

    Good luck with all your other investments.

  • Report this Comment On September 25, 2008, at 7:35 PM, EddieVanBlundht wrote:

    Atrossity, I am in fact happy with my home and my other investments, and I wish you the same. The word "everybody" does not appear in either of my posts, although I did say "every" columnist, which was an obvious exaggeration -- my bad. I also said not "everyone" losing their home made reckless decisions. I hope we can agree that that is true, but if not, okay. And of course I never said or implied that anyone should pay my mortgage for me.

    These are uncertain times, there is a lot for reasonable people to disagree about, and I happen to disagree with educated, employed, solvent, prudent people who choose to position themselves as victims.

    I wish everyone the best.

  • Report this Comment On September 25, 2008, at 9:43 PM, eldetorre wrote:

    "I also said not "everyone" losing their home made reckless decisions."

    But you implied that we did. The facts, should you decide to seek them out, tell us that an inordinate number of no doc sub prime alt a loans were made.

    These are the types of loans we are railing against and most of them fell into the reckless decision category.

    If you enter into any financial arrangement where you have to guarantee that your income will follow a constant upward trajectory it is risky.

    It is a risk which you assume. We may argue about whether it was a reasonable risk. But that is not the point. No one should be expected to assist you when things don't work out as planned.

    The solvent and prudent most certainly ARE victims. They are being asked to pay for others mistakes, lose value of their hard won savings and, as a bonus, to forego the chance to responsibly purchase a decent home at a decent price.

    Imagine a thief pleading in court: But your honor, I had a gambling debt to pay, it was only 2 to 1 odds and he really won't miss that money..."

  • Report this Comment On September 25, 2008, at 9:58 PM, j3calvinator wrote:

    Fellow Well-Intended Fools,

    My house is paid for; I have zero debt; sensible auto, home and life insurance policies, all paid up to date. I use my credit card extensively and have paid it off in full every single month for forty years. I'm a million-miler in my credit card's airline policy from my purchases; none from flying. The only Fools I've ever listen were Motley and I have a million dollars-worth of securities purchased with their recommendations over the past few years.

    What's this 'bailout' going to do for my Foolish investments? Well, let me look next door: It will save my neighbor and his, save my neighborhood, save my City and save most-everyone's 401k. It will allow my neighbor's children to borrow enough money to go to college so they can run this country for all of us someday--sooner rather than (too much) later.

    My guess is that the nations 401k's will be Billions of dollars lighter by tomorrow evening, thus extending my neighbor's retirement into his seventies... meaning s/he won't be traveling, buying a car or sending Jr. to college... none of this was his 'fault'; he's not a Fool either.~~~

    This Republican never though I'd EVER say this, but LISTEN TO BILL CLINTON and pass the legislation tomorrow MORNING.

  • Report this Comment On September 25, 2008, at 10:25 PM, mmkfool wrote:

    Bravo for a brilliant article! It was right on the money.

    I'm 37, and very, very recently just bought my first home. I didn't shrivel up like a prune from renting all those years, lived below my means, saved, and waited for the market to come to me. Bought a lovely home and put down about %32 - and STILL had lots of liquid assets left over (the wife and I didn't want to buy a house outright).

    And now I'm pissed that I'm expected to bail out bozos who were too stupid to stop themselves from stepping in front of a train. Well, fine - but here's the quid pro quo: Eliminate my capital gains taxes on my investments. Or give me equity in the bailout. You want my help? Give me something in return.

  • Report this Comment On September 25, 2008, at 10:26 PM, TheGarcipian wrote:

    Alyce, you've hit the nail on the head exactly. Easy money, cheap credit and lax regulations in the finance industry (repealed with the Gramm-Leigh-Bliley Act of November 1999; yeah, that same Phil Gramm!) all combined to inflate air into this bubble. People fleeing the dot com fallout plowed their money into housing, builders, consumer debt, debt, debt, and more debt. We have a horrific savings rate (not that the interest rates are helping, as you pointed out), and it is precisely this consumer-driven, spend or buy-on-credit mentality that has kept the economy afloat. We should have experienced a much deeper recession than we did in 2002-2003, but the easy/cheap money kept half of it at bay. Now, we're halfway into the real recession, the DJIA having fallen 22% since the high 50 weeks ago, but we're not done yet. We will see the DJIA in the 9000's, and possibly into the 8500 range, before all of this mess is finally past us. We should have passed this kidney stone as part of the normal boom-n-bust business cycle about 6 years ago, but now, with the excesses granted via cheap money and mountains of debt, that stone has calcified into an even larger ball of pain. Passing it will be difficult. Liquidity is not the problem here; trust is. Trust between credit markets and finance people, trust between borrower and lender. Like the Great Depression, the longer we fail to address the trust issues (with better regulation and stipulations) and pretend the problem is all about liquidity (which is what got us into this mess in the first place!), the longer and more painfully drawn out this "kidney stone" will be to pass.

  • Report this Comment On September 25, 2008, at 10:32 PM, byhycelo wrote:

    Right on, Alyce, this is one of the better reactions I've seen. By the way, I won't be contacting my representatives to encourage backing the bailout. Remember Matthew Emmert? He sent out a bulletin yesterday, backing the bailout, that actually has me thinking about cancelling my subscription to his newsletter. Keep up the good work, Alyce. We need balance. Aloha, byhycelo

  • Report this Comment On September 25, 2008, at 10:34 PM, TheGarcipian wrote:

    If you're at all interested in learning a bit about the start of this bubble, I modestly suggest you check out my blog entry here:

    http://caps.fool.com/Blogs/ViewPost.aspx?bpid=87606&t=01...

    Complete with links to other sources, it talks briefly about the GLBA of 1999, and the Glass-Steagall Act of 1933, which was partially and critically gutted by Phil Gramm and his cronies with passage of the GLBA. Reinstituting these critical measures (strongly opposed by the banking lobbyists) will go a long way to preventing these sort of shenanigans with liar loans, 110+% LTV loans, sub-prime & Alt-A over-reachings, etc.

    Cheers and Fool On!

    --Gar

  • Report this Comment On September 25, 2008, at 11:44 PM, keddie1 wrote:

    While I enjoyed this article, it hints at the notion that we are all responsible.... and I've heard Paulson say that several times.... Bubbles are usually created, expanded, and promoted by a select few... and... this wasn't a bubble....this was negligence.... When real estate agents talk property up.. at least you can see the property.... in this case the items that are at the center of this controversy are not quite so tangible..... ya .. in theory the items are based on tangible mortgages... but they were so wrapped that it is hard to tell what was in the packages..... but if you are a broker/agent or whatever who buys and sells this stuff... don't you have an obligate to properly value it....

    I get the point that lots of minor economic disastors happen without any relief for the participants....

    So why are we helping these firms? Why not set up a agency that extends mortgage credit .... hmmm... wasn't that called FHA......

    I'm completely lost with the whole FEAR MUNGGERING and Chicken Little Thinking behind this whole Paulson/Bernaky approach.....

    sorry... I just don't get it....

    PS.... 1986 was some pretty bad times.... these times don't even approach what was happening in 1986 ... so I don't get the rush here....

    Or is it that George now has to eternally wreck the economy as his last hurrah!

  • Report this Comment On September 26, 2008, at 12:31 AM, guntherbadoo wrote:

    There is not any rush to formalize a plan. The markets have settled to a great extent over the past few months, and will not be reacting in any large and catastrophic way in the next week, although one could make the case that something is needed before congress adjourns. The Bush urgency is as fabricated in this case as it was for the Iraq war and the Patriot act. Their point is to slip a program through with minimal scrutiny. They must not be allowed to get away with this a third time.

