This Bailout Is Great!

A lot of people have been complaining about the bailouts. This is understandable. The basis of capitalism is that the strong survive, while the weak collapse. It's galling to see people rewarded for failure.

The problem is that, as a country, we can't make decisions based simply on anger or capitalistic dogma. We have a responsibility to do whatever will help ensure this country's future prosperity. And right now, that means bailing out the banks, increasing regulation, and stimulating the economy.

Capitalism's blind spot
Capitalism works well, generally allocating resources efficiently. It's the reason why there's usually food on the supermarket shelves, while there often wasn't in the U.S.S.R.

But capitalism has its blind spots, too. In a capitalist system, it's rational for bank executives to take huge risks in order to pad bonuses based on short-term metrics. Bank executives don't care about systemic risks -- often they barely care about their own shareholders. So, regulation is necessary to reduce systemic risk.

Unfortunately, our regulators disliked regulation, and last year, the resulting crisis drove the banking system to the brink of collapse.

House of cards
And I really mean collapse. Of the big five investment banks, only Morgan Stanley (NYSE: MS  ) and Goldman Sachs (NYSE: GS  ) are still standing, with Lehman, Bear Stearns, and Merrill Lynch all either bankrupt or sold.

Same with the biggest retail banks. Citigroup (NYSE: C  ) fell from over $50 per share to under $5 per share despite huge cash infusions, and Bank of America (NYSE: BAC  ) looks to be getting there. Wachovia, the fourth-biggest bank, was acquired. Washington Mutual, the sixth-biggest, became the biggest failure in U.S. banking history.

Without government assistance, it seems likely that most of the top-tier banks would have collapsed. As if that weren't enough, the Bank Insurance Fund (BIF) -- which provides deposit insurance -- has less than $100 billion, enough to cover only 1.01% of outstanding deposits. Citigroup alone has over $600 billion in deposits. By itself, Washington Mutual would have drained the BIF if the Federal Deposit Insurance Corp. hadn't used sleight of hand to transfer WaMu's operations to JPMorgan (NYSE: JPM  ) .

With widespread bank failures, deposit insurance would falter, and the taxpayers would be footing the bill regardless. That's why we see all these acquisitions -- because the banking system can't handle the failures. It's cheaper for the country to just save the banks.

The domino effect
If we do let the banks go under, there will be huge problems, because our whole economic system runs on credit. How many small companies use lines of credits to handle seasonality in their businesses? How many large companies rely on sales of commercial paper? If that money is unavailable, many completely viable businesses will go under because of liquidity issues.

Any company that uses debt is vulnerable. Procter & Gamble (NYSE: PG  ) is practically invincible in any normal situation. But it has $35 billion in net debt. What happens when its lenders ask for some of that money back, and it has to borrow at 15% to get the cash? Wal-Mart (NYSE: WMT  ) has $41 billion in net debt. When nobody wants to lend, how do you borrow $41 billion?

What happens when the farmers, truckers, and other businesses making up the backbone of our infrastructure, fail? Will there still be food on the supermarket shelves? I don't know, but I'm not eager to find out.

A New Deal
In fact, the history of the Great Depression shows what happens when you start killing the banking system. Between 1929 and 1933, about one in five banks went under. As you'd expect, these bank failures took a massive toll on the economy, with real GDP falling by 29% and unemployment hitting 25%.

At that point, President Franklin Roosevelt stepped in with a plan called the "New Deal." He shut down the banks and allowed only sound banks to reopen. He passed the Emergency Banking Act, which made federal loans available to banks. Then, he enacted the Glass-Steagall Act, establishing deposit insurance and preventing depository banks from being investment banks, reducing the risk of banks blowing up because of bad investments. (Unfortunately, Glass-Steagall was repealed in 1999, which is one reason why banks were able to trade asset-backed securities (ABS) and blow up the system nine years later.)

After these actions restored confidence in the banking system, Roosevelt focused on employment through numerous public works projects and agricultural programs.

The results of this government intervention were impressive. GDP skyrocketed from 1933 to 1937, posting real growth of 9.4% annually -- a huge rate for a developed country. Unemployment fell to 14.3%.

Reasons for optimism
Warren Buffett knows this history, and that's probably why he said that the bank bailout was "absolutely necessary to avoid going over the precipice." Now he's confident that America will bounce back.

The government's actions have helped to restore confidence in the banking system -- a TED spread down from 5 to 1 indicates that banks are more willing to lend to each other now than any time since September. Now, President Obama, like Roosevelt, is working on programs to help Americans get back to work.

The Foolish bottom line
To me, it seems likely that these government interventions will pave the road to recovery. The world's richest man seems to agree, and says that if stocks continue to trade at bargain prices, he'll put his entire personal portfolio into equities. That's why I think now is the time to find undervalued stocks, invest, and grow rich.

Our Motley Fool Inside Value team is excited about this opportunity. After all, stocks are the cheapest they've been in our lifetimes, and we're discovering some shocking bargains. If you're looking for ideas, you can read about our favorite picks with a free trial to Inside Value.

Fool contributor Richard Gibbons is easily as cheap as someone who grew up during the Great Depression. JPMorgan is an Income Investor recommendation. Wal-Mart is a Motley Fool Inside Value pick. The Motley Fool owns shares of Procter & Gamble. The Fool's disclosure policy is sticking with the old deal.


Read/Post Comments (319) | Recommend This Article (750)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 30, 2009, at 3:11 PM, andrew888 wrote:

    I question the wisdom of giving massive handouts to banks and other organizations, primarily because I do not trust them to use it wisely.

    Citibank's intention to spend USD50m on a jet is a case-in-point.

    I suggest that it would be wiser to give trillions to US citizens (as they are the ones saddled with the US govt debt in the first place) on the basis that their first use of the cash is to pay off their debt (e.g. mortgages).

    For many, this would make the difference between keeping or losing their homes. Then hopefully, they would have a reality adjustment about excessive retail and home purchase spending.

    The people would have debt reduction, the banks would get money and (just about everyone would win).

    With the present scenario, there is a massive reallocation of capital from the people to large, incompetent companies. Not wise.

  • Report this Comment On January 30, 2009, at 4:45 PM, ByrneShill wrote:

    You forgot something in the disclosure:

    BAC and WM are former Income Investor recommendation. BAC was recommended around 45 and WM around 50. Both are penny stocks now.

  • Report this Comment On January 30, 2009, at 5:29 PM, intpj wrote:

    What a stupidity.

    Capitalism does not have a "blind spot" stupid people do. They should go extinct or we all will go extinct.

    Bailing the culprits, yeah that is what will save the country .. not, it will only compound the problem.

  • Report this Comment On January 30, 2009, at 5:32 PM, kent1941 wrote:

    Sorry, you left out the part about FDR trying to take over the utility industry, his attacks on capitalists, raising income taxes, and other sundry acts

    all of which stifled the "animal spirits" that Keynes spoke about. The private sector was vilified and kept out. When the stimulous was removed following the 1936 elections the result was a second swoon into depression that didn't end until Japan bombed Pearl Harbor. A recent study form UCLA cocludes that New Deal policy prolonged the Depression by five years. That's overly generous. In 1937 Secretary of the Treausury Henry Morganthau lamented that all the spending and debt had produced nothing-it was all in vain. Where is the plan to transition back to a private sector economy? You know the one that actually provides goods and services that produce wealth?

  • Report this Comment On January 30, 2009, at 5:37 PM, blm098 wrote:

    If we stop all big purchases what happens to the jobs those purchases created? The airplane builders need work as do lots of other people who support the industry. Seems to me that we need to make changes in how we spend but if we do not spend nothing will get better. Cash held in banks is not helping anyone. The cash needs to be circulating to make things happen..

  • Report this Comment On January 30, 2009, at 5:38 PM, godsright wrote:

    In light of the present financial crisis, it's interesting to read what Thomas Jefferson said in 1802:

    'I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered.'

  • Report this Comment On January 30, 2009, at 5:40 PM, casomega wrote:

    I feel like a fool for reading this stupid article. Talk about rose colored glasses! BTW it was the former dude's idea to bail out the banks. The present dude seems to want to bail out unions and sex educators. Yeah; that will work.

  • Report this Comment On January 30, 2009, at 5:42 PM, jmgras wrote:

    Sen Dick Durbin D-Ill had a bill that was part of the bailout that would have given bankruptcy judges the power to lower mortgage balances so home owners could keep their homes. This would have made the banks take the loss for bailing out the homes in foreclosure instead of the taxpayer. After all the banks were a major part of the mortgage crisis.

  • Report this Comment On January 30, 2009, at 5:43 PM, wf1 wrote:

    Maybe if the big banks went under then the banks that did not make as many stupid mistakes that took over their assets and other future banks would figure out some way to prevent the short term thinking executives from destroying banks. Bailing them out means that the companies learn nothing except to run to Washington (or more correctly fly to Washington) for a handout.

  • Report this Comment On January 30, 2009, at 5:44 PM, wmtchamp wrote:

    Wal-Mart is sitting on $31 Billion in the bank. Don't think they are too concerned about the debt.

  • Report this Comment On January 30, 2009, at 5:46 PM, sbossert wrote:

    You are correct that too many bank executives have taken great risk without regard for long-term consequences. They got their big paychecks in the short term. Not everyone was complicit in the greed. It seems Wells Fargo had limited exposure to the mortgage meltdown. How is Wells Fargo rewarded? By having their incompetent and crooked competitors bailed out.

    This latest "bailout" is just selling out the future of taxpaying Americans so government can increase its stronghold on us all.

  • Report this Comment On January 30, 2009, at 5:46 PM, jmgras wrote:

    Oh in addition to my note above the mortgage and banking industry is spent 83 million lobbying congress on multiple issues in 2008. The taxpayer is a being taken for a ride by the banking industry.

  • Report this Comment On January 30, 2009, at 5:49 PM, laughingstk wrote:

    I think you guys really are Fools!

  • Report this Comment On January 30, 2009, at 5:53 PM, JiveDadson wrote:

    The government cannot put one dollar into the economy that it does not first take out of the economy. Stealing from productive businesses and thrifty people to prop up unproductive, failed businesses is not only futile, it is morally reprehensible.

  • Report this Comment On January 30, 2009, at 5:55 PM, habuchas100 wrote:

    "Stimulate the economy" is not what should be the first priority! It should be "Stabilize then economy". The stabilizing may result in some banks going under but so be it. I say "stabilize then stimulate". Give the economy a little time to 'right' itself.

  • Report this Comment On January 30, 2009, at 5:56 PM, jmgras wrote:

    According to an Associated press article Sen Dick Durbin's D-Ill bill that was part of the bailout that would have given bankruptcy judges the power to lower mortgage balances so home owners could keep their homes was removed at the request of President Obama, he didn't want to screw up the bailout bill. So the Banks win again for now.

  • Report this Comment On January 30, 2009, at 5:56 PM, fedup3 wrote:

    Re: "If we do let the banks go under, there will be huge problems, because our whole economic system runs on credit."

    This is at the root of our problem. Credit is more honestly called "debt" which is the prime tool of enslavement of the elite. So much for the credibility of the Motley Fools. They are off my list of honest sites.

  • Report this Comment On January 30, 2009, at 6:05 PM, TycoUSAFA88 wrote:

    I disagree with your statement, "the bailout is great". In fact most of this article is HOGWASH!

    Had you performed your research, you would learn that 75-85% of the bailout moneys this congress and government are funding IS PORK spending, liberal social engineering programs, wasteful debt that funds ART projects, abortion clinics, hospice programs and does not put the middle class back to work, the ones currently out of jobs that perform most of the work that is valueably needed by this country and the rest of the world.

    I don't mean to be rude, but Warren Buffet is a thief as well. You all, at Motley Fool, place too much regards on that bottom feeder Buffet. Do you understand, Warren Thief Buffet was an insurance salesman, selling insurance to family businesses. When the owner died and did not have a planned LOOP HOLE (Lawyer generated) trust or estate transfer, the siblings were left holding the tax liability (often millions of dollars to the Federal Government), thus Warren swooped in offerring dimes on the dollars to take over the family source of income. Sure, the siblings obtained a few million in many cases, but certainly not worth the value of the company had it been sold on the open market, when a tax man was knocking looking for asset transfer taxes.

    Perhaps, this congress should be taxing movie stars, professional sport athletes, luxury outlets / goods that do not contibute to the working class/middle class goals or standard of living or is trickle down economics good?. Either way these positions in society do not contribute to the values of America, or the Maslow needs.

    Your article is the first one I've read that is complete and total HOGWASH. Rethink this one Motley FOOLS!

  • Report this Comment On January 30, 2009, at 6:10 PM, halftide wrote:

    Some one is drinking the cool-aid. The facts and what is in the actual bill are only loosely related to the propaganda in the article.

    Over the past 25 or more years there has been a Paradigm Shift in how economic decisions are made. Paradigm Shifts are caused by “Agents of Change” ever since the British in WWII started intentionally introducing propaganda political science has moved increasingly toward decision making models that separate themselves from decisions made on the basis of the disciplines of science and economics. There have become two corrects, politically correct and rigorously correct. When a decision is chosen which is politically correct and at the same time not supportable by knowledge in the relevant discipline, it is a fantasy world decision. Never the less there are real world consequences for fantasy world decisions.

    We are living the consequences of fantasy world decisions. It is an irresponsible diversion to attack the consequences of the decisions rather than work our way back to the actual causes…so we must learn our lesson and recognize the error in order to not repeat it.

    It is absolutely impossible to get a good long term result from government consumption. Governments consume and businesses produce. There is a huge economic negative multiplier when fundamental resources are squandered. We are going to get so kicked in the !$%%%%!! by this foolishness that down is going to look like up.

  • Report this Comment On January 30, 2009, at 6:14 PM, CalifCondor wrote:

    Mr. Gibbons are really serious? May we suggest that you re-read post-depression history. And by the way lest we forget as the illustrious political Dem's now ignore, ...we do not have a gold standard but a printing press economy that continues to riddle our children with debt.

    Thomas Jefferson was right

    "...Banking institutions are more dangerous than standing armies...' and Mao-TseTung's disciples have figured this out already...

  • Report this Comment On January 30, 2009, at 6:15 PM, cglaskowski wrote:

    What an absurd article!! To reward incompetence is ludicrous. We are ransoming our children's futures by throwing money into these institutions which are either extravagantly spending it or hoarding the funds and not helping the economy. If the government is to borrow or bailout anyone, it should be providing the money directly to the people who are in debt and at risk of losing their homes. This can be done by stimulating jobs by tax cuts for corporations and providing low interest funds directly to the people in order to pay off their high interest debts to these usurious banking institutions. Lets get the thieving unscrupulous middleman banks out of the picture and get the money directly to the people.

  • Report this Comment On January 30, 2009, at 6:15 PM, demarvin wrote:

    One man's opinion.There are only two logical ways to end this circus of bank bailouts with taxpayer money The first is BANKRUPTCY they are now bankrupt,via assets vs liabilities.Private capital will now collect the ashes and new viable banks will arise and will have the courage to tell Barney Frank to go to hell before he extorts them to issue loans to persons that have zero credit or resources. The second is complete NATIONALIZATION OF ALL OF THE BANKS! Why not? Congress will love this,then anyone with a pulse will qualify for a loan as long as they vote for the party in power. The Congress is now buying votes with selective bailouts and the only people who are going to be screwed are those with IRAs,401s and assets that Congress will appropriate via every form of tax they can create. The people voted for "change" hold on to your wallet it is on it's way.

  • Report this Comment On January 30, 2009, at 6:17 PM, wolfecraig wrote:

    Wow, Richard. In your zeal to support our new president, you forgot some of the basics of Capitalism.

    Oh, by the way, the bank ordered the jet a few years ago, but that not withstanding, the stock holders should make the decision if their money isn't being spent appropriately. I do think that stockholders need to make their executives more accountable for what they spend, but I sure don't want to turn that responsibility over to the government. Our Congress has proven that they are not up to the task.

  • Report this Comment On January 30, 2009, at 6:19 PM, nin4086 wrote:

    This article is too optimistic. Clearly the author did not do any research. I found much better information from the comments than the article.

    The author paints a doomsday scenario about "what if there is no bailout".

    A better and much more likely outcome would be: Without a bailout, the banks in trouble have no choice but to fire their bad executives and replace them with good ones. Private investors will have the opportunity to buy a big chunk of the bank and bring in capable staff.

  • Report this Comment On January 30, 2009, at 6:19 PM, viconquest wrote:

    JiveDadson, I hope you aren't implying that we should've let the banks fail --- The only other way to prevent Armageddon would be if healthy banks/companies bought the bad banks. I'm pretty sure that no bank would want to purchase an insolvent Citi or BAC right about now for any price. Otherwise, the windfall would be catastrophic. The financial web is opaque, intertwined and leveraged up the gonads. This means that when a few fail, even more go down because the risk is hidden, decentralized, and magnified. Who will pay for all those unraveling CDS and complex derivative contracts, on top of normal asset loss in a bankruptcy? The answer is, unless you want to rip up binding legal contracts and set a horrible precedent, NO ONE CAN PAY FOR THEM.

    People need to realize that bailing out these horrible institutions is a digusting but necessary evil. The normal laws of nature do not apply when we're talking about trillions of dollars, hence the phrase "too big to fail".

  • Report this Comment On January 30, 2009, at 6:21 PM, Baggerdude wrote:

    This is a stupid article. Did you look at history as a reference before you wrote it?

    FDR was a socialist who caused the rise of welfare, higher taxation, social security, unions and such. The WPA/CCC etc only created "work" not "jobs". When those programs were withdrawn, the 2nd round of the Depression hit until WWII put everyone back to work.

    Obama is a mini-FDR, cut from the same/same clothe ... this newer deal, TARP2 and BARF (interesting acronym), will produce nothing. I see no jobs being saved or created with the new Bail Out. Just a trillion or 2 being printed and sprinkled around the country on pet programs Congress wants. Like my Christmas list.

    Crikey !

  • Report this Comment On January 30, 2009, at 6:53 PM, 1stGradeStudent wrote:

    Maybe it's time to rethink our economic model. It's been broken for a long time.

    The solution is actually simple: the government needs to give back the money it took from the people in the first place and quit spending money it doesn't have.

    These bailouts are a joke. What the Republicans couldn't do in 8 years, the Democrats are going to finish in 8 weeks.

  • Report this Comment On January 30, 2009, at 6:55 PM, samsacct wrote:

    The present crisis was a result of actions taken over along period of time.It spanned from cater Thru Clinton pushed by wreckless legislators Barney Frank & Chris Dodd. They ignored the warningsigns put fortgh arround 2004-2005.They promoted bank lendig to those =who had on or even very shakey creit on house ownership.This provided the climate for further abuses by normally prudent banks.Capitalism didn.t fail the system pushed upon it failed.

  • Report this Comment On January 30, 2009, at 7:00 PM, RaulChapin wrote:

    Mr. Gibbons, Capitalism without respect for justice (which you would hope is the basis for the law) is not just blind it is non existent.

    The first and foremost condition for capitalism to work is the respect for the law, and that law should be just and predicatable.

    The CEO's of banks would NOT be reasonable to take huge risks to pad their bonuses if the law was respected

    Why do I say this? Because the CEO has a Duty of Care to the Corporation it serves. If it could be proved that the CEO made the company take a risk that was unreasonably high and that he benefited from it, that CEO would be responsible for damages to the company. In the case of the bank clowns that would mean that they would be on the hook for BILLIONS of dollars. Sure they could go bankrupt, but they would have to give up their every possesion, not the way you want to end your career.

    That is how capitalism would work...no golden parachute, no cozy life. You screw the life of millions (or even billions) of people... you retire in the poor house... and hopefully you go to jail. Until these irresponsible immoral acts have dire consequences... they will continue do be done, bailout or no bailout.