    A rational structure for a bailout would look like one taking place entirely among private entities.

    The government (i.e., the taxpayers) will buy shares of stock in a company that desires assistance, taking a clear majority position or not granting any assistance. No middle ground. The shares must be sold at the price at the time that the deal is signed, coming from the corporation's own portfolio as much as possible, and from corporate officers. In return, the Govt gets dividends, the ability to hire and fire executives and set their pay levels, other forms of compensation, and termination packages (which should be commensurate with their performance and profitability of the company), and the duration of the period of assistance, as well as participate in and review the overall governance of the business and review financial documents. At the end of this period, the company is required to buy the shares back at the market price at that time.

  • Report this Comment On September 26, 2008, at 12:52 AM, sicog wrote:

    Hello Alyce et all,

    Consider this little fable. Once upon a time there was a nice couple who had four children (one living full time with them), lived in a modest two bedroom, one bath home, did not carry credit debt, paid the bills, paid the monthly child support to his ex-wife, owned late-model sensible vehicles outright, ran a modest landscaping business, and went to work every day. Then...

    the wife's sister died at 38 leaving her four children orphans so the couple took them in. Four months later the husband's 14 year old son died. A month after that the wife was laid off from her job as a Project Assistant with a construction company (for obvious reasons) and a month after that their son was born. Now we arrive at September 2008 and the nice couple is in serious danger of losing their home, despite getting a perfectly sensible fixed rate loan. They are drowning in credit card debt because the diaper and grocery money had to come from somewhere and since it has not even been a YEAR since they experienced these rather catastrophic personal losses they are still shell-shocked and grief stricken. This couple buys clothes second hand, does not own any TV at all and have not had a vacation beyond their own state in years. Now, their commander in chief is telling them that he wants them to help get the country back on its feet and if they don't their will be a catastrophe! I know that there were a lot of shady deals going down in our "free" markets, I know that we have been fighting the wrong fight ever since the collective mass hysteria of 9-11 allowed a swindler and liar to hijack our ideals, our economy, and our good name, and I KNOW that we are at a crossroads now. This is an opportunity for Americans to truly stand up and tell our government how we want our country to be, how we want to reach out to the rest of the world, and where we want to go for the future. Sometimes even when you think you are doing all the "right" things terrible things happen. I just hope that when you need them all YOUR neighbors haven't moved to an apartment complex.

  • Report this Comment On September 26, 2008, at 1:38 AM, Atrossity wrote:

    Sicog,

    Your touching anecdote’s conclusion reminds me of the Niemöller poem that goes something like this, excuse me if I don’t get the ending right. ;)

    "In Germany, they came first for the Communists, And I didn’t speak up because I wasn’t a Communist;

    And then they came for the trade unionists, And I didn’t speak up because I wasn’t a trade unionist;

    And then they came for the Jews, And I didn’t speak up because I wasn’t a Jew;

    And then . . . they came for me . . . And by that time there was no one left to speak up… because they were all living in apartment complexes."

  • Report this Comment On September 26, 2008, at 1:50 AM, AtWork wrote:

    Thank you Alcye for this article,

    My wife and I are like your "victims"; we work, we rent and save. We would love to buy a house, but the prices are ridiculous. We see prices for modest homes and say "How can people afford that?!" Well, now I know... they can't. Or they spend all their time working and don't enjoy the home. We live beneath our means, and the sky-rocketing home prices of the last decade, fueled by bubbles with no corrections, make us continue to rent when we should have a home by now. I do believe there is an artificial floor in home prices, but I dont think the Congress will allow for a correction. They'll keep bailing, they've been doing it for 20 years. I think bailouts cover the incompetence and ignorance of all involved. I guess we can keep bailing, but I wonder what the real cost will be, and when. Anyway, we're at the point where we can afford something, and will probably go ahead and buy a home in the next 6 months or so, hoping that a correction doesn't force itself on us all.

  • Report this Comment On September 26, 2008, at 2:10 AM, Allanby wrote:

    I agree with your general points, Ms. Lomax, but may I suggest some improvements to your argument?

    First, the United States is, in fact, a nation of savers. Real estate bubbles notwithstanding, real property assets are not counted as "savings" in the typically-referenced numbers. This is silly. For that matter, neither are IRAs or 401(k) accounts. If real estate and retirement accounts aren't "savings," I am not sure I know what are! The oft-ballyhooed figures generally refer only to money in bank savings accounts. Insulting Americans who have worked to build meaningful equity in their homes, have a 401(k) or 403(b) at their job, and regularly contribute to an IRA and 529-plan by accusing them of not saving due to their low bank account balances achieves little in advancing your cause.

    Second, overstating the indebtedness of the United States as a whole is specious. Although it is most certainly a large amount, as a percentage of GDP, our national indebtedness is actually lower than it was in the virtuous fifties or whenever the good,old days were. To whit, as Arthur Laffer put it some years back, if each American family had an income of $50,000 and concurrently held a $100,000 mortgage on their home, would that be so bad? Ballpark, that is what the GDP is versus the national debt on a per capita basis.

    Third, the sarcastic description of Wall Streeters and "individuals" as geniuses misses the true root cause of our current mess. It was actually racially-motivated social engineering that is primarily to blame. The Carter-era Community Reinvestment Act, supercharged by Clinton administration-era policy changes, lies at the heart of the no money down, no-doc, exotic mortgage products that were insatiably consumed by Fannie Mae and Freddie Mac. Fannie was conveniently run by former Clinton aide Franklin Raines, recent Obama VP search committee member Jim Johnson, and former Clinton Justice Department official Jamie Gorelick, and contributed mightily to Senators Dodd, Obama, Clinton, and Kerry, among others. Naturally, the Republicans were not immune to all the money sloshing about, and did too little to reign in the out-of-control quasi-governmental agencies (Fannie Mae was fined $400 million in 2004 for "Enron-style accounting"), but on the whole, it is a wonder that President Bush, Secretary Paulson, and Chairman Bernanke are able to keep a straight face when Democrats accuse them of mismanaging the process! There is an old saying about people who live in glass houses . . .

    Which brings us back to the original point: you are absolutely correct that many responsible and thrifty folks are in danger of being stampeded. But these folks are responsible AND thrifty. Are not these virtues their own reward? On some level, rent, own, or mooch, we are all just "renting" our space here on earth. In the shorter term, should rent be tax deductible? Perhaps. But "ownership" has its own pitfalls: non-tax deductible expenses like closing costs, PMI, maintenance, property taxes, insurance, etc.

    60% of Americans own their homes. In a democracy, it follows that this majority would generally support favorable tax treatment for themselves. The other 40% have other advantages: no long term commitments, not having to fix the boiler at 3:00am, the freedom to move to nicer quarters every year or two, and often a smaller monthly spend. At the end of the day, I say, "Different strokes for different folks!"

    Is the "bailout" expensive? Yes. It is also roughly equivalent to three years worth of interest payments on our national debt, assuming all distressed mortgages purchased are completely worthless. More likely, the "cost" will be substantially less.

    Reforming Social Security and especially Medicare should be our true national priorities. Should they ever become so, please let me know. Thanks!

  • Report this Comment On September 26, 2008, at 8:16 AM, kengg wrote:

    Great article. Thank you. The writing has been on the wall for a long time. I am no financial genius, but I sold my expensive house 4 years ago and downsized to a townhouse. I know other people who did the same - also, no geniuses.

    I see no relief from this $700 billion other than to save some "Wall Street geniuses" who knew they were playing with fire. The idea seems to be to sell their bad investments to the taxpayer. It is going to be painful, but we need to get the economy get back in equillibrium not add further to our debtor status.

  • Report this Comment On September 26, 2008, at 8:49 AM, viking2475 wrote:

    Sorry, but there are still mortgage provisions to be worked out. The Dems want to add to this package to cover the homeowners and protect them; even the ones who cannot afford their homes. That should not be done. The "bailout" is actually buying those mortgages at pennies on the dollar and will have value as the mortgages are dealt with one at a time. They will be worth something and the Government will get money back. The goal should be for Congress not to blow it, but put the cash back into Social Security.

  • Report this Comment On September 26, 2008, at 9:54 AM, dcrednek wrote:

    Thank you, thank you, thank you. FINALLY someone writing an article in support of the silent, stable, and financially astute majority! Hooray for saving! Hooray for living within one's means! Hooray for denial of instant gratification! The current financial market and credit contraction is precisely the sort of creative destruction that we need in order to rid ourselves of unhealthy practices and bad decisions. Let the fires of financial irresponsibility burn themselves out.

  • Report this Comment On September 26, 2008, at 10:27 AM, joshtech2900 wrote:

    Alyce you knocked that one out of the park. Why do we not hear anything remotely like this coming for Washington? Have we lost our collective sanity? Where will we end up if we all decided that the only way to get ahead is to participate in the next bubble - whatever that may be?

  • Report this Comment On September 26, 2008, at 11:07 AM, wilbyr wrote:

    I think we should remember where this problem was swept under the rug.

    The facts mam, just the facts....

    As Chairman of the House Financial Services Committee, Barney Frank "sits at the center of power".[27] Thomas Mann, a senior fellow at the Brookings Institution, was quoted as saying, "He is one of the giants of Congress, a real legislator," in his new role.[27]

    In 2003, Frank opposed Bush administration and Congressional Republican efforts for the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis.[28] Under the plan a new agency would have been created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry. "These two entities, Fannie Mae and Freddie Mac, are not facing any kind of financial crisis," Frank said. He added, "The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing."[28]

    Source Wikipedia

    Whenever we inject socialistic policy into capitalism we run these risks.

  • Report this Comment On September 26, 2008, at 11:26 AM, makecents2me wrote:

    Maybe instead of the goverment bailing out these banks, those of us who have have dutifully been paying our mortgages for years can be bankers for once. Hey if Buffet gets a 10-15% price break and 10% dividends/year with special treatment on preffered Goldman stock then why not offer those of us who have mortgages 10% right now to just pay our mortgages down? I'd do it. 10% one time then they would be capitalized. They would also not burden tax payers with their huge losses on subprime loans. They get to ride them out and enjoy the fruits of their labors. It also doesn't cause more properties to hit the market. I would have paid my mortgage down years ago, but the government keeps giving me tax breaks to keep it around. Hey Banks!! Want a MONEY! How about 10% one time fee? THat is a better deal than Buffet is giving Goldman.

    How many more fiscally conservative people are sitting on mortgages they could pay down if they were asked politely?

  • Report this Comment On September 26, 2008, at 1:27 PM, JoeDeanPhipps wrote:

    Thank you, Alyce. Just about perfect. Coming from the "older generation"; having been brought up in a life of honesty, integrity, doing right, and doing good; and having had a couple of careers as a banker and CFO believing in, and practicing, similar standards, our recent developments...and what led to them...makes me almost literally ill...as it does millions of others. The "smartest guys in the room" took over the ship. Unfortunately, the smartest and most ambitious of those who succeeded us old timers in business, finance and corporate America...at least those who were in leadership roles in the largest financial firms and many of the largest corporations...were also among the most greedy, and the least principled. They also evidenced the least statesmanship...and real leadership skill. As we know, in our society in general, which also plays out in much of our financial and corporate leadership, we have lost sight of those principles and that leadership...that statesmanship. The real question facing us now is how do we recover, and hopefully reinstate, some of those principles, that integrity, that sound statesmanship...in the future. I don't know exactly what is the road back, and how to design and build that road,...and I know that we do have to go through the pain and suffering of constructing those roads, and living on/in them until we have a semblance of integrity and decency back in our financial/corporate system...but it is abundantly clear that we need to build a system of sanity in our governance. Whatever checks and balances and controls are needed to get our system back to APPROPRIATE levels of leverage, risk taking, executive compensation for success and failure, etc., MUST be put in place. As a nation and as a government...WE...must, collectively, learn from this calamity and we cannot...we must not...continue to allow the smartest guys in the room...the most ambitious and greedy and thoughtless...to shape entire markets and our basic financial and corporate governance systems. Whatever regulations and controls we put in place MUST be truly transparent; have teeth; control the ability of financial institutions and similar entities (hedge funds and their ilk) to repeat the happening of our current financial disaster because of the few, the greediest, the least able. These new controls and regs must allow for the appropriate punishment of those who would create avenues (products, systems, securities, etc.) to threaten our financial system. We MUST favor, allow to flourish and reward the savers; the honest; trhe hard workers; the true builders; and the leaders-with-integrity. As we set up a system of balance and controls that encourages inventiveness, growth in employment and opportunity for all, etc., it must also encourage and APPROPRIATELY reward real growth and success and concomitant honesty, integrity and respect for all...REAL statesmanship and leadership.

  • Report this Comment On September 26, 2008, at 1:48 PM, mischlingemann wrote:

    Are we thinking the bailout is about economic growth? I don't think it has anything to do w/ economic growth. Until the taxpayers actually benefit without inflation and without some sloppy/irresponsible/corrupt politican and some greedy Wall Street banker asking for his/her rear end to be covered, we won't realize anything long lasting and the bailout will fail.

    How about getting rid of the capital gains tax for everybody as part of a "bailout"? I think this would be a very positive step in the right direction toward healthy growth which is what we need.

  • Report this Comment On September 26, 2008, at 1:54 PM, mischlingemann wrote:

    And another thing, why shouldn't Wall Street pay for this? The way it looks, they aren't going to...you and I will.

  • Report this Comment On September 26, 2008, at 2:28 PM, loflyr wrote:

    The more I think about this bail out the less I like it. I think it's just another "mushroom cloud" scenario being foisted on us by this administration. Until the excesses are out of the system, no real growth can take place. My questions are, why are the democrats being so cooperative? Why is all the bailout money going to the "trickle downers?" I plan to vote for the democratic presidential ticket this time, but I almost hope the republicans nix the bailout proposal.

  • Report this Comment On September 26, 2008, at 3:06 PM, BayouStocker wrote:

    Forgive my ignorance. I am only a fool from the bayou state. It seems this bailout plan is only going to help those that got us in this mess in the first place. I feel like the plan is for the banks to unload the bad investments (at full price, mind you!) and once the dust settles, buy them back from the gov't for pennies on the dollar. That means the taxpayers will lose billions. Whether they deserve it or not, people will still lose their houses because they will still be expected to pay their mortgages they can no longer afford. If this is the senario, why can't the homeowers by back their mortgages for pennies on the dollar, use the $700 billion to subsidized those loans. Let the banks who didn't get caught up in the sub-prime fiasco refinance these gov't secured loans. The only ones who lose on this scenario would be the lenders who created this mess, but they wouldn't go belly-up, just take a huge loss on some risky investments (and even if they did, isn't that the nature of the business?)

  • Report this Comment On September 26, 2008, at 4:50 PM, stagnes wrote:

    I feel that this article was terrific and explained quite simply what is happening in the markets. The fear and greed of the nation is propelling the markets today. We need a little common sense and fiscal responsibility back, please. The taxpayers go like lambs to the politicians slaughter-house. No thanks.

  • Report this Comment On September 26, 2008, at 5:28 PM, inflamesdev wrote:

    What worries me the most is that how these investment banks are designed to socialize their operating costs and huge risks where as privatize profit. It's sad they continue to operate in such a non-democratic manner and yet no one seems to be complaining about it.