    That is capitalism, what we have now is not even a shadow of it. And by the way, the whole crazy idea that the world would come to an end if the irresponsible banks are allowed to fail or if the automakers are allowed to fail, is nothing but using the fear of unreasonable people to take their money and their kids money away, and give it to the same people who created this mess in the first place.

    Send the people responsible for this mess to jail (for an insanely long time) and see if the next CEO will take an unreasonable risk!!!

    The USA runs on credit sure I will give you that. The only available credit is the unreasonably cheap one provided by the "to fail" banks... Fat chance! Good companies would survive even with crazy credit terms. The company I currently work for got its line of credit slashed by 33%, one of the things we have done is to reduce our accoutns receivable by accepting credit card payments for very large ammounts as long as our clients pay within 30 days of being invoiced instead of the 60 they were forcing on us. At a 2.5% average cost for accepting credit cards, this means an anualized 30% interest rate (Compare to the 8.25% charged by the bank) sure it is not pretty, but it will allow us to continue operating AND turn a profit. When the lending crisis stops, we will go back to using a credit line instead (By puting a 2% fee on credit card payments and thus making clients revert to paying late but in cash) who knows, we might even be able to cover that 30% with retained earnings after 3 to 5 years... this company will survive, many around us will fail, in the end that is how it should be.

    BTW my granmother owns a store and a chocolate factory, she has NEVER used a line of credit, she did get a loan to start the business but that was long long ago. She bought her machinery by using her home as collateral, and paid up every cent within 5 years not taking a penny of profit till she was paid up. To the day she runs two successfull companies. Small but reliable (She is 87 and the chocolate factory was inherited with no machinery, so at 30 she bought the machinery needed to update the factory and has been running it for 57 years... tell her about credit!!... one day soon my dad will take over... but till then the old lady runs the show and she runs it well)

  • Report this Comment On January 30, 2009, at 7:02 PM, onthemarsh wrote:

    Give Obama some time.. This won't be easy and he has said as much.. Every comment so far reeks with political favoritism.. We've got big problems and the "arm chair" quibbling about the management plan will only throw wrenches into the gears.. Grow up and give this thing a chance.

  • Report this Comment On January 30, 2009, at 7:02 PM, samsacct wrote:

    Any more innane articles as this and I question you investment accumen

  • Report this Comment On January 30, 2009, at 7:03 PM, harrymax wrote:

    I am glad some capitalists are seeing the light. This country is off the cliff from the greed of those on Wall Street and the banks. I don't know what Wall Street does for this country and I know the banks are only lining their own pockets. This country needs to get up and running again, and the investment business models are out of touch. I am outraged at the investment people, have proved to be mostly ponzi schemers and gamblers. I say move over, and open the market to new people who understand what "banking" is and what investment means to America.

  • Report this Comment On January 30, 2009, at 7:20 PM, AtlasAynRand wrote:

    Too much coolaid in this author's water.

    Don't drink the coolaid.

    Time to strap on the boots and let the chips

    fall, and those short-sighted greedy Wall Streeters have their banks stripped of any valued assets many wise private equity guys would snap up like money pooring out of the heavens. Let the toxic waste remaining at these bad, bad banks go to Chapter 11.

    RIP

  • Report this Comment On January 30, 2009, at 7:37 PM, Alex1963 wrote:

    I liked the article and thought it took some guts to write it. I agree with much of it. It's very easy to be pessimistic in this economy since we are all getting hammered. But the name calling and negativity is just wearing thin. I read alot of the blogs on MF and am amazed at the discourtesy. Calling the writer stupid, dishonest, crazy or questioning whether they even did their research? I chalk it up to fear and frustration and the anonymity of email (and poor manners). I doubt most of these folks would be half as vitriolic in person.

    I have read convincing arguments from many viepoints on the New deal and have come away with the obvious conclusion that economics is a murky field, I hesitate to say "science". It seems to depend on the authors politics whether they are pro or anti FDR New Deal. My personal take is that it is very early in and this particular situation is similar to others but still very unique and far more wide reaching. I voted for Obama and still feel confident that he is results oriented, practical, open to compromise, soliciting to the best minds and not intimidated by them, persuasive, and very smart. I believe like all presidents he has access to resources and information which are unavailable to anyone not in that office, I think he and his team will continue to work this problem nationally and internationally. I think he will shrug off the naysayers and the divisive elements and do the best damn job any person could. I don't believe he will blindly "stay a course" if reasonable time proves plans are not working. I believe in time he will inject a far greater element of accountability from himself and the people he expects to perform; from his staff, Congress, CEOs and on down.

    Many people ridicule his "Hope" theme but I would remind you that here at MF we are primarily a group of active (I assume) investors who are are trying to work a system which at is root is based on hope and fear. The stock market is basically the fantasy foorball of finance. If enough people believe, Tinkerbell, lives.. No sane person could say that the bulk of stock market moves are based on anything other than the collective assumptions of future repercussions and less on the underlying intrinsic value.

    I'll take some grown up leadership, concrete action and optimism thank you. We all know the market will turn around, the economy will revive and we'll prosper again, it's just a question of when, (unless you're in a bunker with your guns and water and miss the turn around-good luck with that). The global economies will revive, some better than others, it's just a matter of when. But it happens when people and companies, in enough numbers, BELIEVE it can happen and begin to spend, borrow and live like there will be a predictable tomorrow.

    Me, I'm buying all the value type stuff I can.

    I volunteered on 1/19. I'm active I my community, I've logged on to the Whitehouse website and taken part in the overall process in a small way.

    So I say, "Yes, we can." Get out there and do YOUR part. If you don't like what's happening I hope you are doing more than complaining on blogs. Get your voice heard or live with the consequences of your inaction. Spare me the doomsday scenarios, I'm sure that the amateur economists and historians feel sharing their views is helpful in some way but really don't we have that covered with FOX News, Rush, O'Reilly, Drudge and enough "the end is near" pundits to launch a 1,000 hot air balloons? Yeah, I think we do.

    See you on the other side and many happy returns

  • Report this Comment On January 30, 2009, at 7:41 PM, overdehill wrote:

    I grew up during the depression also. Everything advocated in this article was tried by both Hoover and FDR. It consistently made things worse.

  • Report this Comment On January 30, 2009, at 8:02 PM, effinayright wrote:

    Any article on the bailout that doesn't say a word about Freddie Mac or Fannie Mae, or how Democrat "lawmakers" such as Barney Frank and Chris Dodd provoked this crisis by stupidly crafting a social policy of "making homes affordable", and then FORCING banks to lend to people they otherwise would not, is just intellectually dishonest bullbleep.

    My sister, a big San Francico lib, told me that when she refinanced a few years back her bank asked her and her husband to LOWER their reported income on the application, so the bank could meet a quota imposed by Fannie Mae. She never understood why they would need to; now she does. Even she is appalled.

    As for these poor "homeowners" who are being foreclosed on: if you paid nothing down, falsified your income, and were lent more than the house was worth (all common), why should WE pay to keep you in "your" home?

    As for FDR's Magic Cures for the Depression: Free clue: a 14.3% unemployment rate is still a depression.

    The more I read sub-standard Fool articles like this the more I think the founders are now "phoning it in".

    I'll get my financial advice elsewhere, thanks.

  • Report this Comment On January 30, 2009, at 8:14 PM, courtneTHEgreat wrote:

    Like KimO and LauraE say: "I see." We cannot let the banks go broke because if we do, we do. It is like going to the bank to cash the bi-weekly IBM check for $126.00 and find out that the bank has no cash money to give you, AND your account is empty, waiting for FDIC to cover.

    The answer is simple: banks need to start acting right. They need a clean slate (good bank) and need to accept money and invest only on things that will increase the bank's net worth. The bank's pockets are not deeper than the cash in the vault.

    The answer also includes the Gov't taking over the ownership of the bank's issues (bad bank) and selling the assets at a good rate or manageing the debt until it is gone. This does not mean throwing money out to the banks (dogs) hoping to get a bone!

    Bank Regulation is back! (did we have it already?... no we could not have....)

    Bank of America will pull itself up. It is the tightest and meanest bank I ever used. And, yes... it uses tricks to get me off track so they can get a late fee... but that shows me they are working to get the money. btw: I paid off my account!

    ---courtne-the-Great!

  • Report this Comment On January 30, 2009, at 9:07 PM, Celtics17 wrote:

    The Democratic pork package as it stands now will have catastrophic effects for years to come. What a shame. Will someone tell these crooks that Marxism does not work?

  • Report this Comment On January 30, 2009, at 9:30 PM, jmsralnc wrote:

    Since we are using anecdotal information (see effinayright) here is another. My uncle tells of the time when he was 12 and his father, who had built a successful business providing insurance to those the big companies would not, i.e., African-Americans (until they saw profit to be made and drove him out of business), quietly dropped dead at the kitchen table one night. My uncle states, "There was no such thing as Social Security; there was no such thing as a safety net for my mother and me, or anybody else. The consequences for people who lost everything could be horrible." So his mother, until then a homemaker who did not work, took on boarders, for whom she cooked and cleaned. She took a job as kitchen help in the Waldorf Astoria. My uncle recalls getting a WPA job sweeping the floors of the floors of the school he attended, which brought in a couple of dollars a week. And my uncle claims to this day, "FDR provided all these programs just to keep us going."

    And yes, 1937 saw a return of Depression-type numbers. Why? Was it because that he got such heavy political pressure from conservatives about deficit spending that he decided to reverse course? Check the history. What was the government deficit-spending ratio at the end of the war? What happened to our economy during the next 50 years? Were we a wealthier country? Were our people healthier? What were the opportunities for a baby-boomer? What kind of chances at life did a white baby-boomer have?

    And yes, World War II did help end the Great Depression. Millions of young men like my uncle enlisted and served. Some were grateful and patriotic and saw the evil that must be stopped; some signed on for these reasons and also because the prospect for employment was so bleak. And millions of young and old women went to work in factories to support the war. And EVERYONE sacrificed through rationing of gas, meat, metal products, you name it--folks even grew Victory Gardens to help the effort. In any case, they all knew the malignant destruction the Great Depression could have on a nation, a community, a people.

    So, we could make the case that FDR's programs not only kept people from drowning in economic misery, but they also inspired Americans to pitch in during our darkest hours and most implacable challenges.

    So, you now have anecdotal information that FDR's programs worked. While they certainly have been bastardized in some cases, in many others they work to help people attain a better life, or even survive for that matter. They can help people become productive, which means paying taxes and contributing to the community.

  • Report this Comment On January 30, 2009, at 9:31 PM, pecede wrote:

    Bush Junior spent almost eight years looking for the terrorist enemies to our way of life, lo and behold we finally found them, it's us!

  • Report this Comment On January 30, 2009, at 9:39 PM, syvranchr wrote:

    Mr. Gibbons,

    When the government gave life to the so called "bail out" it also put out a death sentence to what is commonly called "capitalism". The ONLY way this will work is to override the words "bail out" with the word "regulation".

    Are you trying to say everything is just going to be peachy based on the bail out?? It sure as h--- sounds like! Have you determined what your children will be paying in taxes in the coming years? Or is that just irrelevant to you? Also, where is the justice in the pure GREED that was exhibited by the banks and just WHY should future generations be paying for these greedy so called executives??

    There need to be a full independent and impartial investigation as to how the TARP funds were really spent and if THAT was not in the Country's best interest, it is a LOAN, not a "bail out".

  • Report this Comment On January 30, 2009, at 9:53 PM, jesse2159 wrote:

    One sure way to make everyone happy (except the stock holders) is to nationalize the banks and fire the nitwits who were responsible for the nightmare.

  • Report this Comment On January 30, 2009, at 11:39 PM, jjkat wrote:

    Not too many facts in this posting. We need to go back to the gold standard and stop printing funny money. What is happening now to our economy reminds me of an awful movie, Americathon, where the US govt, about to be forclosed upon by NIKE (National Indian Knitting Equipment Co), had to run a telethon to raise enough money to stave off foreclosure.

    We'll all be speaking Chinese in 20 years! I'll take mine with a side order of Yang Chow fried rice!

  • Report this Comment On January 30, 2009, at 11:51 PM, effinayright wrote:

    jmsralnc : your anecdote doesn't overcome the FACT that before Pearl Harbor the unemployment rate was 14.3%.

    Your anecdote ignores the FACT that in order for FDR to provide his programs he had to either borrow money or tax others to fund them.

    Your anecdote about social security ignores the FACT that the ratio of retirees claiming benefits to those paying for them was 44 to one; today it's 3 to 1. Whatever rationale SS had back then it is now fiscally unsupportable, as it has become a crushing tax on the young. It would be interesting to learn if your sob stories about your grandparents is translatable to concern for the immiseration of YOUR children and grandchildren,

    Your anecote ignores how transformative it was for the US to have become the sole superpower in the world after WWII, after a global war that barely touched our shores. Europe, the USSR, and Japan were in ruins. You think maybe that fact, and not FDR's wise policies, had something to do with our rise to become a superpower?

    As for government "helping" people to become productive: what malarkey. That might be true for students or those in the military who learn a skill useful in the civilian world.

    I ask you: how many civilian government workers ever willingly go back into the private sector where they CAN be let go, or fired, if they are NOT productive?

    What tripe.

  • Report this Comment On January 31, 2009, at 12:00 AM, Riga40 wrote:

    Your Fool article is equal to the hoax stimulus bill being gradndstanded by rookie Obama.

    I have regained some faith in the people as I read posts by syvranchr, effinayright, overdehill, Celtics17,TycoUSAFA88,laughingstk, CalifCondor, cglaskowski and select others. HOWEVER, I have lost significant faith in the Fool after reading his article.

  • Report this Comment On January 31, 2009, at 12:46 AM, CraigGilkison wrote:

    what crap. You make money or you don't. If you lose you fold. Doesn't matter what you are selling.

    How friggin hard is this to understand? The strong survive and the weak fail. Life goes on and the world is a better place.

    Sheeesh

  • Report this Comment On January 31, 2009, at 12:50 AM, CraigGilkison wrote:

    and another thing!

    Obama is an ignorant rookie. This BS plan will fail just as FDR's did.

    Federal reserve and ALL central banks are a scam.

    I feel good. That fact is starting to be understood.

  • Report this Comment On January 31, 2009, at 12:53 AM, stuartgordon69 wrote:

    One of the worst articles I have ever read; MF has really gone down in my estimation. How can people who do not understand economics 101 give investment advice?

  • Report this Comment On January 31, 2009, at 3:44 AM, thomaslyons wrote:

    The first thing they should do is reinstate the Glass-Steagall act.

    (Unfortunately, Glass-Steagall was repealed in 1999, which is one reason why banks were able to trade asset-backed securities (ABS) and blow up the system nine years later.)

  • Report this Comment On January 31, 2009, at 6:12 AM, jmsralnc wrote:

    effinayright:

    Good grief, you are tedious. Please read and comprehend the post before commenting.

    Sorry you think my family anecdote is a "sob story." I don't and will not be convinced it is. Perhaps you should ask your "sister the BIG lib" how to handle the anecdotal information of which you are so fond.

    Or perhaps you might refrain from using anecdotal data to make a point. It is very hard to keep from using Reagan-esque terms like "Welfare Queen," especially in the post-Rove "they bad--we good" era. But if you try hard you might actually be able to come up with a concrete syllogism.

    At any rate, some of us have become accustomed to the the very mean, meaningless, and tiresome diatribes of so-called conservatives. We have a new adminstration now, and while you will continue to whine, we patiently await your constructive input.

  • Report this Comment On January 31, 2009, at 6:33 AM, GUSMAN1 wrote:

    Wasn't WWII the overall reason for America getting out of the depression? How will BILLION'S of TAXPAYER'S money going to save America from another "Great depression"? I just don't agree that this is the answer. I hope I'm wrong.

    God bless America

  • Report this Comment On January 31, 2009, at 7:07 AM, fish4uinmd wrote:

    "Three groups spend other people's money:

    children, thieves and politicians...

    all three need supervision."

    Richard,you sure did stir up a hornet's nest! Don't know what your background is, but I sure hope that you or your parents did not spend it on an economics degree!

    What about cutting corporate taxes (U.S. is the second highest in the world, I believe) and putting a freeze on capital gains tax?

    Thanks for the article nonetheless.

  • Report this Comment On January 31, 2009, at 8:43 AM, Mouse574 wrote:

    Normally I find that the Motley Fool does a fair job of avoiding mainstream biases and truly presenting an educational view on current financial events. Today I was disappointed. As we examine this financial crisis there are a few things we need to keep in mind that I believe the writer of this article failed to convey.

    It is very easy to place all of the blame on the banks as they actively participated in creating our current mess. Some of you may ask; “Well if it isn’t just the greedy banks, then who else do you think is responsible? Here are a couple of things I think we need to keep in mind.

    The government thought that homeownership was something in which everyone is entitled. After all it is the American Dream, so along come the government sponsored enterprises of Fannie and Freddie whose purpose was to lower mortgage rates and make homes more affordable. It also encouraged a lot of companies to quickly originate and sell mortgages as securities. Of course the government wants to blame the "greedy" banks, but if it is the banks foolishly cutting us and themselves then it is the government who gave them the knife. Lack of regulation??? No, bad regulation and it doesn’t stop with the GSEs.

    Now let’s talk for a moment about the thousands of individuals who are unable to make their mortgage payments. Were many people the victims of bad products and sales tactics? None of us can deny that. Heck, it happens in many industries. But just as there were companies who demonstrated greed through seeking profit, many home buyers were just as greedy through their consumption. People bought homes they could not afford assuming that they would be able to sell when the value went up. People took out loans with teaser rates without any idea how they could pay for the mortgage when rates go up and they extracted equity from their homes for consumption of cars, vacations and other assets that depreciate in the short term. Before this crisis when I was looking to buy my first home many people in their wisdom told me not to purchase based on what I thought I could afford now but what I think my future income would support. WHAT??????? Thankfully I rely on my own education and sense of fiscal responsibility when making what is one of the biggest decisions of my life.

    So why do I say all this? It is not because I think banks deserve a pass. No, they will pay for their mistakes one way or another and they should. How many of the largest subprime mortgage originators still exist as they did before the crisis? How many of their CEO’s have jobs and how many bankers have been laid off? Take a look at Countrywide, Golden West, etc. But if we really want to prevent this type of crisis again we need to understand all the causes. We need to understand that it isn’t just the Bank CEOs that must fight off feelings of greed it is every one of us. And we certainly need to give our elected officials some feedback on their role in this crisis as well.

  • Report this Comment On January 31, 2009, at 9:32 AM, skully201 wrote:

    Nitwit (a foolish person). We are not nitwits. After reading your article I wonder about you and increasingly the information MF sends.

  • Report this Comment On January 31, 2009, at 10:13 AM, Dogbitten wrote:

    Do your research. Wachovia was bought out by Wells Fargo not Washington Mutual.

  • Report this Comment On January 31, 2009, at 10:24 AM, BUMPERK wrote:

    Now I know why they call you a fool.

    With all due respect, I can now see why Warren Buffet is in favor of the bailout. I do not know of anyone who would benefit more by it.

  • Report this Comment On January 31, 2009, at 10:42 AM, jej005 wrote:

    It seems outrageous that wall street should pay the huge bonus's that they do based on one years performance. Perhaps they should be averaged over a three year period, so that this year's bonus is based on the performance of the past three years.

  • Report this Comment On January 31, 2009, at 11:16 AM, FriarTuck100 wrote:

    I understand the need for some bailout, tax reduction, and creating jobs from real infrastructure changes. However, we are not correcting the problems that caused the issue and we have printed over 1.2 trillion dollars since 2001. Printing more for more uncontrolled bailouts is out of hand. We have more pork in this stimulus then you can find at Bubba's hog emporium.If you thought the infation in the 1970's was bad, you haven't seen anything yet. If this continues to go on, we will be joining the Icelandic rebellion!