  • Report this Comment On September 26, 2008, at 7:14 PM, BornDaily wrote:

    Fear and greed may well be the common currency of this Gilded Age. I share the feelings of discomfort with the $700 B bailout, and ask myself how did it all come to this? Where has all the short-sightedness in the market come from, that is, the frenzy for short-term gains over long-term development? Could this be an expression of the extremely short investment time horizons of an aging population reaching out for fabulous rates of return unmindful of the ever-increasing risks?

    A fellow geezer recently explained why he had to sell his Berkshire-H shares although he appreciated the no-frills mgt compensation exemplified by Mr. Buffet: "Heck, I need the dividends!"

    We only reap what we sow.

  • Report this Comment On September 26, 2008, at 7:26 PM, tax482 wrote:

    Talk of the bail-out has done more to "freeze" the credit market then the fall of AIG. Why would anyone consider buying / selling "toxic" paper or let the free market work to do its darwinian duty when the Marx brothers are there to bail out the creators of the toxic debt? Let's add another $700,000,000,000,000 to the national debt (I can only surmise that we will be left holding the empty bag when no one else will buy the stuff) to the future medicare / medicade debt projected to grow to over 20% of GDP over the next 15 years. More frightening - what supported the US economy for the past 2 years? All the spending by those who took out the mortgages and will never pay them back. So, we will have higher taxes to bail out the banks, higher energy prices because of a lower dollar and higher energy demands, higher taxes to pay for medicare / medicade, and fewer people stealing from the banks (too harsh, taking money from the bank's tip jar left open by the door) to fund what they feel they desirve rather then work for it. Let's take the pain that no one has tried to quantify or explain other then we have to because otherwise the world will end because otherwise the word will end (circular?), and move on. Painful over the short run, runious for some (so, claw back the Wall Street bonuses to all who were in any-way involved in the toxic debt and use that for the innocent homeowners, if you can find any). Lose you home because you bit off more then you could chew - sorry don't see why I should pay for that. Have your bonus taken away for being part of the toxic debt, sorry, don't cry on my sholder.

    This is a bail-out of those who stole from all sides. Not an honest face in the crowd. Ok, it will be some hard times for all, but no need to make mine harder thenit would otherwise be w/o the bail-out.

    Rushed solutions w/o careful analysis to protect the way of life of a few - ???

  • Report this Comment On September 26, 2008, at 8:07 PM, jmsralnc wrote:

    Number one, thanks for the article. Number two, great, very interesting comments that attempt to rationally explain what is going on. The comments seem to present all sides without hyperbole or drama--can any of us say we can get that from our commercial, or perhaps even public, media?

    Well... I imagine I could add a lot more, but I won't. One thing I will say is that due to some of the economic volatility of the past 7 years I have had to learn to do without. At first it was just some things; recently it has been just about everything--right down to buying generic vs. name brand supplies and groceries--just to hang on to a modest home. Things are gradually getting better, for which I am grateful. I am more grateful for what I have learned, and hope I use the experience wisely.

    The funny thing is, a lot of the stuff I gave up, particularly things like gadgets, and cable TV, I obviouly just don't or didn't miss.

    This crisis (these crises?) will probably be sorted out and managed by people who very possibly have no business doing it. Perhaps though, these crises might effect a sea change that, for a time, scours away the smutty greed and incompetence to which we all seem to have become accustomed, and, at least as spectators, addicted.

    Maybe the best thing to do is to just keep one's own counsel--informed, rational, and stubbornly vigilant.

  • Report this Comment On September 26, 2008, at 10:58 PM, Bullstothewall wrote:

    Use the link below to email your senators and representative and tell them to vote NO CORPORATE WELFARE "BAIL OUT" AT TAXPAYER EXPENSE!

    http://congressorg.capwiz.com/congressorg/issues/alert/?aler...

  • Report this Comment On September 26, 2008, at 11:31 PM, patient32 wrote:

    If the banks need money today....

    I will pay off my modest mortgage today for 30 to 50 cents on the dollar.

  • Report this Comment On September 27, 2008, at 6:22 AM, FoolsDreams wrote:

    If the government wants to do a bail-out of these big financial institutes, shouldn't they ask us? It is an issue that should be put before us, the people, the taxpayers, of this country, not left up to the government to decide. We should be allowed to vote yes or no, since it is our money they plan on taking from us to do this bail-out. Once again, as usual, our government forgets who their bosses are, and once again, we will let them forget. Like puppets, we will hand over our money for them to use in a scheme that most of us disagree with. We need to let "Big" business learn, the hard way, like most of us have, that they have only themselves to count on and they should conduct their business dealings accordingly. But, that will not happen....our government will do as they see fit, even if the taxpayers disagree with it, and we will let them do it....again....and again....and again. When they put another tax upon the middle class to pay for this bail-out, and they will.......I will go under. So will many of my neighbors and yours.....and maybe even you. Who will bail us out?? Not Uncle Sam!! He won't even see us living under the bridge nor will he care. The only way he will see or hear us is when we come out from under our bridge and stand together directly in front of him and yell "NO" at the top of our collective voice. Maybe we should do that, just once even, to see how it feels, and to see if he pays attention then. But this won't happen either. We, as the middle class, have become so apathetic over the years that we let the people that supposedly work for us, but who, in reality, work for themselves only, dictate to us as to what we can or cannot do with our own money and with our own country. We fought a war once, remember?, over this kind of injustice. However, today, we cannot rally together long enough to protest the price of gas, by all agreeing not to buy it for ONE day only, much less band together long enough to tell our government NO on this bail-out scheme. We will just meekly hand over our hard owned dollars to them and mumble behind their backs, and let them save the financial institutions that caused this mess in the first place, while we quietly go live under the bridge where they put us. We will curse and denounce them under our breath, but we will let them keep on taking from us until we have no more to give, for we have let them become "our boss", we no longer have a say in our country, we have given it up. Our government does not work for us, we work for them, and what is that word we use for the leaders of countries that do not have a democracy? Oh, yeah, I think we called them "Dictators"!!! Well, Middle Class America..............Welcome Home!

  • Report this Comment On September 27, 2008, at 9:04 AM, jwoo100 wrote:

    I have a new favorite commentator from the Fool.

  • Report this Comment On September 27, 2008, at 1:29 PM, Misstrial wrote:

    The question is not whether or not to reimburse Chinese investors.

    The problem is in reimbursing the Chinese

    GOVERNMENT which controls nuclear weapons.

    Its not that simple. Or, maybe it is.

  • Report this Comment On September 27, 2008, at 9:18 PM, realitycheck13 wrote:

    take a look at this article opposing the bailout titled.

    www.mortgagebreakdown.com/news-archive.aspx

  • Report this Comment On September 28, 2008, at 2:44 AM, shakeOEFOIF wrote:

    If I were China I would request that we change our name to the United States Republic of China. I mean, we don't actually own the US.

  • Report this Comment On September 28, 2008, at 7:57 AM, cggfool wrote:

    Bravo Ms. Lomax! I wonder in fact if there is anyone in Wahington who speaks for the people who are trying to live reasonably, save reasonably, buy reasonably. I read all comments and find them all to be illuminating of the different points of view on the subject. I have no sympathy for home buyers who over borrowed to buy homes at twice what I can afford, earning only half my salary and now have to face moving into a decent apartment they can truly afford. I am angry with the banks' lack of self-control, with golden parachutes given out for incompetence when a CEO is laid off.