  • Report this Comment On January 31, 2009, at 11:30 AM, whereaminow wrote:
  • Report this Comment On January 31, 2009, at 12:31 PM, RichardRLJ wrote:

    Stimulating the economy and consumer confidence is the way out of our recession. I think the lower prices we are now paying for fuel may be worth more than the tax relief and all of the pork in the stimulus packages. Until folks realize this, however, and consumer confidence returns, spending (and our economy) will not recover very quickly. Has anyone calculated the value of our "gas price relief" versus the pork stimulus package and the meager tax relief stimulus?

    Unless we do something about energy - that is nuclear and domestic drilling - higher demand for energy will again bring higher prices for energy and the threat of extended low growth.

    In the 1970's the high energy costs led to inflation. Since borrowing was already over-extended during the last energy crisis, the borrowing stopped and the recession resulted. For a long term solution and growth of our standard of living, we need to reduce the real "cost of goods sold", of which energy is a major portion.

  • Report this Comment On January 31, 2009, at 12:53 PM, Bkeepr100 wrote:

    Now we have a democrat congresswoman telling people to stay as squatters in their foreclosed homes.

    http://www.wtol.com/global/story.asp?s=9761194

  • Report this Comment On January 31, 2009, at 12:58 PM, texjammer wrote:

    Here we go again! If you disagree with a Liberal (ie Socialist, Marxist, etc.), it's because your a mean-spirited, shelfish, hate-mongering conservative that listens to Rush. How about the fact that we actually LEARNED something about History in school, before the NEA started dumbing down the curriculum so morons could "feel good" about themselves.

    Are these the same people that "feel good" about themselves when they buy a whouse they can't afford to make payments on? Or are they the same "feel good" politicians that want 51% of the population dependent on government programs so they retain power?

    FDR's new deal extended the Depression for years beyond the recovery of the European economies. And Obama's "STIMULUS" package will only stimulate more bankruptcies of the small businesses that actually employ the majority of workers in this country and create a larger problem.

    It has already been written in the comments for this article, but deserves to be emphasized again. If you want to IMMEDIATELY stimulate the U.S. economy, cut corporate tax rates or send the $800 BILLION directly to the taxpayers.

  • Report this Comment On January 31, 2009, at 1:03 PM, texjammer wrote:

    And to whereaminow:

    David, your rebuttal is one of the best researched pieces I have seen anyone put together about the New Deal HOAX.

    I strongly recommend EVERYONE read it, whether you believe FDR was the problem or solution.

    Here is his link again:

    http://caps.fool.com/Blogs/ViewPost.aspx?bpid=138329&t=0...

  • Report this Comment On January 31, 2009, at 1:30 PM, rcpetty wrote:

    "Unfortunately, our regulators disliked regulation, and last year, the resulting crisis drove the banking system to the brink of collapse."

    There is much more blame to be accounted for creating the crisis: Greenspan's Fed made money too easy - the money supply sufficient to fuel the dot com and the sub prime bubbles; Congress refused to properly regulate Freddie and Fannie and fanned the flames by authorizing them to meet their Community Reinvestment Act requirements by expanding their authority to purchase a huge portfolio of sub prime mortgages; Congress refused or D's threatened filibuster when the administration asked for some constraints on Freddie and Fannie; Congress created and pushed the Community Reinvestment Act (Clinton era D Congress) to require bank investment in sub prime mortgages; the SEC allowed investment banks to increase leverage; Greenspan ignored specific warnings that could have let to bank regulation; Greed, self interest, and ignorance led bankers to sub prime loans; weak multiple bank regulators overlooked or didn't understand sub prime risks; and the credit agencies were beholden to the debt issuers rather than the buyers; government enabled the 3 credit agency strangle hold by naming them in legislation and regulation as the only sources; credit agencies conflicts of interest were manifold; and on and on. A pox on them all, including an irresponsible congress and a naive president who thinks the giant earmark called Stimulus Bill will solve the problem and who - after allowing Reid and Peliso to create the Stimulus Bill - thinks that going to the hill to chat up Republicans constitutes bipartisanship (see Peggy Noonan here http://www.savethis.clickability.com/saveThisApp?clickMap=li... ) and on and on.

    To say that deregulation or the lack of regulation solely caused this crisis is an irresponsible assertion.

  • Report this Comment On January 31, 2009, at 2:25 PM, FleaBagger wrote:

    I'm a conservative, but I know that tax cuts will do little more to stimulate the economy than government spending. Government spending cuts, allowing deflation to run its course, will stabilize the economy, because when the responsible people's dollars are worth something again, they'll start spending money. Good stocks aren't going down any less because of inflationary monetary policy attempting to pump up asset prices in the face of a massive credit contraction. That's because the bailout is designed to give all the money to bad stocks, or nationalize them. No wonder our stock market is crashing. Our rulers (and Mr. Gibbons) are openly advocating Great Depression policy. You know what you get when you implement the same policies as Hoover and F. Roosevelt? You get the same thing we got then: a Great Depression.

    By the way, your narrative of what caused the current problems is interesting. You say that the problems were caused when banks were allowed to invest in ABS's. Well, someone was going to invest in them at one price or another. "Where did they come from?" is an interesting question. They came from other banks. Retail banks. The front line of the mortgage industry, where people were battling the difference in the percentage of white people who owned houses and non-white people who owned houses.

    Since non-white people make up a disproportionately high percentage of people below the poverty line and other demographics frequently denied mortgages, the 103rd U.S. Congress and President Clinton forced banks to provide mortgages to more poor people, so as to help black and Hispanic people (because discriminating against people who can't pay their mortgages when underwriting a mortgage is racist). These loans that failed earlier underwriting standards were reclassified as "subprime" loans, meaning a higher likelihood of nonperformance and default, but they were small loans secured by valuable real estate, so the risk was mitigated. Also, they could be combined into "tranches" and the rights to the interest could be sold to investors looking for higher yields than bonds offered: the Asset Backed Securities.

    You might say that ABS's were the free market reaction to (perhaps) well-meaning government interference. But the interference didn't cause huge problems, did it? I mean, we were all prospering more than we could stand back in Clinton's day, right? Well, asset bubbles take time. And they are caused primarily by the issuing of credit (or debt) that is generated without anything to back it up, mainly by the Federal Reserve (credit) and the U.S. Treasury (debt). That is, without imaginary money (credit), prices would be unable to rise except at the expense of other products and assets. Through deficit spending and irresponsible monetary policy, Congress and the Fed, respectively, increase the money supply until an asset bubble forms. In the 90's, it was tech stocks (and other stocks). Then, when that bubble burst, no debt went into default, no banks had invested in tech stocks and went bankrupt, so the inflation stayed around, waiting for its next victim, as it were.

    Then inflation hit housing. People were buying homes because you don't just live in them, but they make great investments! They're not making any more land, and you can't live in a stock, and it never loses very much of its value, and they went up 15% last year.... and you can get a 90% mortgage with a job that barely pays you enough to make your payments, so why not? Well, as more and more people found that the end of "redlining" meant the affordability of a home, the prices went up more and more. Bankers (who are, by the way, just as shortsighted as Gibbons says) saw the skyrocketing house prices and started writing 100% and even 105% mortgages, and to people with no proof of employment (because, after all, default would result in the bank getting a house, which is better than money). Anyone could get a house, get some free money from the bank while they were at it, and then sell the house at a profit two months later. Flip that house! (Flip it good.)

    When homebuilders had to go and spoil all the fun by building almost more houses than there were people in the country, house prices started showing signs of weakness. Shocking, I know, but house prices do sometimes go down a lot. Especially when everybody realizes how stupid they've been (or at least how stupid everyone else has been), and half the country has a house that they don't want.

    Anyway, people started to default on the mortgages that they shouldn't have gotten in the first place. The ones that were bundled into tranches and sold as ABS's. Many of the payments stopped, and the ABS's dropped in value.

    Now that private sector companies have suffered a combination of unjust law and their own stupidity, people want to blame the free market for the resulting trouble. Not this time. Try free market first, and then if it fails (without government cheating), then we can talk about the failures of free market. As a wise man once said, "It's not free market if there's a thug at the top fixing prices!"

    On an earlier post, someone commented that they chose to believe that I don't know what "redlining" is, or else I wouldn't be defending it. I know what "redlining" was: it was the process of determing whether or not someone has adequate means and will to pay back their debts. If their means or their credit rating is inadequate, they don't get a loan. That's good business, it was demonized as "redlining" and tied unfairly to allegations of racism, it was essentially banned, and that ban (along with the current solutions that Mr. Gibbons and others support) was a major cause of the current economic trouble.

  • Report this Comment On January 31, 2009, at 3:49 PM, mrmok wrote:

    Very disappointing that Fools are joining in undeserved praise of the new president. I thought the title was tongue in cheek, but I could never find the punch line, except that the government is first going to take our money in taxes and then devalue it through exorbitant inflationary spending. I guess the author is taking Obama happy pills.

  • Report this Comment On January 31, 2009, at 4:54 PM, venkytalks wrote:

    As I keep reading more and more pessimism, my own is beginning to lessen

    This is what I said on TMF in 2007 Nov (I am copying from my blog)

    Thursday, November 29, 2007

    The Subprime Bore

    I have been hearing doomsday predictions for the last 7 years about a collapsing US economy and have believed them all. Still hasnt come true yet. And I am getting tired of the Cassandras and have started disbelieving doomsday scenarios.

    The subprime crisis is the latest of a long list of crises that have preceded it. I doubt that it is as serious as the shrill voices on CNBC make it out to be.

    As a person living in India, I would am sure about about one thing - the skill levels of the average American are so far above those of even the best Indians (living in India), that there can be no developing nation threat for the US in the forseeable future.

    As for China, the Americans have tied them up effectively as cheap labour to power the US lifestyle. If US is over leveraged, imagine the overleveraged plight of China - its longterm infrastructure loans are enough to kill it with even a small hiccup in the Chinese economy. The US killed the Japanese economy by selling them overpriced real estate in the 80s. When South East Asia collapsed in the late 90s, the Americans (and British) picked up the bargain stocks cheap. Now they are killing the Chinese economy by selling them junk dollar bonds. Back in the nineteenth century, the British forced the Chinese to get addicted to opium and then forced them to buy opium from the British. The Chinese had no choice in the matter. Now the Americans have again left the Chinese with no option - they have to hold on to the falling dollar, or watch their economy perish. The people of China have been effectively addicted to a meteoric stock market - and when it falls, as it is bound to, there will be a Boxer rebellion against the communist government. And the Americans will be there to cherry pick the fallen stocks.

    The US is the most powerful economic block in the world and is likely to remain so. The chaotic business channels may make a lot of noise, but life will go on, the people of USA will weather the storm, make a few adjustments and get back on top.

    They have the competitive advantage.

    As for a middle east crunch, I doubt that any Iranian military crisis is likely. More likely, oil will rise to $125, spark a mild and temporary recession, stock markets of USA and BRIC will fall like ninepins, oil will fall to a ridiculous level (maybe $20), Americans will make some life style adjustments, work hard (at something other than selling houses to each other) and by 2010 life will get back on track. Hedge funds will pick up great bargains from the BRIC markets, wealth will flow and the cycle would repeat itself ad-nauseum, as it always has.

    (27 Jan 2009: Looking back, I was wrong about subprime crisis being unimportant (big wrong!), right about China (stock market index Shanghai composite went from over 5500 when I wrote to 2000 or so now; Boxer rebellions may emerge any time!), right about Iran (no war happened), right about oil price (went to 147 and then collapsed), wrong about oil price sparking recession because it was the subprime crisis itself which has sparked this recession (kind of right still, I think), right about stock prices of USA and BRIC (fell like ninepins), right about what choices Americans would make (suddenly people are scrambling to keep their jobs!). What happens in 2010 is still out there, but I might have been wrong to predict things getting back on track. Things look pessimistic now, as I have written in another recent post above.

    Not a bad job of predictions, even if I say so myself. These predictions above were made when the Indian stock market was behaving like a rocket. I cashed out on my stock market investment in end November, missed 20% gain till Jan 7 of 2008, also missed the minus 50% move (much more in some stocks). Happy to have put my money where my mouth is, happy to not have been greedy for the last 20% and happy to be sitting on cash right now.

    These predictions were posted by me on The Motley Fool. I pity the Fools who turned out to be fools and did not listen!)

    This is what I had to say a couple of weeks ago elsewhere on TMF

    Saturday, January 17, 2009

    Some data on the Dow Jones Industrial Average

    There were stock market returns in the 1930s, they did not beat safe debt returns in terms of risk (speaking broadly). Look at the following charts

    All Time: (In the long term, we are dead and cannot enjoy our money)http://stockcharts.com/charts/historical/djia1900.html

    1920-1940

    http://stockcharts.com/charts/historical/djia19201940.html

    Look at the knife you would have had to catch in 1932 (at DJI <40 to get the reward of DJI 150 in 1939. More likely, you would have got in at 1933 at DJI 100 and reached DJI 150 in 1939. Look at 1930 to 1932.How many downward plunges were there - you would have had no returns from 1931 to 1939 if you had called the bottom too early. Old people would die waiting in such a time frame

    1940-1960:

    No matter where you invest, you make money long term http://stockcharts.com/charts/historical/djia19401960.html

    1960-1980: Speaks for itself

    http://stockcharts.com/charts/historical/djia19601980.html

    1980-2000: Also speaks for itself

    http://stockcharts.com/charts/historical/djia19802000.html

    I dont want returns 10 years from now, I would rather put it in debt securities and wait for a better opportunity in todays market

    Posted by Venkateswaran K Iyer at 10:07 PM 0 comments

    Investment thoughts for 2009

    Only about 60% of the bad news is out, 40% bad news is yet to come (in my estimate). Some of the bad news still waiting to happen are:

    Short Term (for 2009):

    1. Earnings degrowth in Chinese companies, leading to loan defaults, Chinese bank failures and depressing commodity prices. There is a deafening silence from China right now, the bad news is likely to be humongous.

    2. Earnings degrowth in Indian companies - though most companies will ride out the storm

    3. Low commodity prices decimating the remaining value in Russian and Brazilian companies with loan defaults and more trouble for International banks

    4. Slow grind down in USA with increased job seekers (fresh grads, laid off people and old people who are unable to make ends meet in retirement, all running after the same pool of shrinking jobs), causing marked reduction in salaries - bad news gadget makers and retailers and credit card companies

    Long term (for 2010)

    5. Collapse of the education market, since the fees are not commensurate with subsequent earnings prospect. There will also be student loan defaults, since high fees paid will not yield returns in the job market

    6. Saturation in the computers and techno gadget markets will lead to poor performance by companies manufacturing these, since people will no longer buy useless gadgets when they already have a gadget which does similar work.

    7. Decline in dollar value with low interest rate coupled with high fiscal deficit as the govt pump primes the economy will make imports expensive. People will stop buying cheap crap from Chinese companies because they dont need them and they get expensive. Chinese companies manufacturing useless articles will (and are already) going broke.

    8. European high tech manufactures and high tech services will have a slowly shrinking market. The grind down there will be slower than US but equally prolonged.

    9. Credit card defaults will continue through 2009 and 2010, putting presure on financials. It will also put severe pressure on retailers as is happening now.

    10. Unexpected political events (wars) causing reduction in economic activity, effect of demographics in USA as the baby boomers age and the increased cost of medical attention are all risks not yet factored in.

    My expectation:

    The time to invest in India, China, Brazil and Russia is after their markets come down about 30-40% from current levels when more of the bad news comes out. Maybe later half of 2009 or first half of 2010

    The time to invest in US markets is probably never in our lifetime. At least not for the next 15-20 years. If at all one has to invest, then after markets come down another 30-40% from current levels (Dow 5000 levels) in sharp downturns and trade actively, getting out on every sharp upturn.

    Long term hold strategy may be to buy into low cost mutual funds at every downturn (Dow 5000 to 6000 levels) for young people. Old people are not able to hold for 10 years, so stay away from this strategy.

    Stock selection will be very difficult in the next 10 years, since there is a change in the pattern of world economic activity, similar to what happened in the sixties and seventies. The tree will bear fruit in 2020, which tree nobody knows.

    Old people should invest in debt securities for regular income.

    Remember:

    1. The time to invest long term in stocks after the 1929 crash was 10 years later in 1939.

    2. The time to invest after the recession of the seventies and early eighties was 10 years after 1974

    3. Stock selection after 1929 and 1974 was successful in the hands of just one or two super investors. And we dont know how much of that was luck siding with them

    4. The world was changing in the 1930s. And the 1960s and 70s. The old ways died and nobody anticipated how things would be.

    5. The world is on the threshold of unanticipated change, just like the 1930s and 1970s. The old ways will die. New patterns of living will emerge. The rules of investing will of course remain the same. And they are screaming - WATCH OUT! BE CAREFUL! DON'T GET TOO GREEDY!

    We live in intersting times. Watch with curiosity, but keep your money safe, dont jump in too eagerly and with too much expectation.

    (my post on The Motley Fool website)

    But I am slowly beginning to switch my view point, now that Feb of 2009 is upon us. The point of maximum pessimism might be already here after all.

    Now if only the bad news from China really gets "out there". I dont think anything would push us down further once that is out of the bag. Thats when I would like to buy.

    Hope I dont miss the bus after all

  • Report this Comment On January 31, 2009, at 6:11 PM, ngibat wrote:

    What a crock! This is what comes of treating history as though it were a series of headlines and not bothering to read the stories.

    I was born in the 1920s so I remember the 1930s well indeed. And I was one who fairly much went along with the new deal philosophy (my father was a factory worker) and I still believe FDR was a good guy for trying almost anything. But history has fairly well shown he was wrong wrong wrong and we don't have to repeat the mistakes of our fathers just because we admired them. After 4 years Roosevelt should have been voted out. Hard to say how his Republican opponent in 1936 would have done (Landon from Kansas) but it probably wouldn't have been any worse and might have been better.

    Thank goodness for the following:

    andrew888; byrneshill; intpj; kent1941; godsright; wfi' sbossert; jivedadson and especially casomega and laughingstk and the many many others who had no difficulty seeing how lightweight was that article.

    Really I expect the fool to do better than this and, fortunately, this is likely a lapse--which happens to the best of us. But it would help if you read these articles before printing them.

  • Report this Comment On January 31, 2009, at 7:46 PM, sullivas wrote:

    This is the most disappointing article I have read from The Motley Fool. History is not accurately depicted here relative to FDR and his role in the economic turnaround of this country. It's a shame this article doesn't talk about the pitfalls of us as a country not having learned from history. Mass infusion of capital (aka, taxpayers' money) may indeed sustain status quo for awhile but it will only delay the inevitable and pass on the bill to our grandchildren. By then, the government will have taken ownership of certain industries, we and the government will have become accustomed to the government's ownership and our future capitalistic landscape will have forever been altered. Disappointing article, very disappointing.

  • Report this Comment On January 31, 2009, at 9:43 PM, teamdixon1 wrote:

    I would like for the author to explain the REASON for his change of opinion from the Dec 30 article "Moral Hazard 2008" to the current article "Bail Out is Great". We do not like the tone of the current article.

  • Report this Comment On January 31, 2009, at 9:55 PM, clevelandrudge wrote:

    Isn't it interesting that Richard Gibbons' reasonable and accurate article is met with an onslaught of fury and revisionist history from the right. To those posters who gave vent to anti-government diatribes, let me remind you that for the past eight years, our government has been dominated by ideologues who seized power illegitemately and used it to enrich the already wealthy at the expense of the already poor through regressive tax cuts and a slew of other devious and secretive methods too numerous to list here. Not to mention starting an illegitemate (there's that word again!) war that has drained untold millions from our treasury and caused the deaths of uncounted thousands, including brave soldiers from our country and innocent civilians in the Middle East. How come I don't hear the CAPITALIZERS on the right complaining about that?