    But how is it that J.P. Morgan can buy out Bears and Stearn? Could it be that J.P. Morgan is a well run bank? Could it be that the failing banks deserve to fail due to bad decision making? Are all banks failing? No. Why then shoud we bail out the ones that are poorly run?

    Whatever Congress decides to do, I will be very unhappy if the greedy go unpunished, the incompetents who created this mess aren't recoginized , and the honest, hard-working, hard-saving, wise-spending citizen gets the shaft. It would be nice if only the people responsible for this mess paid their responsible part of it - but that will never happen, too many fingers in the pie.

    Obviously there will be much finger pointing, and both candidates are saying "I told you so" - both neither one really DID anything about it. Other issues and campaigning took the forefront.

    I am not well versed in economics, but as a 401k holder nearing retirement, I felt qualified to add something to the thread. And speaking of the 401k's - what to do now??? Thanks for reading!

  • Report this Comment On September 28, 2008, at 3:24 PM, noahchilly wrote:

    We're screwed.

  • Report this Comment On September 28, 2008, at 6:35 PM, Acrossky wrote:

    A Climber's take on the Bailout

    The trail starts out broad and well marked as you make your way through the forest. You soon climb out of the trees and the trail disappears into a jumble of rocks at the base of the mountain.

    You scan the rocky slope above you and trace a path up the ridge that seems like the best route to the summit. The going is easy at the beginning but as you climb higher the terrain gets steeper and you begin to look for an occasional handhold to pull yourself up. However the summit is closer now and you feel certain the worst is behind you.

    You come to what appears to be a small bluff and so focussed are you on your goal that you immediately jam you boot in a crevasse and pull yourself up with one hand hold and then another. And in that moment, not more than 20' off the ground, you cross a threshold where to go back becomes more risky than to continue on. Your heart begins to beat a little faster now but you know that the top cannot be far off and the cliff is easy to scale. And so you continue to scramble higher until the ground falls away beneath your feet and there is no turning back.

    The hard granite gives way to something less solid and the hand holds become increasingly smaller. You feel that your place on the mountain is becoming more precarious but you climb on. And then a dreaded prospect sends and new dose of adreneline through your veins. Having come so far, you cannot find a way to go any further. You reach out with your hand, grasping for something, anything that will allow you to pull yourself up further and come to the awful realization that the next hand hold is beyond your grasp. You lean into the cliff as closely as you can and focus on that tiny hand grip and that small part of your boot jammed into the cliff face. You look up but see nothing but smooth rock above you and below you there is nothing but a great vast empty space.

    Your heart is racing now and so is your mind! Your fingers start to cramp and the muscles in the back of your legs begin to quiver under the strain. Sweat begins to run down your forehead and off the end of your nose. In that awful moment, time seems to stand still. You hear the cry of an eagle as it soars below you and wish that you could have its wings. Then you could fly away and be at rest! You wish that you'd never started on this journey but the steps you took to get to this point can't be undone. How much easier it would have been to go back down when you'd had the chance! Yes. it is you, an experience mountaineer now stuck on this precipice like a child stuck in a tree!

    All that remains now is the sound of the wind as it eddies and swirls through the crevasses in the rock. The wind seems to mimic your groans as you struggle to hang on. But just when it seems that all hope is gone, and you are about to lose your grip on life itself, a cheerful voice echoes across the valley.

    If you can force your heart and nerve and sinew to serve their turn long after they are gone and so hold on when there is nothing in you except the will which says to them, Hold on! - Kipling

  • Report this Comment On September 28, 2008, at 9:18 PM, ARII2009 wrote:

    Thank you for a great article Ms. Lomax. It is interesting that in all of the articles and tv/radio commentary over the last week detailing how disasterous our position will be without a huge bailout of some kind, all the solutions involve taxpayers coughing up more money and "taking one" for the less responsilble among us. Not once in the politician class commentary, which was remarkably bipartisan, did anyone suggest that the situation was so dire that we should consider cutting the size of government to cover this critical need. How many useless government bueaucracies would we need to shut down to save a pawltry $700 billion. Infact, the solutions seem to point to the creation of yet another government agency to oversee the same things that existing government agencies already failed to oversee leading us to this crisis.

  • Report this Comment On September 28, 2008, at 9:19 PM, g2w wrote:

    Nationalize thirty percent of the National economy? We're about twenty years late but can anyone say socialism?

    Viva President Chavez- I think I'm going to puke

  • Report this Comment On September 29, 2008, at 7:12 AM, realitycheck13 wrote:

    GREAT ARTICLE BELOW

    A Monday to Remember!

    The bailout is going to cost all of us and our children an amazing amount of money in the future. We as a country just can not afford to continue adding to a national deficit of what will be more than $11 Trillion by the end of this year.

    We fully understand the implications of no bailout. It is pretty much guaranteeing at this point that we and the rest of the world will drop into a 1930's type....

    continued at -

    www.mortgagebreakdown.com

  • Report this Comment On September 29, 2008, at 3:30 PM, lluluien wrote:

    Here is the roll call vote from the House for resolution 3997 - the "Bailout". Now you can find out whether or not you need to call your Representative to tell him he's being voted out if he votes in favor of this again when it comes up for the next try. I already called Ike Skelton to tell him I'm voting for his opponent in the next election:

    http://clerk.house.gov/evs/2008/roll674.xml

  • Report this Comment On September 29, 2008, at 3:50 PM, skat5 wrote:

    Will we drop into depression if there is no bailout? Will we drop into a depression even if this particular bailout comes to happen? If the depression happens with a bailout, will we be in more trouble than if the depression happens without it? I am struck by the hesitancy of all these proponents to firmly state that if this bailout commitment is made, the economy will not suffer a severe downturn anyway. If that happens, what have we done but dig a deeper hole while making some rich people richer?

    The author is right about the attitude of the banks towards savers. You know what the credit card pushers call those who pay off their balance each month, thereby avoiding their usurious interest rates? Deadbeats. That used to mean someone who did not pay their bills but now it means, to these cretins of the banking world, someone who does. We have passed through the looking glass into Wonderland, where it takes all the running you can do to stay in the same place, where the 'patriotic' thing to do is make the 'sacrifice' of going to mall to 'charge it' in order to 'stimulate' the economy.

    And now we have the Orwellian double-think that the economy is mostly driven by the consumer and yet the consumer should get used to getting by with less. Look to Japan, and prepare yourself for an 'economic sentence' that is likely to last 20 years.

    As one who saved the 20 percent downpayment for a home, therby avoiding the private mortgage insurance, and who has never bought a car less than five years old, I feel the same lack of sympathy I had for those who did not study when I was in school.

  • Report this Comment On September 29, 2008, at 5:05 PM, NeedGoldStandard wrote:

    Look up your "Representative" and if they voted for the bailout (as did mine in NC), VOTE THEM OUT OF OFFICE!

    http://clerk.house.gov/evs/2008/roll674.xml

  • Report this Comment On September 29, 2008, at 5:41 PM, rbobala07 wrote:

    Lomax sums up the way I feel about our current financial predicament perfectly. The only good that can come out of this for those of us who have saved and not lived beyond our means on credit euphoria: it's buying time.