    By the way, fleabagger, the practice of redlining was specifically designed to make it more difficult and more expensive, if not more impossible, for people of color to get mortgages and other loans and as such was most definitely designed to exclude them from the so-called American dream and was at its heart utterly racist. Defend it if you must, but please recognize it for what it was.

    So my congratulations go out to Mr. Gibbons and the editors at the Fool for writing and publishing an informative article that truthfully deals with the complex economic, social and political issues that faced us then and face us now. Please don't be intimidated by the blowhards. True patriots do not fear the truth about their country or feel the need to rewrite its history.

    And I'd like to thank such posters as onthemarsh, alex1963 and jmsralnc for sharing their thoughtful, lowercase insights. Hang in there. We will get through this, although some shoes will surely be tossed in the process.

  • Report this Comment On January 31, 2009, at 10:07 PM, joec38 wrote:

    It's time to punish the members of Congress who helped create this mess by listening to big banks and lobbyists. I recommend a national movement to reduce the number of senators per state to one, and to reduce the number of each states representatives by 50 percent. Then reduce the congressional and committee staff by 50 percent. Lastly, limit all members of Congress to six years maximum service and end all retirements for and limit vacations for members of Congress and their staffs. Public service is a privilege. A lose calculation estimates the nation would save at least $10 billion annually, and Congress would be more efficient. We could give the money to hometown banks because they know best how to use the funds to stimulate the economy. So let's get to work and start a national movement to reduce the size of government; specifically Congress!

  • Report this Comment On January 31, 2009, at 10:58 PM, BestLite wrote:

    Seems Barack and Joe are ready to play Class Warfare. Can the breaking of glass on Wall Street be far behind? If we debrief them all would that be like shorting them?

  • Report this Comment On January 31, 2009, at 11:45 PM, Phoenix07 wrote:

    Here's the thing...the beauty of Capitalism in the abstact is that it creates mutually beneficial outcomes for both parties in a transaction and allows for a market clearing transaction in the absense of outside inventionary forces...

    I realise, flowery and idealistic but, honestly, this is pretty basic, borrowed money is exactly that borrowed. It needs to get paid back. You can stretch the amortization out to infinity but, all you are doing is raising the cost of the borrowed capital. Didn't we learn this from the chastised and stretched behavior of consumers and their associated enablers.

    I love that we rightfully villify Tom Petters, Cosmos, Bernie Madoff and the like and yet the government's Ponzi scheme is lauded as a "stimulus" vehicle.

    Also, in the era of talking about transparency, how 'bout focusing on how many votes these politicians either skip or vote "present" on?! Your an elected official paid with taxpayer funds to represent your constituents and have an opinion (ideally representative of that of the people who elected you). If I decided to not show up for work and do my job more than 90% of the time, I'd be fired. Period.

    Why should those who govern be different. Do you think they do semi-annual 360 reviews in Congress?

  • Report this Comment On February 01, 2009, at 8:47 AM, LP1956 wrote:

    Man! After reading this is ridiculous analysis of OBAMBI's bail out plan, I cannot believe I was Fool enough to subscribe to MF.

    Yes, there is some INFRASTRUCTURE funds, but the rules for these funds are so restictive on how this is going to be spent it makes the benefit negligible.

    This plan is full of NON-PRODUCTIVE social programs that do nothing to create meaningful JOBS that produce a good or service. The only purpose most of the BAIL OUT funds are going to be used for is to increase democrat voter turn out.

    4.9 BILLION for Neighborhood Stabilization!! Translation 4.9 BILLION for ACORN & VOTER FRAUD! And this is just one of many such earmarks in the bill.

    ALEX1963, last I new I had a hard time paying my mortgage with HOPE! It's amazing to me how you democrats use illogical reasoning to justify what you want reality to be! We now have a Treasury Secretary who committed tax evasion and we are suppose to have HOPE! I'm laughing! Like one other FOOL indicated 'enforce the law' and tell Congress to stop passing idiotic ones, like the ones that got us into this mess.

    Let's not forget Barney Frank & Chris Dodd. Too Einstiens looking out for the best interest of themselves. They should be the first one's wearing pinstrips not made by Armani.

    Cutting the corporate tax rate to 10%, capital gains tax to zero, having a strategic energy plan, reducing tarriffs on American made goods, not re-instated the moritorium on off-shore drilling, and giving this money to the TAXPAYERS is what is the best medicine. Oh and two more things, tell the GOVERNMENT to cut federal pensions and balance the federal budget.

    Enough is enough!

  • Report this Comment On February 01, 2009, at 11:44 AM, Alex1963 wrote:

    Fleabgger

    Redlining is the illegal practice by banks of refusing to loan in geographic areas in effect drawing a "redline" around neighborhoods where they don't want to lend even when those same neighborhoods support the bank with deposits.

    I've been a realtor for decades and live just outside of Chicago in Oak Park. Immediately next door is the Westside of Chicago an area of high crime, and brutal economic conditions and little opportunity. It was discovered that even the local West side banks were rejecting the loan application of qualified local borrowers for the "safer bets" of the wealthier areas using laxer underwriting than those used for the local borrowers. Maybe that is good business in some peoples view. But if a bank is collecting deposits and relending mostly to people outside their business sphere while using tougher qualifying for their own customers that is a situation that needs to be remedied. If the banks are so short sightes as to not see the long term benefit of a well a managed local lending program then they should have regulations and quotas imposed until they begin to see the light, reap the benefits and no longer need to be taken to court to lend to people and businesses they should have from the start.

    And again, this notion that poor people have added much to the financial or real estate bubble is simply not supported by data unless you listen to the outright misinformation spewing from the Right. The foreclosure rate is no higher and has been lower for years to people of modest means because banks were required to offer federally approved loan councilling to these borrowers and stick to strict lending guidelines under their charters to loan the federally or state backed funds. These borrowers had , in effect, less freedom to overborrow than say a "better risk' higher income borrower who did not fall with the income levels of those more attractive loan programs.

    I agree with some of your timeline and the some of your resoning for the RE bubble but I would point out that by correctly citing speculators and 2nd home buyers you have hit closer to the mark.

    Now my guess is that the foreclosure rate among those targeted for the Coomunity Reinvestment will now begin to catch up and possibly exceed the rates of "higher income" borrowers but this may be more due to the fact that low income people are hit first and hardest when the economy really suffers, and they have the hardest time recovering. I would not say those people should then have not had any business trying to build wealth and get ahead. It is through home ownership that most Americans build the bulk of their long term net worth. And the more people who can soundly take advatage of home ownership the better for all of us. Or am I being "illogical"

    I would also point out that whether you personally agree with the Iraq war you have to admit it has cost an absolute bundle, say either side of a trillion USD and has not benefitted the economy much as some past conflicts have. (Cheny is doing great-of course through Halliburton) so that is a least one indisputable and monster drain on what could have been a more sutained growth after the Clinton years or might have at the very least softened the downturn when the bubble burst.

    Venkytalks-really interesting post! I don't know if all the analysis within is your own but there are elements I haven't seen anywhere else but many of your conclusions resonated. I'll study it further.

    LP1956 I don't expect you to pay your mortgage with hope. I don't pay either of mine with it, and I see reality just fine. I also didn't expect the underpriviliged and discriminated to be 'trickled down to" with "a thousand points of light" under a couple of Republican so called free market prgmatists.

    I monitor the left, right, and fringe for a balanced wordview, No offense but most of what you wrote I could get off of FOX or talk radio verbatim. And there is no 4.9M going to ACORN that is a Right Wing misinformation smear and you is easily refuted if you do alttle digging. I'm not too happy about Geithner (or Daschle's) tax issues, I agree with you there. Don't know what "illogical reasoning" I used that you are referring to.

    To LP1956 (and many others) I suspect you will see measures more to your liking in the Stimulus Bill. I know many of you may not like it period but give it more time. "Obambi" (that's actually kind of funny & one of the better ones I've heard) is not nearly as naive as you may think, not as craven. I suspect he'll craft a final package which incorparates more of the Right & Conservative (& even Libertarians who can be satisfied shy of a total untried social experiment with the world's most powerful economy may find some cause for "hope" and inclusion) concerns and goals and I think that will be a good thing. I have heard some good ideas (some of yours LP1956 I agree with, by the way) from the all over the political spectrum and I think "Obambi" is listening to them all.

    And to all of you who write versions of ' this article doesn't agree with my thinking so therefore MF or the author is stupid..." Think about that. Have you really got it all figured out? No other viewpoints could be equally valid (or flawed) as your own? Yikes, let me know what mountaintop you're on so I can make a pilgrimage, but I'm going to want to see YOUR credentials after you're done bashing Obambi's or Mr. Gibbons :) maybe if we all just admit none of us have all the answers but maybe we all have some good ideas and that we're all in for some uncomfortable uncertainty for a while then we can all listen to each other with a little more respect and openmindedness & a lot less veiled hostility. Convince me rationally but if you just want to antogonize those you don't agree with you are likely to only win only those who already agree with you.

    I refer everyone to a great speech in the American President: "When you can tolerate a man advocating at the top of his lungs a position that you would spend your lifetime opposing at the top of yours.. then you can sing to me of the Home of The Brave and The Land of the Free. Democracy is hard! Democracy is advanced citizenship: you gotta want it because it gonna test you" (paraphrased & maybe a little mangled, too, from memory)

    clevelandrudge, I like your post, too. And most of all your respectful and reasonable tone! More of this on MF, please.

    Respectfully

    Alex

  • Report this Comment On February 01, 2009, at 12:07 PM, cliffyworld wrote:

    Please read related article titled "Welcome to the U.S.S.A" posted at http://www.cliffyworld.com

  • Report this Comment On February 01, 2009, at 2:46 PM, mafox wrote:

    The rose-colored glasses really need to come off. You couldn't be more biased toward the new president and the stimulus plan. His comment this past week, calling the GDP and the economy a "continuing disaster" for Americans. Wow, way to go Mr. President! I feel so positive about my future.

    Stop comparing this to the Great Depression. FDR's New Deal didn't resolve it. World War II did.

  • Report this Comment On February 01, 2009, at 5:29 PM, TMFDiogenes wrote:

    Color me simple, but can someone explain how it was that WWII got us out of the Great Depression, if not through fiscal stimulus?

  • Report this Comment On February 01, 2009, at 5:33 PM, whereaminow wrote:

    If war is the only way to fix a planned economy, consider me an opponent of central planning.

  • Report this Comment On February 01, 2009, at 5:43 PM, whereaminow wrote:

    TMF Diogenes.

    I don't have the work at quick reference but I will try to find. It was study on the post-WWII American economy. It showed how the war fixed nothing. After the war, the economy was still in the dumps, but an exhausted government took a step back. Americans returning from Europe and Japan rebuilt the economy as old institutions crumbled.

    In other words, the government finally gave up and got out of the way.

    Here is another phenomenal read. They don't teach you this kind of stuff in American schools.

    "Nazi in Exile: Martin Bormann" by Paul Manning

    That book will blow your freaking whole kingdom to holy heck.

    David in Qatar

  • Report this Comment On February 02, 2009, at 7:58 AM, NoMoreBeatings wrote:

    Mr. Richard Gibbons, if you believe that you are a FOOL.

    The problem with capitalism today is that all of our elites in this country live to another standard and beyond the law, period! Now even those in our own government have nothing to fear. This is starting to turn into critical mass!

    It is truly sad to see our country moving in this direction. Any money thrown at these corporations that is not a loan, payable with interest, will never work.

    Free money... from the American tax payer. What a great country, I can support a bank so that they can charge me thousands of $'s in interest (up to 32%!) to keep them alive!

  • Report this Comment On February 02, 2009, at 10:23 AM, ziq wrote:

    It's nice to read something other than the usual free market orthodoxy here. Centrally planned economies do not work, but neither does anything-goes unregulated capitalism. The sweet spot must be somewhere in between, with just enough regulation to do the job and no more. Finding it is politically difficult.

    Government intervention is appropriate to attempt to solve the current crisis, but it is not at all clear it will be effective, or that something else even more politically unpopular wouldn't have been more effective.

  • Report this Comment On February 02, 2009, at 2:45 PM, venkytalks wrote:

    Alex 1963, my thoughts and writings are always my own. I only cut and pasted from my blog because the originals are lost somewhere within TMF

    But my ideas come from many places, including a lot from TMF and many of the comments on articles - like this one!

  • Report this Comment On February 02, 2009, at 10:00 PM, vanbet wrote:

    I think allof the foregoing comments are abunch of hogwash.Iwas there. I remember the bank "holiday,very well" the banking system was in danger of total collapse.This was basically caused by the management playing the stock market with the depositors funds . The main difference was that the banking system was much more fragmented than today.

    I remember my Mother's farm being foreclosedwhen I was 8 yrs.old. Don't talk to me about the great depression. I was there.

    What pulled us out of it was the tech. abilities of

    of our industries.The brains and inventions of our people.

    Alas the inventive spirit and work ethics of the GREATEST GENERATION have been replaced by the GREED AND AVERICE of their children.I have hope that I will not be around to see the final chapter in the history of our once great country when it descends into third world status, brought on by the self serving, greedy,politics of todays politicians.

    ,

  • Report this Comment On February 02, 2009, at 10:12 PM, polenium wrote:

    According to saavy economists banks such as Citibank and Bank of America should be nationalized even for a period of years, if necessary.

    The sooner the better. The economy is shrinking everyday these broken organizations are refusing to lend to customers or regotiative depreciated assets. Handing out scarce taxpayer dollars to the same crooks and incompetents that created this crisis with no oversight or requirements has been (predictably) a miserable failure.

    The longer we wait, the worse the recession/depression will be.

    Liquidating their assets, removing irresponsible executives, renegotiating loans with homeowners and opening the credit system is what is needed to restart the economy. Throwing more good money after bad won't.

    Another institution that badly needs oversight and transparency is the Federal Reserve. It is a branch of the US Government yet none of the meetings minutes have been made public. They are now refusing to tell where the 2 trillion dollars they pushed out at the beginning of the crisis went.

    We live in a managed economy not a free market economy. It's really important that the economy be managed for the benefit of all.

    That definately has not happened in the recent past.

  • Report this Comment On February 03, 2009, at 11:42 AM, LeonardChallenge wrote:

    Senate Must Reject Faux Stimulus

    By David Limbaugh

    http://www.JewishWorldReview.com | Americans should contact their congressmen before it's too late about their instinctive concerns over efforts to convert the world's greatest engine of free market prosperity into a socialistic leviathan under the euphemistic cover of possibly successive rescue "stimulus" bills.

    The stated rationale for the original Troubled Asset Relief Program "bailout" wasn't to stimulate the economy to get it moving again, but to toss it a liquidity life raft to loosen credit markets and keep it from drowning. That is, the idea was to prevent a catastrophe, not to empower little Napoleons in government to play G-d with the economy.

    Former Treasury Secretary Henry Paulson's scare tactics — heartfelt or not — panicked the country into action, and TARP became a reality. Yet not much seemed to change. Politicians will always be able to say that if we hadn't implemented TARP, America's economy would have tanked beyond our wildest nightmares. And being without the supernatural power to prove a negative, we'll never be able to disprove their claims.

    Of all the concerns we had concerning TARP, our greatest should have been that once we opened the door to this magnitude of governmental intervention — especially under a Republican administration — we'd have even greater difficulty in resisting efforts by politicians to reopen it in the future anytime they pronounced there was a crisis.

    Sure enough, Mr. Obama and his confidants view this "crisis" with eager anticipation as an opportunity to actualize their dreams for government to assume its rightful place as Master of the Universe and choreograph the economy on a super-macro level.

    Even the bipartisan Congressional Budget Office has revealed Obama's bill is largely not stimulative. It's more accurate to describe it as a grandiose slush fund for his preferred projects, support groups and constituencies on the spending side and a massive redistribution of income on the tax side.

    When the bill is stripped of its rhetorical disguise, we see it's a license for government to shackle the invisible hand of the free market and appoint itself manager of the gross domestic product according to the superior wisdom of central planners.

    Why do you think the Obamites are constantly blaming market excesses, greed and Wall Street for our financial problems, when most of the blame lies with politicians themselves? Why do you think they trash talk the economy every day, when they know that such pessimism from "on high" will cause real economic damage, considering that much of the spending downturn is related to a crisis in consumer confidence? The answer is that they need us in panic mode — the only mindset likely to divorce us from our ordinary walking-around sense and make us receptive to the big-government remedies they're salivating to employ.

    Note that President Obama doesn't even pay lip service to making his interventionist plans short-lived. And by their terms, it's impossible they could be. This is an effort to restructure our economy radically toward the type of command and control model that has accompanied tyrannical regimes throughout history.

    Nor does Mr. Obama express the slightest concern that his plan would further expand the national debt. Indeed, Democrats have suddenly developed permanent amnesia about their professed budget concerns, whose primary usefulness (as weapons against President George W. Bush) expired along with the Bush term.

    To accept that deficits and debt were high on their priority list would require us to believe they'd fundamentally changed their age-old tax-and-spend philosophy and to ignore their persistent obstruction of entitlement reform. The Clinton budgets are no rebuttal. Clinton had to be dragged kicking and screaming to fiscal restraint by the Gingrich Congress.

    Everyone knows government doesn't have the money — even through tax receipts — to fund this bill. Other than defense spending, which Obama unwisely plans to cut drastically in this time of war, Obama has no intention of substantially cutting other expenditures. Even if the bill as presently configured succeeds in jump-starting the economy, there will eventually be a day of reckoning over our increasingly unmanageable national debt.

    If only government-planning liberals would be honest and admit they believe their ideas on how to spend the people's money are morally superior to those of the American people as expressed through the free market. Then, instead of dealing with the smoke and mirrors of the bill's proponents, we could point to world history to demonstrate conclusively that despite the sometimes-best intentions of social planners, command and control economies have only spread misery and never worked to produce the kind of prosperity that is only possible in a free market.

    Unless this bill is dramatically overhauled, the Senate, instead of trying to massage it toward passage in allegiance to the seductive but dangerous goals of bipartisanship or just getting something done, should reject it outright.

  • Report this Comment On February 06, 2009, at 11:17 AM, iamari wrote:

    i'm afraid it might be worse than it seems. it might be the biggest fraud in history and the bailout the cherry on the crooks' cake. read this: http://www.villagevoice.com/2009-01-28/news/what-cooked-the-...

  • Report this Comment On February 06, 2009, at 11:46 AM, Cyprian wrote:

    "Unfortunately, our regulators disliked regulation..."

    That's just stupid. This entire article reads like the same kind of mindless "Hope! Change!" nonsense that regulated banks into loaning money into non-credit-worthy, disadvantaged communities via the Community Reinvestment Act (CRA) regulations/quotas in the first place.

    "Unfortunately, our regulators disliked regulation..." Oh for cryin' out loud, people!

  • Report this Comment On February 06, 2009, at 11:49 AM, tommytutone wrote:

    Richard, you've fallen for the scare tactics peddled by Henry Paulson and now Obama. Either that, or you're a socialist in disguise.

    Capitalistic dogma? blindspots? acting our of anger? Save the rhetoric, Richard. Bailouts will only make things worse in the long run.

    You people who are so anxious to "do something" to hurry and "fix this," need to wake up to the fact that a quick isn't possible. What IS possible is to start putting things in place, so this doesn't happen again. Examples:

    - liberal congressmen stop forcing banks to make bad loans

    - stop with the easy money (think alan greenspan and ridiculously low rates for years on end)

    - abolish fannie mae and freddie mac, and put those CEOs in jail

    - SEC do its job and pay attention to scoundrels like Madoff

    - clean up corporate boards (i.e. no CEO as chairman of his own board, reduce conflicts of interest on the boards)

    - find a creative way to limit CEO pay (since they won't do it themselves, and they are stealing shareholder money, with brokerage houses and other institutional investment houses acting as their willing accomplices); stock options are not incentive to perform well. they are incentive to make up numbers; just another way of stealing from the small-time shareholders

    - these are just a few

    this isn't rocket science. people just need to find the courage to implement these types of things. cowards like the author of this article will want to appease with bailouts. they'll pat themselves on the back, because "we did something. we tried."

    get some backbone, richard. this article was a loser.