  • Report this Comment On September 29, 2008, at 5:42 PM, robertf36009 wrote:

    In 1977 PRES Jimmy carter and friends gave us the comunity reinvestment act which allowed people who coulden't afford to buy a house to get a mortgage. Bill clinton 's administration attached a turbo charger and made it mandatory for banks to issue very risky loans if they wished to transact business in a normal manner. Clever bankers avoided the risk by repackaging them and selling them off for a proffit. The practice became lucrative and greedy bankers couldn't get enough (FANNIE and FREDDIE executives). Then one day everyone figured out it was a shell game and no one wanted to play any more and our current crises began in ernest. Note that most local banks still have their lending windows open and well managed banks like Wells Fargo aren't suffering all that much. This article has hit the nail on the head the sky is not falling and the economy won't collaps if the "Bailout" dosn't progress faster than possible. Japan tried this trick with thier bubble and are still trying to recover eighteen years later. 1. Repeal the 1977 CRA and all of the mischief that followed it. 2. Reinstate the Glass-Steagull act in all of it's glory. 3. Reinstate the up-tick rule. 4. Pass legislation forbidding elected officials from participating in the markets including realestate while in office and for three years after leaving office. 5. reduce the capital gains and intrest account taxes to one tenth of one percent for a minimum of two years. 6. reduce corporate income tax rates to twenty percent.

  • Report this Comment On September 29, 2008, at 6:15 PM, ringokate wrote:

    Robert, you can't spell but I like your platform and you are my new write in candidate for President.....

  • Report this Comment On September 29, 2008, at 6:58 PM, gse46 wrote:

    I second that.....Robert for President 2013!! Got my vote.....

  • Report this Comment On September 29, 2008, at 9:51 PM, huggybunny wrote:

    This is a good article. It's easy to blame banks, but banks are like MTV and McDonalds - they are reflectors. They give people what they want. And apparently what people want is booty dancers, hamburgers and cheap credit.

  • Report this Comment On September 29, 2008, at 11:22 PM, sb101cu wrote:

    See the movie http://www.iousathemovie.com, where the bi-partisan law makers and bankers have given the prognosis if not the diagnosis of things to come. Wait till 2040, when the social security and medicare goes bust. The financial crisis of today,in USA,is just the TIP of the iceberg. It is an irony, that the family unit (in USA) over the last three decade has gone SMALLER and the houses have gone BIGGER. Something to think about...

    The world is getting "flatter", and USA is losing is technological edge in the information age. The number of PHD'S of native citizens in computer science is is getting smaller, and those foreigners who do earn their PHD'S here are going back home or to Europe. The " BRAIN DRAIN" is more important than the "FINANCIAL DRAIN" in the longer term perspective, as Adam Smith said in "The wealth of the Nations", it is the people, the quality of human capital that is COMPARATIVELY more important.

    I would love to hear the comments of others. Thanks

  • Report this Comment On September 29, 2008, at 11:23 PM, sb101cu wrote:

    See the movie http://www.iousathemovie.com, where the bi-partisan law makers and

    bankers have given the prognosis if not the diagnosis of things to come. Wait till 2040,

    when the social security and medicare goes bust. The financial crisis of today,in USA,is

    just the TIP of the iceberg. It is an irony, that the family unit (in USA) over the last three

    decade has gone SMALLER and the houses have gone BIGGER. Something to think

    about...

    The world is getting "flatter", and USA is losing is technological edge in the information

    age. The number of PHD'S of native citizens in computer science is is getting smaller,

    and those foreigners who do earn their PHD'S here are going back home or to Europe.

    The " BRAIN DRAIN" is more important than the "FINANCIAL DRAIN" in the longer term

    perspective, as Adam Smith said in "The wealth of the Nations", it is the people, the

    quality of human capital that is COMPARATIVELY more important than the financial and

    political capital. USA already has lost the political capital in the world, this is Bush's

    legacy

    I would love to hear the comments of others. Thanks

  • Report this Comment On September 30, 2008, at 9:23 AM, TheTazzBot wrote:

    Oh, wait, this just hit me!

    I recall the IRS rules on stock options.

    Say you 10,000 get stock options at par value of $1 each, That is considered $10k income. Now, say the company fails and the stock is now worthless. You still have to pay income taxes on the original amount.

    Wouldn't that be poetic justice if the executives at Lehman had to pay taxes on their stock options awarded as a bonus even after they became worthless? Some tax guru here should have the answer....

  • Report this Comment On September 30, 2008, at 10:58 AM, RRGY2K wrote:

    Bailout who? Yes it's an act of congress, and yes it puts the government in the business of creating markets for some mortgage backed securities. But these securities contain mostly good mortgages, generate respectable income, and might be pretty good investments as long as their owners can convince their auditors that there's a market value for them (foreclosures remain a small fraction of mortgages).

    It's been frustrating that the major media have not understood any of this well enough to explain it (it's about creating markets and therefore liquidity for these mortgage backed securities, so that bankers can keep banking and insurers can keep insuring, because if they don't, they can't keep extending your credit card balances, should somebody want to bring this home to the people of America). The fault is the failure of the executive branch to spell it out, of course, and also the loss of attention span for anything complicated on television.

    I believe that congress has received a message, but it's possible that we've elected people who can't understand any of this either. We live in interesting times, don't we?

  • Report this Comment On September 30, 2008, at 12:56 PM, dancingfish wrote:

    RRGY2K, Finally, someone I can agree with entirely.

    This legislation failed primarily because it was called a "bailout" and secondarily because no one trusts the current administration when it cries wolf. Alyce's article is not much more than a rambling rant; however, it does accurately reflect what the majority of people are feeling. People are very angry and rightly so.

    Well, it time to get over it and face reality. We have three choices. 1) Support this so-called "bailout" and try to stop the cascade of financial institution failures. Does anyone believe there are any more financial institutions that are too big to fail? 2) Allow the cascade of failures to continue and be forced to enact another resolution trust corporation entity to preserve people's savings. People will be less likely to call it a "bailout" when it involves their savings. 3) Continue to be stubornly outraged, allow the cascade of failures to continue, and allow people to lose their savings. I choose option 1.

  • Report this Comment On September 30, 2008, at 1:53 PM, nbar wrote:

    Thank you very much!!!! Finally someone is making some cense. I get so frustated reading about how the bailout is a good think and those that voted against it are cowards. Especially when no good reasoning is provided.

  • Report this Comment On September 30, 2008, at 5:07 PM, UVAFool wrote:

    When the Lockheed bail-out occurred in the 1970's that was supposed to be the "last and final" bailout......oh, except for the GM and Ford bailout of the '80's and the Savings and Loan bailout of the '90's.

    Let's stop the insanity. Stop the Bank CEO's, the Brokerage CEO's, the Wall Street CEO's who make bad bets with their companies and are never punished for them. Stop the politicians and the Washington insiders from doing anything in the name of "the greater good"

    I live below my means in Southern California in a rented apartment which, while a litte pricey, is the norm for this area. I have a good job and a 10 year old car. I

  • Report this Comment On September 30, 2008, at 5:07 PM, mjk0259 wrote:

    Now it's Tuesday. The world was supposed to collapse yesterday if this bill didn't pass. Instead we just had a drop in the stock market that , after today's bounceback , was no worse than the usual daily variation. Yesterday was probably hedge funds and their ilk unloading stuff they could sell easily after they realized the chance of dumping their toxic debt on taxpayers had gone down. I don't have any problem getting credit of any kind from my credit union for personal stuff or from my local bank for my business. They still only pay me 1% on checking and 3% on CD's. If there were people desperate for loans, they would be paying more and still making a profit. If our ruling class thinks we desperately need to bailout their comrades, let's finance it with a 1% a year wealth tax on wealth over $3 million and bring back a 90% income tax rate for incomes over $100 million. I don't think hedge fund managers will stop going to work when they can only make $100 million instead of a billion and it'll make those big CEO salaries stand out a lot more.

  • Report this Comment On September 30, 2008, at 8:51 PM, damasterwc wrote:

    Here is a very quick explanation of the $700 billion bailout within the context of the mechanics of our monetary and banking system:

    The taxpayers loan money to the banks. But the taxpayers do not have the money. So we have to borrow it from the banks to give it back to the banks. But the banks do not have the money to loan to the government. So they create it into existence (through a mechanism called fractional reserve) and then loan it to us, at interest, so we can then give it back to them.

    Confused?

    This is the system. This is the standard mechanism used to expand the money supply on a daily basis not a special one designed only for the "$700 billion" transaction. People will explain this to you in many different ways, but this is what it comes down to.

    The banks needed Congress' approval. Of course in this topsy turvy world, it is the banks which set the terms of the money they are borrowing from the taxpayers. And what do we get for this transaction? Long term debt enslavement of our country. We get to pay back to the banks trillions of dollars ($700 billion with compounded interest) and the banks give us their bad debt which they cull from everywhere in the world.

  • Report this Comment On September 30, 2008, at 9:44 PM, iPhoned wrote:

    Don't worry, wait until Uncle Scam and The Fraudulent Reserve have burned honest, hard working American taxpayers enough. Let's see where the dirty politicians get the tax money when there aren't enough people paying into the scheme altogether because of blatantly criminal acts against Americans!

    Remember what happened this year, when you're making out that check next April.

    Sign it "PAY TO: The United States Treasury" and just see what happens...

  • Report this Comment On September 30, 2008, at 10:39 PM, SmoothSolo wrote:

    The bailout is ridiculous. The fact that the US government can wrangle up 700 billion of tax payers money (or just print it like flyers) goes to show you that it's all a game that they are playing. It's because of this contrived fiat currency system that they are able to even consider a bailout and why the problem happened in the first place. Overvalued money in no value assets. The fed is perpetuating their own power and control. If they can get 700 billion for a bailout (or "rescue" plan) then why don't they just let it all crash down, liquidate these bad assets and let these wall street fat cats suffer. Sure there would be job loss and all that but it's not like the economy can't recover in due time. Use that 700 billion to stimulate the economy; create new jobs, improve our childrens educations, pay for college, replenish social security, PAY DOWN THE NATIONAL DEBT! Use that 700 billion to restart the the Great American Economy! I don't know how many times I need to repeat this =) They should have and still should listen to Ron Paul and his proponents, he speaks the truth! Goodluck to ya'll including myself cause we're gonna need it...

  • Report this Comment On October 01, 2008, at 12:08 AM, Robert685 wrote:

    VOTE NO! on the bail out.

    It is COMPLETE B.S. that credit is drying up. I know closing Attorney's and Mortgage brokers that are STILL writing business. Is it like the BOOM of years past, of course not, but CREDIT IS AVAILABLE AND IT'S COMPLETE B.S. TO HEAR OTHERWISE.

    The issue, is who will blink first.

    FOLKS, BANKS CANNOT EXIST without loaning money. THEY MUST loan money. RIght now they are playing a game of stare down--and who will blink first.

    I say we call them on their "Check" with a "CHECK MATE".

    IF anyone tells you this is "your job at risk" is COMPLETELY FULL OF IT!

    AND SO WHAT....This nation is in need of a good deep Recession./Depression.

    We're nothing but a bunch of FAT, SUV driving LAZY pigs at the trough.

    We use to be the Envy of the World but thanks to BUSH, we can't even get someone to help dig us out of Afghanistan, and now we're about to go to war with Paskistan.

    WE ARE SCREWED as a Nation if we continue with CORPORATE WELFARE....I say we wait to see who blinks first and f'em if they fail.

    Maybe what this country needs is a good dose of Project Mayhem, expect for dynamite---we're using the voice of refusing to pay jacked up 39% fee's on Credit Cards while Banks try to bend us over and take every penny from us.

  • Report this Comment On October 01, 2008, at 12:25 AM, SRVENK wrote:

    No matter what anyone says, I am convinced with each passing day that the bailout is a BIG mistake.

    There is a propaganda machine that is herding everyone to buy into this "plan".

    Just don't let it pass.

  • Report this Comment On October 01, 2008, at 12:29 AM, SRVENK wrote:

    Let the truth come out. All this appears to be a big cover up. Efforts should be placed in finding the truth not discussing solutions that are not quite addressing any true problems.

    All we heard of are symptoms, not problems.

  • Report this Comment On October 01, 2008, at 1:30 AM, foolish501 wrote:

    I agree that banks exist only to give loans. Even if the bailout bill does not pass, banks will still be able to give loans. Hey! Bank of America bought Merrill for $50 billion dollars just 10 days back. They know what they are doing.

    There are concerns of inflation, because there is a ton of money chasing goods. So there is no lack of money. The printing machines have been busy cranking out fiat money.

    Banks have their money stashed. They are just SCARED TO LEND IT OTHER BANKS, since they don’t know whether the other bank is SOLVENT. But banks will eagerly lend it to CONSUMERS with decent credit. After all it is hard for a consumer to run away, especially if you put up a decent downpayment.

    I learned some things the other day. There are 3 pillars of lending (CCC):

    C - Credit worthiness

    C - Capacity to pay back

    C - Collateral

    We are in this mess, because loans were made by the same banks to folks without sufficient vested interest in the collateral (no downpayment), low credit worthiness, low or no capacity to pay back.

    Even if the bailout bill does not pass, any consumer with good CCC will get a loan. The house prices will adjust based on interest rates.

    So, we should step back, take a breath, conduct congressional and senate hearing open to the airwaves, conduct townhall meetings, keep blogging, keep writing to your senator and congressman.

  • Report this Comment On October 01, 2008, at 2:03 AM, foolish501 wrote:

    On one of the blogs, one of the many item on an alternative senate bill is the following:

    ====

    Allow companies to carry back losses arising in tax years ending in 2007, 2008, or 2009 back five years, generating a tax refund and immediate capital.

    ====

    Wow! Now the banks are saying... Granted that these Mortgage Backed Securities are losses, and granted that the government is going to buy these waste paper securities, can you allow us to retro-actively re-distribute these losses over the past 5 years, and re-write our INCOME statements for the past 5 years, and since the INCOME shown will be lower, ask the US government (tax payer) to give us back the taxes we paid on the lowered profit TODAY, instead of claiming over the next N years.

    FINANCIAL ENGINEERING?

    Spread the word!

  • Report this Comment On October 01, 2008, at 10:15 AM, razormd wrote:

    What irritates me is that no one brings up the expenses associated with the war in Iraq...so far we've spent over 550 billion dollars there...total costs are estimated at TWO TRILLION dollars!!...and everyone is spooked over 700 billion we're spending on ourselves????...I don't get it!...also, there exists at least the possibility that proper management of the distressed assets being purchased could recover the 700 billion...that certainly won't be the case for the money flushed into that desert septic tank called Iraq.

  • Report this Comment On October 01, 2008, at 10:16 AM, Robert685 wrote:

    BY THE WAY.

    37% of Americans own their homes FREE AND CLEAR. So for MORE than 1/3 of America--if you don't plan on selling the next 18 months or so..NONE OF THIS AFFECTS YOU!!

    In addition, 94% of Americans pay their Mortgages ON TIME

    We're taking almost $1 TRILLION to give to banks for IRRESPONSIBLE LENDING.

    My Father is a small business owner in Commercial/Residential Real Estate.

    (less $50 MM).

    He just had to foreclose on a piece of property HE PERSONALLY wrote the note on..HE WAS THE BANK....

    Where is his "bail out" to get this "Toxic Debt" off his corporate books? (I heard them screaming on CNBC about the need to get "Toxic Debt" off the books to free up money for loans)----My Dad has a 600,000 "Toxic Debt" loan on his corporate books...where is HIS BUY OUT?!?!