  • Report this Comment On February 06, 2009, at 12:18 PM, SolarInvestor wrote:

    Many here put the blame of this bailout on Obama. As of today, Obama hasn't done anything. The banks were bailed out by Bush. Republicans are about helping business, democrats are about helping citizens, and that's just what's happening.

    I don't agree with Obama's stimulus plan, but it's not mostly pork. It's mostly trying to create jobs and giving citizens tax credits. Still, I don't think it will work, same as it didn't work in 1932.

  • Report this Comment On February 06, 2009, at 12:37 PM, jpjp2 wrote:

    So, if the stocks to buy are in MF Inside Value, then I guess the MF Stock Advisor is the Outside Value?

  • Report this Comment On February 06, 2009, at 12:38 PM, halfpint31 wrote:

    I wonder who the FOOL is that wrote this article!! As someone who grew up in a socialist country I can smell socialist tendencies from a mile away!! I guess it's a matter of whether America wants to be controlled by its government or not. I say only FOOLISH, naive people would want that!!! Only weak minded people want to be controlled by others because they simply do not believe in their own abilities! And let us look at who this government is made up of?? A bunch of socially, morally, fiscally illiterate individuals!! Do we want these people making imperative decisions for our country and our future??? I want to understand how creating a whole bunch of highway fixin' jobs is going to stimulate the economy and promote long term growth? How many people are even qualified to perform such jobs? Or will it be on the job training? Might I mention that only 17% of the funds will be spent this year?? You people live on a different planet! Wake up now or you'll wake up in commy America very soon! Let the banks fail! If my husband's business goes belly up, the government won't bail him out! Let there be a restructuring of the banking system! Some regulation is always necessary because consumers and investors need to be protected from irresponsible, money hungry individuals!! However, too much regulation gives the government too much control over our lives. I for one do not wish to yield control of my life to anyone in the US government!! One of my favorite quotes is from the movie Neverending Story when the Nothing says: "WHOEVER HAS THE CONTROL, HAS THE POWER!!!" Do we want to give our power away to an irresponsible government (who, by the way, is in a major way responsible for our current economic situation) or do we empower ourselves and make our own decisions using the good old rule of COMMON SENSE that seems to have been forgotten by many??!!! Let us be careful with what we wish for - we might just get it and it might not be pretty!!

  • Report this Comment On February 06, 2009, at 12:42 PM, JTODD04 wrote:

    Holy cow! Are you KIDDING ME?

    http://is.gd/iC2V This is where we give $350B to people who bought too much house. This isn't a loan. It is a transfer from you+me to them.

    The most frustrating thing to me is that no one is answering the questions of WHO is pays for bailout and WHEN. Seems taxes/inflation are certainly coming.

    Loans pull spending forward at the cost of future purchasing power (reverse compounding). Growth driven by loans is sustainable only when the population grows.

    Guess what? US population growth is slowing. Assumptions are down by 1/2 in 50 yrs: http://is.gd/iCOl Next census, assumptions probably will be worse.

    Giving $ to underwater people only pushes pain out... $350B to re-overspend (no behavior change) gets us thru next election cycle.

    Then $1T in pork projects that socialists have been dreaming about for years.

    If we insist on a stimulus, how about this idea: 1 yr income tax holiday UNLESS you default on a loan. Give incentives to keep promises.

    I recommend: www.valueinvestingcongress.com for more info on what we're facing.

    Lots of reqs on this post, but I'd bet if there were an option to "bury" like on digg, this post would be one of the worst in the history of TMF.

  • Report this Comment On February 06, 2009, at 12:58 PM, CPA007 wrote:

    In the past, I was led to believe that MF knew what they were talking about. I was hopeful that a plan could be voted on that would not contain all the pork projects that the Democrats have put into the current "Stimulus Plan???". I was wrong.

    In the future, the US budget is going to be 100% interest.

    MF has exposed its true feelings regarding the political world.

  • Report this Comment On February 06, 2009, at 1:07 PM, mchuckie wrote:

    Don't confuse 'bailout' with 'stimulus'. The bailout was probably necessary as described, the stimulus will go down as the biggest porker ever. Save jobs or make jobs? What started out as a million and a half new jobs has morphed into 3 million jobs created or "saved." How do you quantify "saved' jobs? The only jobs saved will be government jobs when the feds send the money to the states to spend.

  • Report this Comment On February 06, 2009, at 1:12 PM, skat5 wrote:

    Nobody seems to be talking about the velocity of money. You don't get a 'stimulus' from a tax rebate if the recipients save the money instead of spending it.

    Tax credits as opposed to tax cuts or rebates, with expiration dates, will increase money flows. This means instead of weatherizing government buildings, one provides a substantial tax credit to homeowners and even renters, and to commercial buildings, to increase the energy efficiency of their buildings. This is intelligent spending of federal money because: it spreads the benefit widely into the private sector, it encourages individuals to spend some of their own money together with the federal money from the tax credit thereby providing some spending leverage, it employs workers in an area that is very depressed (construction), and it provides a future payback to participants (lower energy bills). How much of the so-called stimulus money does things like this? Rather than pittances for everyone's favorite pets, a few good ideas could be better funded.

    There should be at least one idea, perhaps more, but not too many, that is "inspirational" to the American people. Examples of previous inspirational spending programs are: Tennhesse Valley Authority, Apollo Moon Landings, Star Wars Initiative. An example of an inspirational program for our times is Energy Independence. Another is Smart Health Care. Another is the Information Superhighway. Tiny dollops within this huge spending package are given to each of these but without focus and great commitment, there is no widespead inspiration, just the pleasing of narrow special interests.

    For example, energy independence could include those tax credits that give, for example, homeowners a five-year payback on installation of solar hw heaters or voltaic panels on their roofs; replacement of inefficient heating/cooling systems for more efficient ones; addition of power transmission lines along transportation corridors (guess why); funding for computerized traffic control in major urban areas (including use of cell phones to track traffic flows and redirect drivers around jams); creation of energy-efficient but high-speed mass transit with thought given to replacing current routes that may be damaged by sea level rises; funding for converting car fleets and trucks to operate on natural gas, including small business loans to add natural gas pumps to gas retailers along major transportation corridors; establishment of transmission lines and rights of ways for wind energy corridors; a feasability study for a federally operated nuclear fuel reprocessing center to reduce nuclear waste while recovering additional nuclear fuel; research on carbon sequestration including a liquid oxygen pilot power plant, a nextgen nuclear reactor, further research into affordably replacing auto bodies with materials safer than steel but lighter than aluminum; buybacks and scraping of older, more polluting and least fuel efficient cars.

    What we get instead of Inspiration is a Pelosi-Reid led bunch of stale special interest chestnuts. No surprise it is not popular and the more one learns about it, the less popular it becomes. It does not help that republicans in the senate have even less vision. Looks like we are not getting the sort of presidential leadership that so many thought was promised. Within the next decade, be free of dependence on foreign oil? Sounds good to me.

  • Report this Comment On February 06, 2009, at 1:13 PM, ReillyDiefenbach wrote:

    A wide and deep panorama of wilful ignorance and intellectual dishonesty on display in the comments section here. The question remains, when are you repubs going to take responsibility for your actions and admit the indisputable fact that lack of regulation is the root cause of the orgy of thievery that has driven our economy into the ditch? Please do the world a favor and take the hint. We've tried your way for 28 years, and we're done with you, for the simple reason that you've wrecked the economy.

    We're going to try a different way, one that involves spending money on infrastructure instead of occupying foreign lands for the benefit of the oil companies and Halliburton. We're going to spend money employing people, instead of giving yet more money to the wealthiest tiny percentage, hoping that some crumbs might fall from their golden tables, even though that's never happened in recorded history. And yes, we're going to spend a tiny fraction of your money on art, because every other civilized country in the world does it, and it makes our country a more habitable place than one more F22. And here is what must really grate: there's not a damned thing any of you squealers can do about it. This package will pass. It won't matter one iota what apoplectic screeds you tap tap tap to your favorite websites.

    You lost, and lost big.

    The American public has spoken, loud and clear. Elections have consequences.

    Phil Gramm's idea was to give the sharpest, least principled, most driven among us carte blanche to resection mortgage backed securities and sell them to all and sundry at a triple A rating, Let's allow them to create the most grandiose 40 to one Ponzi scheme in human history while awarding themselves stratospheric bonuses taxed at 15% while the ordinary jills and joes pay 30% like the born poor, die poor suckers they are. The glorious free market will take care of everything. Well guess what, Einsteins, it didn't.

    What some of you commenters lack is called a social conscience, a basic caring for the other person. You toss and turn on your Beautyrest Super Pillowtops only at the thought of someone asking you to carry your fair share of the burden. I hereby suggest that you take your bought and paid for economic theories, your Laffer curves, your trickle down and all the rest of the deceptive claptrap you've been using since Hector was a pup and stick them.

    Here's a hint: socialism and FDR don't have a damned thing to do with what's happened to us. Most socialist countries have a far better standard of living than we do in the U.S. It's called unregulated CAPITALISM.

    Tap away, gentlemen, and no thanks to you for losing us all so much money!

  • Report this Comment On February 06, 2009, at 1:25 PM, mayab7 wrote:

    Have you forgotten that we no longer "produce" anything? Our country is run on credit, servicing credit, advertising, marketing and money scams are the stuff we produce these days. Cars, refrigerators, TVs, our production is infintesimile. Farms are owned by big agribusiness. We're cloning corn and cattle. Where's the "hard work" and "sweat" that some of us remember being the key to success and happiness?

  • Report this Comment On February 06, 2009, at 1:26 PM, pdheart wrote:

    Hey, I've lost money right along with you. More government, and borrowing and spending are no ways to rebuild this economy. It just delays when the piper will be paid.... on the backs of your and my children.

    Our government will take over the banks, the autos, healthcare, etc. We'll all work for the government, at capped wages (there's some incentive). The slackers will make the same as the best and brightest (if they stay in the US)...

    Want to know what will happen if we stay on this path? Read Ayn Rand. Atlas Shrugged. She wrote it last century and it reads like a play-by-play account of what is happening right now.

    I hope Obama can rally the troops. He is inspirational. The Congress on the other hand is the same old congress. This problem is too big for just Obama to solve, though I wish him all the best as he wrestles with the old guard in DC, and it doesn't matter if you're thinking Dem or Republican...

  • Report this Comment On February 06, 2009, at 1:28 PM, mvp019a wrote:

    Hey Mr. Gibbons:

    You sound just like any other proto-socialist toadie. Our government isn't going to save us from this; they are the ones who helped cause it. The Fed and fractional reserve banking are the cause of these boom-bust cycles, with a liberal dose of high level corporate lack of ethics. You just need to put every culpable bank exec in jail for 10 years minimum (instead of multi-million golden parachutes), and while you're at it throw Barney Frank and Ben Bernanke with them. (Oh and let's not forget Hank Paulson.) The banking system is no less a Ponzi scheme than Bernie Madoff. As long as we continue to monetize debt our trip to the third world is assured.

  • Report this Comment On February 06, 2009, at 1:38 PM, NowFoolMe wrote:

    Dear Mr. Gibbons,

    A case can probably be made for TARP but the house stimulus bill is a disgrace in terms of content and process. FYI . . . many economists believe that FDR's policies extended the great depression - suggest you do some additional research in this area.

  • Report this Comment On February 06, 2009, at 1:51 PM, anthonyafterwit wrote:

    Even if you are correct about your bailout theory ... HAVE YOU ACTUALLY READ THE STIMULUS BILL?

    I compare it to a doctor saying, "You have cancer and we must treat it immediately or this crisis will become a catastrophe. Now, take this leach and apply it to your breast."

    Good diagnosis, bad treatment.

  • Report this Comment On February 06, 2009, at 1:56 PM, Bonefish100 wrote:

    Hogwash, humbug and balderdash. What nonsense!

    How much did you say the banks will be getting in the bailout? The "Stimulus Package" is the most pork laden nonsense that has come down the pike since the commuter flying saucers that were supposed to be parked in our garages in the 1990's.

  • Report this Comment On February 06, 2009, at 2:03 PM, timkop wrote:

    The bailout is necesarry, however it has to be used wisely. Not let the banks write off on toxic loans and give out bonuses to themselves. The banks should recirculate the bail out cash to Qualified Borrowers repeat Qualified Borrowers( those with a history of repaying loans) at very favorable low rates ( say 2%-4%). This will jump start economic activity and put people back to work. People that work will have money to pay their mortgages and loans..

    The economy will start to accelerate and banks will have business from Qualified Borrowers.

  • Report this Comment On February 06, 2009, at 2:06 PM, GRuss1953 wrote:

    While there may be stock opportunities, anyone at Fool thinks this Bailout is Great loses my confidence! After about 10 years as a Subsciber, makes me now feel Foolish!

  • Report this Comment On February 06, 2009, at 2:10 PM, Psycmeistr wrote:

    Such Pollyannish thinking and discounting of capitalism will lead me to think twice before renewing my Motley Fool subscription. Actually, it probably won't take much more thought at all.

    Sayonara.

  • Report this Comment On February 06, 2009, at 2:17 PM, mattcomment wrote:

    Article is misleading. The current bailout being debated is not the TARP plan which Buffett publicly supported, but a "stimulus" package. The latter has been criticized due to it's large price tag and potentially wasteful spending.

  • Report this Comment On February 06, 2009, at 2:25 PM, barnea1 wrote:

    Let me add my opinion to the growing list of criticism to this article. The Bailout is not a bailout at all. It is a massive government spending package. The bailout includes payments to the National Endowment for the Arts, spending for moving federal agencies from one government building to another, and a plethora of other obsene ideas that do nothing but increase the size of our already bloated federal government.

    Let's be clear, Japan tried this same strategy in the early 1990's and it turned out to be a disaster. One socialist Prime Minister after another resigned in disgrace as the Japanese economy plunged deeper and deeper into recession as the Debt-to-GDP ratio climbed as high as 180%.

    Now President Obama wants the government to purchase shares of corporations and regulate salaries of companies taking bailout money. Government ownership of business, government regulation of salaries, does any of this sound familiar?

  • Report this Comment On February 06, 2009, at 2:32 PM, 2infinity wrote:

    It looks like the Motley Fool has become very foolish. The government interference in the markets is what caused this mess. Motley Fool is advocating for more government control which leads us further down the road to socialism. Notice Motley Fool how many countries are prosperous with the increased socialistic hand of government at the wheel--NONE.

    At this time I have to consider the Fool a real fool and I cannot bother with listening to a real fool. Time to end the subscrition.

  • Report this Comment On February 06, 2009, at 2:32 PM, ScottDevereaux wrote:

    People who now say Roosevelt's New Deal had no positive impact are delusional. Without the new deal millions of unemployed and elderly people would have starved to death. The TVA was instrumental in stopping deadly floods and producing hydroelectric power that spurred tremendous economic development.

    Wealthy republicans hated the New Deal because the focus was on the working class and not the wealthy - just as Republicans today ask for more tax cuts for the wealthy, when those tax cuts contributed tremendously to the problems we are now in.

    Roosevelt saved peoples lives and was America's most beloved President. Republicans despised him. Be careful what you believe in the Republican's revisionist history. Bush was the worst president in history and that is not debatable. He did everything wrong. Roosevelt did almost everything right.

  • Report this Comment On February 06, 2009, at 2:34 PM, Donwturner wrote:

    Right on, ReillyDieffenbach!

  • Report this Comment On February 06, 2009, at 2:37 PM, chabelyk wrote:

    I agree with TYCOUSAFA88. This is the first article I've read that left me scratching my head in puzzlement.

    Capitalism doesn't reward the lazy. Capitalism doesn't reward failure. To say that this bailout is great is the ultimate insult to capitalism and capitalists everywhere.

    This bailout is great? The MotleyFool needs to get real on this one!

  • Report this Comment On February 06, 2009, at 2:39 PM, nafi77 wrote:

    I feel sorry the most for those who did not get themselves in trouble in the first place. The bail outs just place them in a position of 'I did everything right, and you prevent the best from taking the reigns.' I would imagine they feel betrayed by their government.

    Spending is spending. Creating government projects will place the money back in the hands of the banks anyway, but it will do so in an unpredictable way. This method will create pockets of wealth rather than help everyone.

    The past 8 years didn't get us here you have to go beyond that and remember the Clinton era fannie and freddy arguments to realize that the problem occurred trying to fix those entities and Clinton wouldn't budge. Welcome to the compromise. Thanks Bill! I would imagine this problem is why Hillary didn't get the nod to run. Would have been something to explain?

    Get rid of payroll taxes for the next 3 months......problem solved.....no.....have another payroll tax holiday. How hard is that?

  • Report this Comment On February 06, 2009, at 2:44 PM, skat5 wrote:

    Toxic assests the banks hold should be paid out as bonuses and severance to their exectutives instead of cash. Let them eat their own cooking.

  • Report this Comment On February 06, 2009, at 2:44 PM, NONOBAMA wrote:

    Please tell me that this is a tongue-in-cheek article. If this author is serious he needs to study some more history and do more serious research about the effects of FDR's policies. You are just trying to Fool us, right?

  • Report this Comment On February 06, 2009, at 2:44 PM, CopyCat3000 wrote:

    Guys, guys, guys its not just about how much money we can spend. Its about what happens when third world countries finally decide that they don't want our paper for their goods. What happens then?

  • Report this Comment On February 06, 2009, at 2:46 PM, roho30068 wrote:

    I have to agree with most of the othe folks responding here...I have absolutely no confidence that this bailout will do anything to stimulate the economy. Most of the spending that is not outright PORK, won't actually see the light of day for a year or more and will only go to growing government. Although I believe that our infrastructure needs drastic improvement and a new energy policy is great, both of these are long term programs that won't do anything to stimulate in the short term! I am beginning to question whether I will listen to anything here again because it looks like MF just wants us to buy their picks and push the stock market as the only way to go right now....very self-serving.

  • Report this Comment On February 06, 2009, at 2:47 PM, naluli wrote:

    For your reading enjoyment....

    50 De-Stimulating Facts

    Chapter and verse on a bad bill.

    By Stephen Spruiell & Kevin Williamson

    Senate Democrats acknowledged Wednesday that they do not have the votes to pass the stimulus bill in its current form. This is unexpected good news. The House passed the stimulus package with zero Republican votes (and even a few Democratic defections), but few expected Senate Republicans (of whom there are only 41) to present a unified front. A few moderate Democrats have reportedly joined them.

    The idea that the government can spend the economy out of a recession is highly questionable, and even with Senate moderates pushing for changes, the current package is unlikely to see much improvement. Nevertheless, this presents an opportunity to remove some of the most egregious spending, to shrink some programs, and to add guidelines where the initial bill called for a blank check. Here are 50 of the most outrageous items in the stimulus package:

    VARIOUS LEFT-WINGERY

    The easiest targets in the stimulus bill are the ones that were clearly thrown in as a sop to one liberal cause or another, even though the proposed spending would have little to no stimulative effect. The National Endowment for the Arts, for example, is in line for $50 million, increasing its total budget by a third. The unemployed can fill their days attending abstract-film festivals and sitar concerts.

    Then there are the usual welfare-expansion programs that sound nice but repeatedly fail cost-benefit analyses. The bill provides $380 million to set up a rainy-day fund for a nutrition program that serves low-income women and children, and $300 million for grants to combat violence against women. Laudable goals, perhaps, but where’s the economic stimulus? And the bill would double the amount spent on federal child-care subsidies. Brian Riedl, a budget expert with the Heritage Foundation, quips, “Maybe it’s to help future Obama cabinet secretaries, so that they don’t have to pay taxes on their nannies.”