  • Report this Comment On October 01, 2008, at 4:06 PM, jesaws wrote:

    There is absolutely NO NEED for a 700 billion dollar bailout. Congress should pass separate bills to increase the FDIC coverage, reinstate the prohibition against naked shorts and shorting on the uptick. The bankrupticies should take their natural course, that includes individuals who bought more house than they could afford. Question: WILL THE GOVERNMENT BAIL ME OUT WHEN I MAKE A STUPID OR IRRESPONSIBLE FINANCIAL MISTAKE? Until they do, no bailouts. Free enterprise means rewarding success and punishing failure. When we cease to do that, we might as well haul down the American flag.

  • Report this Comment On October 01, 2008, at 6:02 PM, foolish501 wrote:
  • Report this Comment On October 01, 2008, at 7:13 PM, Robert685 wrote:

    HILARIOUS!!!

    Best Advice I've heard on what to do in this Market.

    CNBC advice to viewers as to what were the best positions to be in to

    ride out the market storm.

    "Cash and fetal"

  • Report this Comment On October 02, 2008, at 4:24 AM, INsano12 wrote:

    Robert685--"37% of americans own their homes free and clear..."

    If that's an accurate figure:

    It's 37% of the 70% of americans who are in homes they have(had) a mortgage on. 30% of americans never even bother becuase they struggle so much just trying to make ends meet renting, even with greedy bankers handing out loans to anything breathing, they don't have one.

    It's 77 million americans who own their home free and clear, or 25%.

    There are more Americans(90 million) who never even make a first mortgage payment than there are Americans who own their homes free and clear.

    132 million are in some stage of repayment.

  • Report this Comment On October 02, 2008, at 7:47 AM, j9oyceP wrote:

    Thanks for this! Refreshing to hear your POV. The theme song for this crisis oughta be Don Henley's "Get Over It." Many of these risk-taker's inner children need an ass-whooping.

    I'm one of the poor suckers you describe. Some savings, no credit card debt, and an affordable home we've lived in for 30 years. We've wanted to upgrade but for years the sky-rocketing real-estate market shut us out of that dream.

    It is infuriating to know that even though we played fair the rules of the game are changing once again to favor the cheaters.

  • Report this Comment On October 03, 2008, at 10:06 PM, sunny600 wrote:

    Thanks for a great, refreshing article! As average income wage-earners, my husband and I have been SAVING to buy a house for 6 years. We also never get a loan to buy a car, we SAVE to buy a used one. We don't charge more on our credit cards than we can pay off each month.

    Is there something wrong with this plan?

    We saw the hype and falsehoods and housing bubble growing and held back from buying. (Been renting for ten years)

    We need the housing market to come down more so we can afford to buy a modest house that we can truly afford.

    The Administration, etc. want to promote home ownership. Well, tighten up on lending so house prices go down, then MORE people can afford them!!!

    Let the credit markets crash. Weed out the foolish risk-takers. Our country will survive and come out better.

    PS. Heard a number of bank CEOs on CNBC say they are making loans, haven't changed their decades-old conservative lending policies, and are doing business as usual!!! No problems!

  • Report this Comment On October 04, 2008, at 12:46 AM, SilverMoney wrote:

    So let me get this right. International bankers gave jumbo loans to people under fraudulently lax lending rules. Those stupid people could not afford to pay back the banks loan. Normally thats the end of it, bank repossesses the house, sells at auction. But these bankers were too smart for their own good. They instead created a new type of investment (SIV) and said it was as good as gold because it was founded upon mortgage payments, which were rated at AAA, even though buys unable to afford thier mortgages were mixed in with those whom could. So now when 8% of the people can't afford to make their payments after housing levels reached their artifical peak, a peak obtainable due to the trillions poured into the mortgage industries coffers via SIV leveraged mortgages, and now we the US tax payer are going to buy these SIV's which are derived from over valued housing mortgages, that got overvalued because banks flooded the housing market with Mortgage leveraged funds.

    This is so incredibly stupid I can't believe one single person who understands what really happened can believe that by inflating the fiat money supply of the entire economy we can fix the problem that occurred when we inflated the mortgage market with too much fiat money. This will ease the pressure on housing by making everything else more expensive, gee thanks congress...buy gold and silver, the US Dollar is now dead and in its death throes.

  • Report this Comment On October 04, 2008, at 4:37 AM, jerseydahlia wrote:

    Hi Alyce, as another responder posted earlier, there were times when I was reading your article that I felt that you had somehow gotten into my head and read my thoughts. First of all, let me say that one of the best phrases that I have ever heard is: "Where you stand depends on where you sit." Naturally, homeowners, in general, will probably support the bailout as this will keep home prices "falsely" high. Like you, I am a renter, and I would almost relish the drop in real estate prices which would result if free-market conditions prevailed. I would love to be able to own a home, but unforeseeable events have forced me to rent for the last 20 years. Most of my friends (who do own homes) hate to hear me say this, but these are people who don't realize that these home prices should not be as high as they are and would not be this high if our government hadn't totally screwed up by not regulating.

    Let me start by saying that I used to sell real estate from 1991 to 2000. I have heard those who have blamed Carter and Clinton for encouraging loans to those who are less than qualified, and all that I can tell you is that I never saw evidence of this while I was selling real estate. There were many, many instances where sales did not go through because they did not meet Fannie Mae guidelines.........the rules then were never as relaxed as they had become during the current decade. As recently as 1999, I had sold a home that did not appraise......so the seller had to drop his price to meet the appraisal value......but then....something happened and the market went crazy. I could see it happening, and I really couldn't believe it.

    You see, I had started my real estate career in 1991, shortly after prices in New Jersey had plummeted 20-30%. Now, in 1999 prices were suddenly skyrocketing for a reason that was not apparent to me. I can say that there was a large influx of Indians to our population around that same time, although I don't know whether this had any correlation with the real estate market. Also, I know that prices were not driven up by buyers who were putting 5% down on homes, but by people who were putting 20% down or more.........

    Personally, I know of a couple who purchased a $700,000 home just a couple of years ago, at the height of the market because they had 50% down, even though neither one of them had a job. I guess they were banking on prices going up indefinitely and thought that they would simply be able to sell before their money ran out, if necessary. As far as I know, they have not been able to make their mortgage payments for about a year now, but they are still living in their "gorgeous" home. To boot, their daughter will probably qualify for student loans and scholarships because they are broke, whereas my own daughter will probably not.

    Fortunately for me, I could see the writing on the wall (although I wish I had seen it sooner), and last April I moved most of my retirement money (75%) into treasury funds (of course now I wish that I had moved all of it).

    Personally speaking, though, I believe that this economic disaster was caused not only by the greed on Wall Street, but by the unethical behavior in our society in general. I have worked for small businesses throughout my lifetime, and I have seen how they all try to "screw" Uncle Sam by not paying their fair share of taxes. Some of them justify this by saying that "Uncle Sam" will simply squander the money anyhow. They somehow feel justified in cheating, because they feel that that is how people act these days. Without any enforcement from the government to keep these people honest, it is like a free-for-all with seeing how much they can get away with.....it really is like a game for some of them......

  • Report this Comment On October 05, 2008, at 8:20 PM, OctoberAmy wrote:

    I couldn't agree more, about the bailout being wrong, and just delaying a worse recession. But what bothers me the most? Whether you were for or against it; our elected officials are supposed to do what WE, their constituents, their voting public want them to do; not what they think "is best for us". That scares the heck out of me. It was extremely clear in all the polls that a huge majority of Americans were against the bailout, and many of us wrote letters to our Congress-folk, the media told us the %-age for/against mail the Congress was getthing, and YET they decided we were too "uninformed" or "uneducated" about the economy to decide; so they decided for us. Yikes. Taxation without Representation...time for another Tea Party.

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