    Perhaps spending $6 billion on university building projects will put some unemployed construction workers to work, but how does a $15 billion expansion of the Pell Grant program meet the standard of “temporary, timely, and targeted”? Another provision would allocate an extra $1.2 billion to a “youth” summer-jobs program—and increase the age-eligibility limit from 21 to 24. Federal job-training programs—despite a long track record of failure—come in for $4 billion total in additional funding through the stimulus.

    Of course, it wouldn’t be a liberal wish list if it didn’t include something for ACORN, and sure enough, there is $5.2 billion for community-development block grants and “neighborhood stabilization activities,” which ACORN is eligible to apply for. Finally, the bill allocates $650 million for activities related to the switch from analog to digital TV, including $90 million to educate “vulnerable populations” that they need to go out and get their converter boxes or lose their TV signals. Obviously, this is stimulative stuff: Any economist will tell you that you can’t get higher productivity and economic growth without access to reruns of Family Feud.

    Summary:

    $50 million for the National Endowment for the Arts

    $380 million in the Senate bill for the Women, Infants and Children program

    $300 million for grants to combat violence against women

    $2 billion for federal child-care block grants

    $6 billion for university building projects

    $15 billion for boosting Pell Grant college scholarships

    $4 billion for job-training programs, including $1.2 billion for “youths” up to the age of 24

    $1 billion for community-development block grants

    $4.2 billion for “neighborhood stabilization activities”

    $650 million for digital-TV coupons; $90 million to educate “vulnerable populations”

    POORLY DESIGNED TAX RELIEF

    The stimulus package’s tax provisions are poorly designed and should be replaced with something closer to what the Republican Study Committee in the House has proposed. Obama would extend some of the business tax credits included in the stimulus bill Congress passed about a year ago, and this is good as far as it goes. The RSC plan, however, also calls for a cut in the corporate-tax rate that could be expected to boost wages, lower prices, and increase profits, stimulating economic activity across the board.

    The RSC plan also calls for a 5 percent across-the-board income-tax cut, which would increase productivity by providing additional incentives to save, work, and invest. An across-the-board payroll-tax cut might make even more sense, especially for low- to middle-income workers who don’t make enough to pay income taxes. Obama’s “Making Work Pay” tax credit is aimed at helping these workers, but it uses a rebate check instead of a rate cut. Rebate checks are not effective stimulus, as we discovered last spring: They might boost consumption, a little, but that’s all they do.

    Finally, the RSC proposal provides direct tax relief to strapped families by expanding the child tax credit, reducing taxes on parents’ investment in the next generation of taxpayers. Obama’s expansion of the child tax credit is not nearly as ambitious. Overall, his plan adds up to a lot of forgone revenue without much stimulus to show for it. Senators should push for the tax relief to be better designed.

    Summary:

    $15 billion for business-loss carry-backs

    $145 billion for “Making Work Pay” tax credits

    $83 billion for the earned income credit

    STIMULUS FOR THE GOVERNMENT

    Even as their budgets were growing robustly during the Bush administration, many federal agencies couldn’t find the money to keep up with repairs—at least that’s the conclusion one is forced to draw from looking at the stimulus bill. Apparently the entire capital is a shambles. Congress has already removed $200 million to fix up the National Mall after word of that provision leaked out and attracted scorn. But one fixture of the mall—the Smithsonian—dodged the ax: It’s slated to receive $150 million for renovations.

    The stimulus package is packed with approximately $7 billion worth of federal building projects, including $34 million to fix up the Commerce Department, $500 million for improvements to National Institutes of Health facilities, and $44 million for repairs at the Department of Agriculture. The Agriculture Department would also get $350 million for new computers—the better to calculate all the new farm subsidies in the bill (see “Pure pork” below).

    One theme in this bill is superfluous spending items coated with green sugar to make them more palatable. Both NASA and NOAA come in for appropriations that properly belong in the regular budget, but this spending apparently qualifies for the stimulus bill because part of the money from each allocation is reserved for climate-change research. For instance, the bill grants NASA $450 million, but it states that the agency must spend at least $200 million on “climate-research missions,” which raises the question: Is there global warming in space?

    The bottom line is that there is a way to fund government agencies, and that is the federal budget, not an “emergency” stimulus package. As Riedl puts it, “Amount allocated to the Census Bureau? $1 billion. Jobs created? None.”

    Summary:

    $150 million for the Smithsonian

    $34 million to renovate the Department of Commerce headquarters

    $500 million for improvement projects for National Institutes of Health facilities

    $44 million for repairs to Department of Agriculture headquarters

    $350 million for Agriculture Department computers

    $88 million to help move the Public Health Service into a new building

    $448 million for constructing a new Homeland Security Department headquarters

    $600 million to convert the federal auto fleet to hybrids

    $450 million for NASA (carve-out for “climate-research missions”)

    $600 million for NOAA (carve-out for “climate modeling”)

    $1 billion for the Census Bureau

    INCOME TRANSFERS

    A big chunk of the stimulus package is designed not to create wealth but to spread it around. It contains $89 billion in Medicaid extensions and $36 billion in expanded unemployment benefits—and this is in addition to the state-budget bailout (see “Rewarding state irresponsibility” below).

    The Medicaid extension is structured as a temporary increase in the federal match, but make no mistake: Like many spending increases in the stimulus package, this one has a good chance of becoming permanent. As for extending unemployment benefits through the downturn, it might be a good idea for other reasons, but it wouldn’t stimulate economic growth: It would provide an incentive for job-seekers to delay reentry into the workforce.

    Summary:

    $89 billion for Medicaid

    $30 billion for COBRA insurance extension

    $36 billion for expanded unemployment benefits

    $20 billion for food stamps

    PURE PORK

    The problem with trying to spend $1 trillion quickly is that you end up wasting a lot of it. Take, for instance, the proposed $4.5 billion addition to the U.S. Army Corps of Engineers budget. Not only does this effectively double the Corps’ budget overnight, but it adds to the Corps’ $3.2 billion unobligated balance—money that has been appropriated, but that the Corps has not yet figured out how to spend. Keep in mind, this is an agency that is often criticized for wasting taxpayers’ money. “They cannot spend that money wisely,” says Steve Ellis of Taxpayers for Common Sense. “I don’t even think they can spend that much money unwisely.”

    Speaking of spending money unwisely, the stimulus bill adds another $850 million for Amtrak, the railroad that can’t turn a profit. There’s also $1.7 billion for “critical deferred maintenance needs” in the National Park System, and $55 million for the preservation of historic landmarks. Also, the U.S. Coast Guard needs $87 million for a polar icebreaking ship—maybe global warming isn’t working fast enough.

    It should come as no surprise that rural communities—those parts of the nation that were hardest hit by rampant real-estate speculation and the collapse of the investment-banking industry—are in dire need of an additional $7.6 billion for “advancement programs.” Congress passed a $300 billion farm bill last year, but apparently that wasn’t enough. This bill provides additional subsidies for farmers, including $150 million for producers of livestock, honeybees, and farm-raised fish.

    Summary:

    $4.5 billion for U.S. Army Corps of Engineers

    $850 million for Amtrak

    $87 million for a polar icebreaking ship

    $1.7 billion for the National Park System

    $55 million for Historic Preservation Fund

    $7.6 billion for “rural community advancement programs”

    $150 million for agricultural-commodity purchases

    $150 million for “producers of livestock, honeybees, and farm-raised fish”

    RENEWABLE WASTE

    Open up the section of the stimulus devoted to renewable energy and what you find is anti-stimulus: billions of dollars allocated to money-losing technologies that have not proven cost-efficient despite decades of government support. “Green energy” is not a new idea, Riedl points out. The government has poured billions into loan-guarantees and subsidies and has even mandated the use of ethanol in gasoline, to no avail. “It is the triumph of hope over experience,” he says, “to think that the next $20 billion will magically transform the economy.”

    Many of the renewable-energy projects in the stimulus bill are duplicative. It sets aside $3.5 billion for energy efficiency and conservation block grants, and $3.4 billion for the State Energy Program. What’s the difference? Well, energy efficiency and conservation block grants “assist eligible entities in implementing energy efficiency and conservation strategies,” while the State Energy Program “provides funding to states to design and carry out their own energy efficiency and renewable energy programs.”

    While some programs would spend lavishly on technologies that are proven failures, others would spend too little to make a difference. The stimulus would spend $4.5 billion to modernize the nation’s electricity grid. But as Robert Samuelson has pointed out, “An industry study in 2004—surely outdated—put the price tag of modernizing the grid at $165 billion.” Most important, the stimulus bill is not the place to make these changes. There is a regular authorization process for energy spending; Obama is just trying to take a shortcut around it.

    Summary:

    $2 billion for renewable-energy research ($400 million for global-warming research)

    $2 billion for a “clean coal” power plant in Illinois

    $6.2 billion for the Weatherization Assistance Program

    $3.5 billion for energy-efficiency and conservation block grants

    $3.4 billion for the State Energy Program

    $200 million for state and local electric-transport projects

    $300 million for energy-efficient-appliance rebate programs

    $400 million for hybrid cars for state and local governments

    $1 billion for the manufacturing of advanced batteries

    $1.5 billion for green-technology loan guarantees

    $8 billion for innovative-technology loan-guarantee program

    $2.4 billion for carbon-capture demonstration projects

    $4.5 billion for electricity grid

    REWARDING STATE IRRESPONSIBILITY

    One of the ugliest aspects of the stimulus package is a bailout for spendthrift state legislatures. Remember the old fable about the ant and the grasshopper? In Aesop’s version, the happy-go-lucky grasshopper realizes the error of his ways when winter comes and he goes hungry while the industrious ant lives on his stores. In Obama’s version, the federal government levies a tax on the ant and redistributes his wealth to the party-hearty grasshopper, who just happens to belong to a government-employees’ union. This happens through something called the “State Fiscal Stabilization Fund,” by which taxpayers in the states that have exercised financial discipline are raided to subsidize Democratic-leaning Electoral College powerhouses—e.g., California—that have spent their way into big trouble.

    The state-bailout fund has a built-in provision to channel the money to the Democrats’ most reliable group of campaign donors: the teachers’ unions. The current bill requires that a fixed percentage of the bailout money go toward ensuring that school budgets are not reduced below 2006 levels. Given that the fastest-growing segment of public-school expense is administrators’ salaries—not teachers’ pay, not direct spending on classroom learning—this is a requirement that has almost nothing to do with ensuring high-quality education and everything to do with ensuring that the school bureaucracy continues to be a cash cow for Democrats.

    Setting aside this obvious sop to Democratic constituencies, the State Fiscal Stabilization Fund is problematic in that it creates a moral hazard by punishing the thrifty to subsidize the extravagant. California, which has suffered the fiscal one-two punch of a liberal, populist Republican governor and a spendthrift Democratic legislature, is in the worst shape, but even this fiduciary felon would have only to scale back spending to Gray Davis–era levels to eliminate its looming deficit. (The Davis years are not remembered as being especially austere.) Pennsylvania is looking to offload much of its bloated corrections-system budget onto Uncle Sam in order to shunt funds to Gov. Ed Rendell’s allies at the county-government level, who will use that largesse to put off making hard budgetary calls and necessary reforms. Alaska is looking for a billion bucks, including $630 million for transportation projects—not a great sign for the state that brought us the “Bridge to Nowhere” fiasco.

    Other features leap out: Of the $4 billion set aside for the Community Oriented Policing Services—COPS—program, half is allocated for communities of fewer than 150,000 people. That’s $2 billion to fight nonexistent crime waves in places like Frog Suck, Wyo., and Hoople, N.D.

    The great French economist Frédéric Bastiat called politics “the great fiction through which everybody endeavors to live at the expense of everybody else.” But who pays for the state bailout? Savers will pay to bail out spenders, and future generations will pay to bail out the undisciplined present.

    In sum, this is an $80 billion boondoggle that is going to reward the irresponsible and help state governments evade a needed reordering of their financial priorities. And the money has to come from somewhere: At best, we’re just shifting money around from jurisdiction to jurisdiction, robbing a relatively prudent Cheyenne to pay an incontinent Albany. If we want more ants and fewer grasshoppers, let the prodigal governors get a little hungry.

    Summary:

    $79 billion for State Fiscal Stabilization Fund

    — Stephen Spruiell is a staff reporter for National Review Online. Kevin Williamson is a deputy managing editor of National Review.

  • Report this Comment On February 06, 2009, at 2:49 PM, DPollock290 wrote:

    Another article like this and I think I'm BAILING out of my membership. Gibbons isn't wearing rose colored glasses, he's wearing a blindfold.

    Another Jefferson quote is goes something like this: "The government cannot give anything to anyone that it doesn't first take from someone else." I don't know about Gibbons, but I've had just about enough taken from me by a government that perpetuates victim mentalities and entitlement attitudes. Tell me folks - exactly which government program is it that is well managed, solvent, and effective? NONE.

    If you like Social Security you're gonna LOVE government healthcare!

    ENOUGH!

  • Report this Comment On February 06, 2009, at 2:58 PM, CaraClaudel wrote:

    Obama's stimulus package is not a stimulus package. He is paying his constituents and setting up one-party rule in America.

    Obama is a Marxist. From his absent but idealized Communist father to his Communist childhood mentor, to his years of work on the Chicago Annenberg Challenge with small-c communist Bill Ayers, his 20 year attendance at the Marxist-based Trinity Church, and his work for ACORN and its subsidiaries, his life is full of Marxist ties. Further, he has studied and taught Saul Alinsky's "Rules for Radicals," which teaches radicals to use deception to make the middle-class think you're on their side.

    His stimulus package gives billions of dollars to groups like ACORN, which not only was instrumental in our economic collapse, but which also engaged in massive voter fraud in this past election. ACORN was not founded to help the poor. It was founded to collapse capitalism by overloading the government bureaucracy. They are currently succeeding. When they are funded with billions of our tax dollars, we will never see free and fair elections in America again.

    Capitalism is simply economic freedom. If we don't have economic freedom, we are slaves of the state.

    Patriotic Americans should be burning up the phone lines to our representatives demanding that this theft of our wealth be stopped, and that our march toward socialism be reversed.

    We need to take the correction and provide emergency help to people who are out of work so they can get through this difficult time. Then we need to cut taxes on job producers so they can afford to create new jobs, reduce some of the insane regulations that are designed to drive people out of business and make them dependent on the government, drill for oil at home while developing alternative sources of energy, and make America a friendly and reasonable place to manufacture goods again.

    Yes, we need to regulate derivatives that can cause so much chaos and prevent CEOs from looting their companies while driving them into the ground. But giving Obama and company all our money and total control of our economy is not the way.

  • Report this Comment On February 06, 2009, at 3:04 PM, JPerryE wrote:

    THE BAILOUT IS GREAT! ...BS...

  • Report this Comment On February 06, 2009, at 3:05 PM, WindyCityPaul wrote:

    This may be the single silliest thing I've ever read- ever.

    The financial system collapsed due to primarily to two main causes:

    Artificial liquidity from the Fed- ultra low rates made no sense with full employment and economic growth.

    Artificial demand for housing due in large part to the Community Re-development Act that began under Carter, continued under Reagan, was greatly expanded under Clinton.

    The global financial meltdown was fueled in large part by the aggressive buying of subprime and Alt-A mortgages by Freddie and Fannie.

    I agree that we must temporarily provide liquidity to the financial engine of our country, however neither TARP, nor this latest bloated pork bill do much to fuel lending-- nor does government spending on pork projects help to stimulate the economy.

    We need consumers spending right now, and to fuel that they need credit, and they need to keep the fruits of their labor.

    We need jobs created now more than ever, and to fuel that we need to reward risk takers, not punish them with punitive tax rates and the ultimate tax: inflation- which is exactly what we are doing now.

    This is not the change we need. This is Carternomics II, and the result will be the same.

  • Report this Comment On February 06, 2009, at 3:05 PM, gemhoust wrote:

    Capitalist DOGMA??? Dogma???!!! You ARE fools.

  • Report this Comment On February 06, 2009, at 3:14 PM, spontius wrote:

    Always remember, the 3 'culprits' negatively impacting our nation's and our personal

    economic health and well-being are:

    1. Utilities

    2 & 3 Tied. Banks and Insurance Companies.

    Always have been, clearly true today, and always will be.

    Foolish Fan

  • Report this Comment On February 06, 2009, at 3:15 PM, deelelbee wrote:

    You fooooool ! FDR's efforts caused only an increase in the unemployement and a further drop in the GDP.

    And the bank managers were FORCED BY 2006 2007 CONGRESS

  • Report this Comment On February 06, 2009, at 3:15 PM, Saratovets wrote:

    Obama's new deal is not a stimulus plan and any Fool that spends 10 minutes looking deeper than its name knows that. Not only that, but it goes against pretty much all of the stated Motely Fool investing ideals and it moves our country directly into the course to socialism.

    There is one reason that the bulk of the world-changing developments of the past century have come out of the US and that is capitalism.

    If you agree, please write or call your senators and ask them to support the constitution and preserve what makes our country so great. Ask them to stand up against Obama's spending bill.

  • Report this Comment On February 06, 2009, at 3:16 PM, zeke39 wrote:

    Interesting stuff here. My guess is that this is a community of investors, who can be expected to accept the consequences of their decisions --- good or bad. That is why there is such little sympathy for the mistakes of others --- especially those due to excessive greed or political ideology (Barney Frank comes to mind).

    I do not know enough of the history of the Great Depression and its aftermath to comment on that aspect.

    For the people who are relying on President Obama to lead us out of this mess: My understanding, from following this quite closely in the press, is that he is not all that active in shaping the bill --- rather he is, against his best interest, letting Pelosi and Reid shape the bill with all the kitchen sink thrown in. He does not seem to have exerted any discipline whatsoever on the formation of the bill.

    I personally believe that long-term lower corporate tax rates are even more important than personal ones --- if the purpose is to get the economy going through the creation of jobs. We have no business taking money from people who have managed their affairs responsibly and give it to people or institutions (especially the government!) who have failed to do so.

    Giving tax rebates or extended unemployment, temporarily (!), will not significantly stimulate the economy. However, it will allow people to see their way through the tough times, and give them the opportunity to organize the future (for example, to pay down debt!) Laudable, and should be done responsibly --- that is, without contribution to increased size of the government and entitlement programs for the future. And it should be recognized for what it is --- important policy for the amelioration of the hard-pressed citizens, but not economic stimulus.

    The pork (both business and political ideological) in the bill has undermined all the faith people might have had in bill. Remember --- there is a reason why the Congress, lead by Pelosi and Reid, had a lower approval rating than ex-President Bush.

  • Report this Comment On February 06, 2009, at 3:17 PM, adammeyerson wrote:

    I just checked the calendar and it's not April 1.

    But I'm guessing this is some kind of experiment to how many "FOOLS" would believe this is your true opinion.

    Do I get a prize?

  • Report this Comment On February 06, 2009, at 3:18 PM, dpbEsq wrote:

    Is this investment advice or punditry from a political talking head??

    1. President Bush thought it best to bail out the banks, Mr. Obama seeks to bail out unions, the very poor and Hollywood;

    2. Mr. Obama is not President Roosevelt. Obama's 2009 (anti)Stimulus Package is not the New Deal. In fact, its not even a stimulus package.

  • Report this Comment On February 06, 2009, at 3:19 PM, garyc27 wrote:

    The largest single transfer of private wealth to the United States Government. This Bailout is Great?

    Please advise how I go about cancelling all of my Motley Fool subscriptions.

  • Report this Comment On February 06, 2009, at 3:23 PM, JPerryE wrote:

    There seems to be a mistaken notion that it's “government money” that would be spent.

    So the federal government borrows a trillion dollars which comes from taxpayers. Then pays it back, with interest (equal to about 30 - 50%) which comes from the taxpayers. The taxpayer ends up paying from 1.3 to 1.5 trillion dollars.

    The efficacy: If you liked the “Bridge to Nowhere,” you’ll love the “stimulus.”

    Morality: For those caught up in this argument, you're just plain wrong. Every dollar taken from the taxpayer is a dollar that would have been spent (or saved) directly and freely in the economy. You assume that a private citizen is just too stupid to handle their own money. If you think only the “rich” will pay, that’s wrong too. Everyone pays directly or indirectly as a result of deficit spending.

  • Report this Comment On February 06, 2009, at 3:28 PM, tomalling wrote:

    I can't add much to what others here have said, except to say that if the people at Motley Fool actually believe what this idiot has written, it's past time for me to cancel my subscription to your newsletter.

  • Report this Comment On February 06, 2009, at 3:34 PM, rmhask111 wrote:

    Mr. Gibbons,

    With all due respect, sir, this bailout is not "great." It is anything BUT great. We are moving steadily toward socialism rather than a free market economy, Perhas you should take up song writing rather than economic dissertations. After all, we can't call the USA "the Land of the FREE (and the Home of the Brave)" once we are a Socialist state, now can we?? We''ll need a new tune for that. I believe our economic system is collapsing due to a complete lack of ethics and moral behavior, especially among people in positions of pwoer The French Philosopher, Balzac, was noted for his words of wisdom two centuries ago: "Behind every vast fortune is a crime." Sound familiar to you, Congressmen? Mr. Wall Street CEO's and Bankers? Mr Madolf? Stop screwing your own country!!

  • Report this Comment On February 06, 2009, at 3:39 PM, zev88 wrote:

    This article makes it clear, these guys really are fools. Maybe its time the Motley Fools start reading Milton Friedman. My subscription won't go another day.

  • Report this Comment On February 06, 2009, at 3:43 PM, astronav wrote:

    What Capitalist System?

    We haven't had a true capitalist system since the ink dried on Wealth of Nations!

    If the author truly believes that the Bailout is Great I'd sure like to know what he's smoking and where to get some.

    Since all that bailout money is borrowed and the people it was loaned to are under no obligation to do anything useful for the USA with it, guess who gets to pay off those bonds.

    And if the author gets as rich as he thinks he will get, maybe he'd be willing to pay off all our creditors! (Ha!)

    If you have been badly damaged by the criminal greed and negligence of known criminals, under what strange logic would you give them even more money.

    If you use a thief to catch a thief, it only means you get robbed twice, and apparently are welcome to write silly articles for the Foolish News.

    Government!

    Take your hands off our economy!

    Right now!

    Now put your hands in the air and step back!

    Now, turn around and walk slowly away.

    DO NOT touch the economy again until it is healthy and strong enough to resist you!

    Have a peanut butter sandwich! Right now!

    N.B. If you are an econopath as most of you are, you must never in the future approach our economy closer that 100 miles. (Like your cousins the sociopaths and sex offenders.)

  • Report this Comment On February 06, 2009, at 3:43 PM, clearview101 wrote:

    Your motto is the Educate, amuse and enrich! This article is a joke, so I guess that meets the amusement factor in the motto. Clearly there is no education provided, only poorly researched misinformation. No enrichment either, as the only people that are enriched here are the theives (read that Obama and his thugs) that will tax us more and more to pay for this Pork Barrel they are shoving down our thoats as an effort to resolve the current economic problems. If we have learned anything in our history (in other words it has been proven as true over many years) it is that the cost of the government doing anything will be greater than the cost of private industry, and the chance that it will be the wrong thing to do is an unacceptably high probability. The best thing we can do is stay off of the Obama express. He is the least qualified president in the history of the USA. His wagon isn't worth riding on.

  • Report this Comment On February 06, 2009, at 3:51 PM, montanaguy wrote:

    An additional note on the jet order. It was ordered 2 years in advance, and was replacing 2 older jets for a net savings of $1.0MM plus estimated 15 to 17% fuel savings. None of that was in the news. Also the flight management systems were from Honeywell in Arizona, etc... so that hurts US jobs.

  • Report this Comment On February 06, 2009, at 3:55 PM, jkyu99 wrote:

    You must be kidding. Are you in competition with http://www.theonion.com ? The tongue in cheek network, where if you say it boldly enough, people will believe anything? Perhaps you should mention this other story that explains what happened with Blarney Frank and Charlie Brown Schumer the Irregulators?

    http://www.youtube.com/watch?v=cMnSp4qEXNM

  • Report this Comment On February 06, 2009, at 4:02 PM, halftide wrote:

    Hold on to economic principles that give positive results!

    Here is why:

    There have been a series of ideologically driven mistakes over a number of years that have resulted in the present economic problem.

    The ideology that has brought us to this financial crisis did not predict the crisis. It came as a result of the Congress passing politically accepted “reforms” to our financial system over the last 30 years. When you have a world view that justifies decisions that ultimately have negative results there is a problem with the world view. When it dawns on us that there is a problem, the world view must be adjusted to accommodate an explanation for the negative results and a better alternative…. if you do not wish to repeat the errors.

    There are two corrects that have to be accommodated in some fashion: “Politically Correct” and what I will call “Rigorously Correct”, both of these “truths” have the strength to punish mercilessly. The worst case scenario is when they are at odds; the best is when they agree.

    There is a consensus that we are experiencing a significant world financial “readjustment” and what we are experiencing is not good. There are two very distinct perspectives on the immediate issues. The prevailing political position realizes that there is a problem but the model that they use for their financial decisions has failed them. This statement is an unassailable, logical truth. The proof is that their view did not and does not connect the bad economic decisions in the past with the present situation. This statement can only be false if the decisions in the past were intended to harm us. The confused are operating only in the present and reacting to correlations to what was done in the past rather than taking a lesson from examination. They are astounded and confused and panicked. Their world view is therefore not grounded in sound economic principles and is unable to process what they are experiencing or suggest and accept as necessary appropriate economically sound adjustments to the policies that brought us to this place.

    A single political party does not own ideological control of rigorous disciplines like economics, natural sciences etc.. to suggest otherwise is lunacy. This is not about PARTIES; it is about avoiding decisions where ever they come from that have the certainty of bad results.

    Politically the consensus is always in charge. The consensus may make a Politically Correct decision which is not grounded in a functional world view. It is allowed! This is the equivalent of successfully voting to keep the tide out. The vote will be taken and one side will “win” but the consequences of a non functional decision will be felt in the real world. Guaranteed!

    It appears as if the Congress is throwing the countries equity up into the air without a workable plan in the hopes that something will stick. This is a very bad idea that will have unbelievable (unbelievable only for those who would suggest it) consequences. Before we as a country allocate resources, we must come to some Political consensus that the world view used to justify the actions contemplated can identify the poor decisions of the past and in hind sight predict how these decisions brought us the pain that we are now experiencing. That is the simple test. Empty rhetoric to prop up a failure is not going to help us. Most people can now see this is also a truth. How do we unwind the damage we have done to ourselves if the political consensus has no understanding of how it all happened?

    Some economists had models that were “Politically Incorrect” yet were rigorously correct. They were unsuccessful in garnishing consensus support but as models they were spot on correct. Ideologies are stagnant and resist evolving. These correct thoughts were defeated politically by the failed ideology at our eventual peril. As a country the “Political Correct” and the “Rigorously Correct” has gone very far out of sync and must come back into sync before we throw all of our hard won resources into the thin air for no good result and more likely a horrific consequence.

  • Report this Comment On February 06, 2009, at 4:08 PM, dave9c wrote:

    What a silly article. The reason banks are fialing is becuase the government (Barnie Frank etc.) decided to meddle in free enterprise by threatening to regulate banks if they did not begin to provide mortgages to the poor. Banks began lending to people who had no capabilty to repay, thus the mess we are in today. Capitalism works. Government forced an industry to do something unnatural, loan money to people without the means of repaying. Prior to 1994, when the Community Reinvestment Act was passed, bankers were known as the most conservative business men and woman. Now government wants to take over more industry. If you think government can perform better than private industry then so be it. However, the fact is that government is inefficient and does not have a clue about business.

  • Report this Comment On February 06, 2009, at 4:08 PM, erichwwk2 wrote:

    Hmm. my thoughts. Education, especially the kind obtained by watching the real world closely, how to group observations into units, and developing a track record for predicting distributions of outcomes, matters.

    While one can indeed create ones one reality, the danger to that is illusions have the downside that they are not lasting. If one is BOTH aware of that, AND prepared, the consequences can be painful.

    The problem with creating illusions is that the person most thoroughly fooled, and the least prepared when the "bubble bursts", is the creator of that illusion,

  • Report this Comment On February 06, 2009, at 4:11 PM, wtf2009 wrote:

    UNSUBSCRIBE

  • Report this Comment On February 06, 2009, at 4:12 PM, j1bird2k wrote:

    It is astounding how much ire and vitriol this topic exudes. This society has been sickened by the greed and self-absorbed myopia that is unrivaled on the planet. And all fueled by the incompetence of a media so rapidly heading for a crash that it never takes its eyes off the rear view mirror. We are the product of the age of hyper-entitlement and everyone of the people posting here reflect some connection to that mindset. The reality is that it will not progress without some effort and some sacrifice. Step up and take responsibility. We all played a part in the current spiral, we will all need to play one in the recovery. Start by checking your ideology at the door; last time I checked it had no caloric value.

  • Report this Comment On February 06, 2009, at 4:19 PM, bullgoose wrote:

    Lol - i guess there's no danger of my paying member dues.

    Wow. Is it even worth bothering to respond to the author? Obviously, he's not exactly a thought-leader.

    I'd like to hear from TMF. Seriously. They published & circulated this article. That means there's at least one person at TMF who believes the author demonstrates a grasp of the subject matter.

    Right? Someone read this author's submittal, thinking "Yes, this is good info. It represents the type of thinking and analysis we do here at the TMF. We believe people will read this article, be impressed with us, and pay us to dispense economic & financial commentary."

    Lol - I mean really… Who at TMF made the decision to publish this article? Are they actually paid? Do member fees go to paying the people who made the decision to circulate this?? Please tell us.

  • Report this Comment On February 06, 2009, at 4:20 PM, Zebra366 wrote:

    The fact that a strong economy has a strong bankig system is true. But is was a weak economy based on leveraged debt that ruined the banks and collapsed the market in the 1930's. If you dig a little deeper you will find that there was a huge speculative boom, fueled by leveraged debt, in Florida real estate just prior to the Great Depression. Sound familiar?

    Anyone who thinks tha you make an economy strong by trying to fix the banks must also believe that the way to make a dog happy is to move his tail back and forth real fast...

    If Buffet is so all-knowing, why did he lose tens of billions shorting the dollar? Why is BRK.A down 33%.

    Riding with Buffet can be great, but in order to really succeed you need to get of the bus one stop before he does.

    I agree this little essay is foolish, with a small "f".

  • Report this Comment On February 06, 2009, at 4:31 PM, jeremydolby wrote:

    Pork does not equal stimulus. I'm referring to the latest "stimulus" bill, not the banking bill. Ideology for me has begun to give way to practical application of reason. Bailing out poor decision makers is not conservative choice, yet I agree that ideological beliefs are not worth the we would have (and may yet) paid.

    Back to the current bill, though, little of it makes sense. Unless of course you subscribe, balls to bones, to the liberal Tax & Spend philosophy of government. I think every member of congress, from both parties, needs to take a hard look at the limit of their REAL Constitutional authority and suspend all income taxes until September as suggested by the most lucid of our elected representatives.

  • Report this Comment On February 06, 2009, at 4:36 PM, firstace wrote:

    Come on guys; try to get over the angst! Do you really think allowing massive bank failures is the road to recovery? If so, first take a knife to your nose and see how you feel afterwards.

    BTW forget the political blame game; the repeal of the Glass-Steagall Act was by a considerable majority from both sides.

    The underlying problem throughout federal regulation or deregulation is the special interest groups that influence the politicians to ignore "we the people" interests. So, put your angst into political action and place your vote wisely.

  • Report this Comment On February 06, 2009, at 4:39 PM, JoshPittyTheFool wrote:

    The articles author has a blind spot. This lack of critical thinking is why the New York Times needs a bail out. I recommend him for the Fool layoff!

  • Report this Comment On February 06, 2009, at 4:43 PM, nouturns wrote:

    It is amazing how you can loose all credibility with just one article.

    I now grant you the same status as Alec Baldwin.

  • Report this Comment On February 06, 2009, at 4:51 PM, snm928 wrote:

    Who was it that screamed, "YOU CAN'T BE SERIOUS..." Oh yeah, John McEnroe. This article is probably reason enough for me to stop associationg with Fools.

  • Report this Comment On February 06, 2009, at 4:51 PM, deidreeast wrote:

    You might want to upgrade your recommendation ratings with thumbs up and down ratings like Tivo for this article.

    I was expecting a highly insightful article based on the high recommendation score. After reading the comments, I recommended it too--not because of the article, but because of the brilliant comments AGAINST the article.

    The responsible, hard-working, thrifty Fools are tired of bailing out, propping up, rescuing every idiot around on OUR DIME! Help for those who are working two jobs to keep current on their mortgage payments? Nope! Only when you stop paying will anyone help. Got into something that you could never afford? No problem. We'll let the judges renegotiate your lending contracts.

    Funny, I thought the Constitution said something against laws impairing the obligation of contracts. I guess that old school document has about the usefulness of toilet paper to politicians these days (even the Constitutional Law Scholars).

  • Report this Comment On February 06, 2009, at 4:52 PM, pmollon wrote:

    I was not able to read every single comment but I don't believe there has been a single word uttered about the Federal Reserve, the uncontrolled beast that has given us every single boom/bust cycle since it's inception in 1913. Although with a lot of help from any number of ill advised government "programs".

    Our dollar is now worth about 3 cents relative to 1913 when the Fed was created. In that year an ounce of gold would buy a nice custom tailored suit. In 2009 an ounce of gold will buy a nice custom tailored suit. There's gotta be a clue there somewhere.

  • Report this Comment On February 06, 2009, at 4:56 PM, Bunchadna wrote:

    I signed up for Foolishness, not silliness. I recommend you add Amity Shlaes's "The Forgotten Man: A New History of the Great Depression" to your reading list. I can forgive your lack of understanding of just how little the New Deal accomplished vis-a-vis remedying the Great Depression - we've been fed that warmed over gruel for 70 years now. How thin indeed it has turned out to be.

    What I can't easily forgive is your investigative sloppiness which is betrayed by you giving cover to that monstrous, out of control, drunken spending binge the Congress is attempting to embark on. There is very little in that bill that can honestly be termed stimulative.

  • Report this Comment On February 06, 2009, at 4:59 PM, SpectreStew wrote:

    This insipid article is so un-Foolish. The author fails to include any data contrary to that which supports his predetermined support of the bill. See how easy it is to cherry pick data to support an idea. Does he even realize there are numerous, well respected analyses of how FDR's actions extended the depression?

    Why did I get this as the lead story in a Fool email? I don't need this kind of junk coming to my in-box, OK?

    I suspect that many of those who clicked on "recommend this article" thought there would be a "thumbs down" option. I hesitated thinking it would not be prudent to possibly "recommend it" by accident.

    Please, someone post a counter-column to this rhetoric.

  • Report this Comment On February 06, 2009, at 5:02 PM, Jermce96 wrote:

    What the author fails to mention is that it wasn't government intervention by FDR that had an "impressive" impact it was the WAR!!! The government didn't spend our way out of the depression we PRODUCED our way out due to the massive increases in war related manufacturing and other jobs. The government only slowed down the process then and it will surely delay our recovery now. Wake up America... the government doesn't make money... WE THE PEOPLE DO! The government doesn't need to spend anything... it needs to create positive incentives for increased productivity. Tax Cuts always create more revenue for the Federal Government because they have a direct effect on the productivity of our businesses. It's very simple actually... don't spend a dime... just create positive incentive to individuals and businesses and they will increase their productivity and create jobs and there will be more tax dollars to spend. The government created this problem through intervention in the lending industry... if they will get out of the way the healing can begin.

  • Report this Comment On February 06, 2009, at 5:03 PM, nicho91 wrote:

    Your article makes you a shill for ridiculous PORK. Who pays for that? And at what inflation rate?

  • Report this Comment On February 06, 2009, at 5:04 PM, basiceconomics wrote:

    I'm sorry, but this article is pathetic. When I first starting getting into business, I was economically ignorant, so I didn't notice issues such as this. But since studying the dismal science for the past 12 years, I am utterly amazed and disappointed on how many executives and financial 'experts' are blind when it comes to the laws of economics. Maybe too many years of Keynesian education? I haven't figured out the root of it, but to believe that we need more money infused into our system and more regulation is asinine and completely illogical. Those are the two main things that have gotten us into this mess.

    The first mistake this author makes is believing we live in a capitalist system here in the USA. Not since at least 1913, when the Federal Reserve was formed, is that true. We now live in a corporatist system, which is very close to fascism. No company, large or small, would have any power over any of us without the interference of the State via regulations, tariffs, subsidies, monopoly-grants, etc. And we certainly would not be in the financial mess if we didn't have the Federal Reserve and a fiat currency. Do people realize our money is backed by nothing but air from politicians? If that doesn't scare you, I'm not sure what would.

    In a true capitalist system, i.e. true free-market (not NAFTA or the WTO) trades would ONLY occur when both parties believed they were getting something better in return than what they are giving up, at that particular moment in time. That would include trading money for a car or food or a tv set, or an employer and employee trading money for productivity. These are all simple trades that should be voluntary and only involve the parties who are doing the trading! This is what is referred to as the Subjective Theory of Value, and it's no longer a theory btw. Contrast this with what we have, wage controls, price caps, monopoly grants, farm subsidies, bank bailouts, tariffs, regulations, protectionism/mercantilism, etc. It is insane.

    All I can advise is to not store dollars, as they are about to fall off a cliff. You will need cash to survive, so always have some physically in your possession (not in bank), but also have gold and silver. And as far as investing, think NON-DOLLAR assets. People should stop believing this is just another little recession, this one is major and you should prepare yourselves. Most Americans have never seen anything like what is about to come to our shores.

  • Report this Comment On February 06, 2009, at 5:08 PM, PolarBearCrisis wrote:

    This bailout is horrible and destructive. If you don't like capitalism, move to a Socialist or Communist Country.

    If businesses fail, let them fail. The market will fix things. The government will destroy things and give itself power to destroy more.

    The United States has been #1 for 200 years...as a Capitalist country. By the way, Citigroup and AIG FUNDED President Obama....so in reality, Obama won this election on BAILOUT MONEY...he is only trying to pay them back....and neither he nor the banks care about what happened to the country.

    The only way to solve the problem is to LET THEM GO OUT OF BUSINESS. Then maybe Americans will go after those who caused the problem like FRANKLIN RAINES, BARNEY FRANK and CHRIS DODD who were all IN CHARGE OF FANNIE MAE AND THE BANKS...they should be HUNG IN PUBLIC but instead, Americans are so brainwashed by the media that they re-elected them....WOW...DISGUSTING and IGNORANT

  • Report this Comment On February 06, 2009, at 5:13 PM, toddsnotafool wrote:

    Well, Mr. Gibbons,

    I think the opinion is out on this one. Thank you for at least drawing the line in the sand for us.

    If anyone thinks this is a good thing, then they (and you) just don't get it; and they (and you) need their short term eyesight checked. This "bailout" has been a set up for a long time and will turn into the most catastrophic government intervention in history of this country, if not the world.

    Have you actually read this American Recovery and Reinvestment Act of 2009? You can find it on the senate.gov website; they're on revision H.R.1.AS right now. Take a look at it, it may amaze and disgust you. And let me know when you finish reading it all. It is a lobbyist's and regulator dream world. This isn't a bailout for banks; it's giant move to the land of collectivism with a wide open door for theives for years and years to come. It has the potential destroy our "free market" completely. And don't talk about food on my shelves as long as we have "farm subsidies".

    If my studies in history and in economics has given me any knowledge, then I know this is bad, not good, and certainly not great (unless you're a friend of a D.C. insider).

    FDR didn't do us any favors either. But lucky for us (economically speaking), this isn't 1929. Our world is quite a bit different now; a bit faster.

  • Report this Comment On February 06, 2009, at 5:20 PM, SpectreStew wrote:

    I have asked TMF to either put forth a retraction (for having sent this out via email with the subject of the email titled "This Bailout is Great!), or to cancel my account. Putting this article out in such an email, and in the subject block was in my opinion irresponsible.

  • Report this Comment On February 06, 2009, at 5:24 PM, mmarler3 wrote:

    Completely lost in all of the comment about the present bailout package is that much of it contains new, or expansions of entitlement programs, which will entail ANNUAL increases in spending of hundreds of billions of dollars. The initial cost of the bailout is the tip of the iceberg.

    The individual who suggested that we give Obama time had it right: Thirty years at hard labor.

  • Report this Comment On February 06, 2009, at 5:24 PM, joeGuitar wrote:

    Sorry, I couldn't disagree more with this post.

    Even IF I agreed that the govt could and should stimulate the economy via spending, this bailout has a staggering amount of pork.

    Keep the money and centralized power out of the hands of the few, .... that's the thing that IMHO really caused the housing and banking house of cards to collapse last fall.

    Fool on,

    -- Joe

  • Report this Comment On February 06, 2009, at 5:27 PM, MissMoe wrote:

    Am I in the twilight zone? I agree with a number of comments that say the article was one of the worst from Motley. But then again remember no one is making money in the investment world with articles etc. Why? Because no one is investing, resulting in little or no commissions, and advisors realize their invesments which they took a bath on, won't go back up until America bails out everyone..... Yep there was a blip on the market today but that has been the same since the beginning of the year. In one day out the next. I'm glad there are still some people out there that realize this bailout as written is robbing the hardworking American. Taking from those who have and giving to those who don't want to do a thing for a living.

  • Report this Comment On February 06, 2009, at 5:31 PM, rosym wrote:

    Some above have noted that the New Deal failed to cause real recovery; that the massive spending for WWII is what did the trick. (example, see Kent1941's comment on Jan. 30 at 5:32 PM) I've read economists recently who make the same point, and for that reason think the stimulus bill will fail because it is too SMALL. I've yet to hear an explanation why war spending, basically making things that will in short order blow up or be blown up leads to fixing the economy. What about the WWII spending was better for capitalism than New Deal spending? Why did it work?

  • Report this Comment On February 06, 2009, at 5:35 PM, jbmetrics wrote:

    I am amazed that after literally hundreds of comments that NO ONE pointed out solutions to what caused the real problem in the first place; oversupply!

    It was the over building of houses based on speculative real estate development that led to over 2 million new vacant homes on the market back as early as 2006. It was last years over production of millions of cars with no demand that has hit the automakers, and it was the over extending and offering of credit to credit risks (I remember as a college grad 20 years ago trying to get a $200 credit card was difficult, but last year, a teenager could get a $2000 credit card!) that caused the problems for banks.

    I was told by a wise man once, "there are two banks you bank with, one that loans you money and the one you put your money with, for the one that loaned you the money isn't worth taking the risk to put you money with" This wise man was a banking executive for a major bank that is currently still standing.

  • Report this Comment On February 06, 2009, at 5:35 PM, floppydog2 wrote:

    Fools -- your credibility has been severely tarnished by your blind acceptance of eurosocialism as preached by the current legislative majority - and President. How sad. I had hoped you would stand up and fight for the Jeffersonian principles that made our "experiment" the greatest country on earth, but then perhaps you have thrown in the towel because Capitalism is indeed dead.

  • Report this Comment On February 06, 2009, at 5:37 PM, RobertNYC wrote:

    The Fools have been drinking the Kool Aid - anybody who reads the papers know that the average person got screwed with the bailout. Our tax dollars are going to finance the bonuses and parties for the investment banks. The crooks cooked up a bunch of subprime securities that are now worthless and ran their banks into the ground (after putting millions inot their own pockets over the years). Next time somebody says that we have to pay salaries of millions of dollars to get good people to work at the company point out how these over priced idiots ran their banks into the ground.

  • Report this Comment On February 06, 2009, at 5:40 PM, til76 wrote:

    Oops !! That's what you get for skipping your history classes. The one thing that brought the US out of the depression was World War II. Roosevelt did nothing constructive and his Smoot-Hawley was a disaster of giant proportions. The only thing this abortion of a stimulus bill does is make certain liberal commentators feel all warm and cozy while it mortgages our great-grandchildren's future and does darned little to create real, read that to mean PRIVATE SECTOR jobs. More government- come on now. Who is that stimulating ??

  • Report this Comment On February 06, 2009, at 5:42 PM, MrBear100 wrote:

    "The results of Government intervention were impressive." Like 17-22% unemployment for a decade! What do you think we haven't read the Forgotten Man - the 'Bama Adminstartion hasn't taken it off the shelves yet. Socilaism has never worked in any shape or form ANYWHERE ANYTIME - I'm outta here, you brainwashed FOOLS

  • Report this Comment On February 06, 2009, at 5:44 PM, tomjbv wrote:

    you Fools are most certainly living up to your name...why??? you Fools don't remember what really happened in the Depression....when given jobs in the WPA/CCC many men had to be broken away from their families to live in conditions that were just above the level of Nazi Consentration Camps to get to where FDR Created work....this was true even for those who had work that was fairly local as transportation was really not available to get the workers back and forth to where the their actual home was....I do see readers taking the for front in rememding you "Fools" that when my father got wacked @ Pearl Harbour while serving his country[ my father had the movie "From Here to Eternity" written about his heroic exploits during the attack while he was awaiting his leaving Hawaii and his work in the Pacific and Asia as he was finally going home for only the 2nd time in 12 years of service...he was shipping out to go home on Dec. 8, 1941]......Fools....I'll make one suggestion.....for you all to go back to school and learn what really happened in one of the darkest periods of US History[namely the Depression which was only out done but WW1, the Civil War and our Revolution] and to stop drinking the "Mad left wing socialist Kool Aid you've been drinking......from one who grew up learning the lessons of The Great Depression....you see my father survived it and did well in times were not so good including his heroics during the WW2 fight against Fascism and then Communism.......Tom V. in Coventry, Rhode Island.....which stinks with leftist/socialist Democrats just like you Fooooooooools !!!!!!!! thanks but no thanks for Non Advice Foooooooooools !!!!!!!!!!!

  • Report this Comment On February 06, 2009, at 5:47 PM, dtbrown33 wrote:

    Your "bottom line" is always predictable i. e. send us money and we will tell you what to do!

    After you analysis?? of the bailout package, who, in their right mind would follow your advice???

    Congress I guess.

  • Report this Comment On February 06, 2009, at 5:53 PM, Kensdumb wrote:

    This guy should go live in DC where his views will coincide with the current socialist looters there. FDR's "bailout" in the 30s didn't work, but prolonged the agony until the country was bailed out by WW2 - 9 years. I sure don't want to have agony till 2018 and be bailed out by WW3. I lived through the depression of the 30s and WW2 and believe me it was ugly! The only difference between FDR and BHO is one was a white socialist from NY and the other is a black socialist from Chicago. Not enough difference to spit on!

  • Report this Comment On February 06, 2009, at 5:56 PM, curlydude42 wrote:

    The only way that the stimulus will work is if as "Road to war" book said America goes to war with the nation holding the majority of our assets. Germany owned many factories until we went to war with them and took their assets. So in this case, we go to war with China after they buy our notes. USA declares their claim to our assets as null and we are good to go.

    By the way, please refrain from sending opinion to my email. Has fool become a Obama tool?

  • Report this Comment On February 06, 2009, at 5:59 PM, jeffduby wrote:

    The idea of a "bank bailout" is the most rediculous concept I've heard to date. We have not bailed out the banks, or even come close to doing so. We have not even appropriated enough money to cover the bad sub prime debt. We are still going to have to bear the brunt of the Alt-A's collapse, the commercial real estate collapse, and the derivative house of cards that go with them.

    The banks are all going under because we simply can not print enough money to bail them out.

  • Report this Comment On February 06, 2009, at 5:59 PM, branchre wrote:

    As JPerryE said. BS. Like haluli, I have gone over the bill in as much detail as I can and find little that is good. Most is open season for the vultures who are already salivating at all this money available to them, and few are thinking jobs. FDR was not successful with his new deal Everything he did was not wrong but many things were. I was old enough that entire period to see the waste........the symbol of WPA was a man asleep leaning on a shovel, for good reason. My dirt poor subsistance farm family was proud that we never took any of the handouts, and I consider myself blessed that they had that attitude and instilled it in me.

  • Report this Comment On February 06, 2009, at 6:02 PM, RedneckEconomist wrote:

    After reading this article, I am seriously considering cancelling my subscription to Motley Fools. Folks, we are in DEEP TROUBLE. Everyone is looking around pointing figures at the greed, lavish lifestyles, seemingly inept leadership in both the private and public sectors.

    Well, my opinion says we should look at the stupidity of the Federal Reserve Board. When the economy was booming in 1999-2000, Greenspan started raising the Fed Funds Rate (FRR) from the 4-5 pt range to 9-10 pt range starting in 2000 through the middle of 2001. Then 911. Economy went to the dogs. Greenspan then says, "we overacted and lower the FRR to 1% by the end of 2002. The FRR stayed a 1% until the current geniuses took over and "fearing inflation" raised the FRR from 1 to 5% from Jan, 2006 thru June, 2008.

    Anyone that took Eco 101 in college knows that the law of interest is like the law of gravity. When rates go up, the value of long-term negotiable securities goes down. When rates go down, the value of the LTNS's goes up. Well, mortgages are LTNS. So, all those loans (good or bad) made in 2002-2006 and there were several trillion $ worth, were automatically devalued on the balance sheets of all finanicals when the Fed started raises rates in 2006. We also know that if the rate goes from say 8% to 12% that's a 50% increase. When rates go from 1% to 5% that's a 500% increase. The mark to market accounting method required every financial to devalue those portfolios.

    So, what did the Fed do? OH! NO! we need a bailout!!! We need to lower the FRR to 0%.

    With the FRR at 0% my friends. No one in their right mind would enter into a long-term contract because the minute the Fed's start to raise the FRR the security will be devalued. The FRR now has put this economy in the deepest hole we have been EVER!!!! No amount of spending will ever change that!

    The Fed needs to raise the FRR to about 3%; Congress needs to abolish or limit the requirement for mark-to-market accounting; and the government needs to get out trying to own our strongest companies. Stockholders need to also take a stance against the greed, lavish lifestyle and leadership of our publicly held companies.

  • Report this Comment On February 06, 2009, at 6:02 PM, invsblcity wrote:

    While I think most if not everyone agrees that improving the economy and solving the banking system problems are essential, what is proffered here is nothing but idle speculation and hyperbole. This article has a multitude of inaccuracies, and lots of bold statements not supported by any fact, research, or commonly accepted wisdom.

  • Report this Comment On February 06, 2009, at 6:02 PM, jeffduby wrote:

    by the way, the worlds richest man became the world's richest man through collecting management fees and special deals obtained through back room agreements, not by investing in common stock like you're telling us poor saps to do.

  • Report this Comment On February 06, 2009, at 6:03 PM, MONEY1977 wrote:

    Interesting clip about Federal Reserve and the Banking Institution...

    http://www.youtube.com/watch?v=_dmPchuXIXQ

    Very Conspiracy driven... but who knows??

    I put nothing past the govt..

    Whole Movie...

    http://www.youtube.com/watch?v=0kHhc67GopM

    I dont believe half the stuff in this film but I thought the banking thing seemed interesting considering all thats happened as of late..

    Check it out..

    Id like to hear others opinions.

  • Report this Comment On February 06, 2009, at 6:15 PM, wfread2001 wrote:

    I think Sen John Thune from SD has a great idea:

    http://www.youtube.com/watch?v=6aumWZEYnSY&feature=chann...

    9 page amendment that gives the money to taxpayers.

  • Report this Comment On February 06, 2009, at 6:16 PM, fallensparrow wrote:

    I couldn't even finish this vomit filled drivel. Seriously?! Are you talking about bailing out Execs that squandered their assests on bad debts?! Really?! It's like giving the keys to your car to an alcoholic.

    Mr. Gibbons should not be allowed to write any further articles for this organization. He has proven to not understand free market systems.

  • Report this Comment On February 06, 2009, at 6:16 PM, ARTS100MP wrote:

    I agree with the comments of the majority of the Fools. The bailout is nothing more than the Federal government reaching out to enforce socialism ala Obama. He is not an economist, but he did organize a neighborhood once! NO to the bailout....

  • Report this Comment On February 06, 2009, at 6:30 PM, secjd wrote:

    An awful lot of the posters on this blog seem ready to throw all of the blame on the banks' executives; but what about all of the irresponsible consumers who took loans they couldn't afford in order to be able to live beyond their means? Personally, I'd a thousand times sooner see my tax dollars go to keep my bank afloat so my savings don't get wiped out by a bank failure than I would see them go towards rewarding millions of consumers for being irresponsible by bailing them out of their mortgages. Noone forced them to take these mortgages. I, who live in a small, rent stabilized apartment should now pay for their McMansions? I say, let them go broke! As for suggestions that consumers be given the money on the condition that they use it to pay down their debts, this may sound good, but it's rather naive; how do you ensure that they actually do so? It would be an administrative nightmare, if not an administrative impossibility.

    The main problem with the bailout is lack of controls, primarily because Hank Paulson (who should be thrown in jail) refused to accept any. So, it was conducted in the same manner as so many other relief and other efforts undertaken over the past 8 years; money was simply thrown around hastily and chaotically without much concern for where it went.

    As for the New Deal, to say that we got nothing for it is hogwash; the entire Tennessee Valley had been a giant swamp before the New Deal. Scores of important infrastructure projects were funded by the New Deal. Now, thanks to years of neglect, first by liberal Democrats who spent all the money on social welfare programs and the Viet Nam war and then by Repubicans who spent it on tax cuts and the Iraq war, our infrastructure is crumbling beneath our feet. How would you like to be driving home from work one night and havw the bridge you're driving across fall into the river, along with you? This has already happened in the Twin Cities and threatens to happen in many more. Like it or not, folks, the stimulus package is badly needed - it just needs to be spent in the right places. Oh, and one last thing about the New Deal: the banks had already been allowed to fail and collapse, and there was also this little thing called the Dustbowl, which ravaged most of our farmland - both complicating factors which contributed to the prolonged Depression.

    A partner of mine tells me that years ago, under IRS regulations, if a public company paid its executives too much, the company would lose its tax deduction for the excessive pay. This was repealed when the tax code was overhauled back in the 1980s; it should be reinstated. Furthermore, the bankruptcy law should be restored to its pre-2005 state to enable those who are drowning in debt to file. To say that "hopefully, consumers will have learned their lesson" is hopelessly naive; however, if they go through bankruptcy, they won't be able to spend like drunken sailors anymore, at least for some 5-10 years - and there should be strict regulations limiting the amount of credit which can be extended to consumers who have filed for bankruptcy within the past 10 years. Glass-Steagall should be reinstated, and the government should not be able to keep interest rates artificially low, and consumers feeling a false sense of security, by manipulating the inflation numbers for political expediency (for example, taking energy and transportation out of the equation in the 1970s because of the first oil crisis, then the Bush administration's taking food out of the equation because prices began to soar). Lastly, regulators should do precisely that - REGULATE - not argue for ever more deregulation and fail or refuse to enforce whatever is left in place. This means that those appointed to head our Federal agencies should believe in those agencies and in the regulations they were formed to enforce and administer - they should not be a bunch of industry lobbyists who don't like or believe in regulation.

  • Report this Comment On February 06, 2009, at 6:32 PM, lethalvb01 wrote:

    After reading the article and all of the comments I simply did not learn anything.

    I have to agree with the fact that the bailout plan simply will not work as a long term solution. If our financial sector crashes then people should just squat in there houses and fight against people who try to throw them out.

    There was a comment in the middle somewhere that said,

    "The federal reserve and all central banks are a scam".

    The very fact that money is simply printed and is stamped with a value NOT in proportion to any gold standard or goods and services created from labor tells it all right there. This fractional reserve system truly has us all enslaved. It enslaves us because we all collectively believe paper money has value.

    So if that is the case then all comes down to how many people are convinced of something.

    Now as far as this article being propaganda, that is true also. I imagine The Motley Fool itself has a large stake in financial stocks which is why they would want to use their persuasive writing power to convince their readers to go with this plan because they may be hurting right now.

    Keep in mind, this is an investment advice website. They are trying to give you good investment advice in the form of products, their newsletters.

    They use persuasive writing all the time to try to sell you their products just like every other business in the world. It doesn't make them crooks. I have to say, they write pretty awesome sales pitches than many other companies I've seen.

    So overall, I say be personally financially responsible for your own stuff and don't waste all of your money on worthless things. Stop humping the American dream and start living down here on Earth.

  • Report this Comment On February 06, 2009, at 6:41 PM, fallensparrow wrote:

    I don't think we should bail out the consumers either. But they didn't put a gun to head of any bank exec and tell them to write a shaky loan!

    The banks screwed up. The customers screwed up. That's why we have Bankrupcy courts.

  • Report this Comment On February 06, 2009, at 6:47 PM, EricTheBald wrote:

    FDR's policies prolonged Depression by 7 years, UCLA economists calculate

    Here, read for yourself:

    http://newsroom.ucla.edu/portal/ucla/FDR-s-Policies-Prolonge...

    Also, the REASON for this depression can be laid at the feet of the Community Reinvestment Act. And dont forget Barney Frank's brilliant stonewalling of every attempt to regulate Fannie & Freddie.

    My God people.... Even George W Bush, who was NOT an economic conservative by any stretch of the imagination; tried to warn us. Google "New York Times September 11 2003". You dont even have to use a more specific string than that. THAT string will bring up the article, usually in the first result.

    And you know how much money we're going to waste?

    Add the ill-advised $750m bailout from last fall, to the current one that is looking to top a Trillion, add in the interest, and VIOLA!: You waste so much money that it would be the EQUIVALENT of simply refunding ALL of the IRS revenues for 2008.

    And you want to argue that this is a good idea...?

    Look, I was born AT night. Not LAST night.

  • Report this Comment On February 06, 2009, at 6:47 PM, KayG2008 wrote:

    Wow, makes me rethink getting my investment advice from here...

  • Report this Comment On February 06, 2009, at 6:48 PM, EricTheBald wrote:

    Me too Kay.

  • Report this Comment On February 06, 2009, at 7:22 PM, TMFDiogenes wrote:

    Wow, it's great to see so many passionate Fools here! I'd just want to make a few points:

    1) This article is about the bailout, not the stimulus plan. If you are opposed to the stimulus that's fine, but it's not the same thing.

    2) You may not agree with every TMF article you read. I know I don't. Heck, I even published one last week whose conclusions I strongly disagreed with. But I didn't telephone my author to call him names. Let's be civil.

    3) If you do disagree with this article, one way to voice that disagreement would be to offer some constructive alternatives in the comments box. I hate having to bail out banks too and believe we should clawback/fire/jail as many people as is appropriate, but the fact remains that the financial system and perhaps capitalism would have failed if we allowed these companies to go under. The FDIC has around $85 billion to insure all of our nation's deposits. WaMu alone had twice that figure. So, if you have a different solution, let's hear it.

    Ilan (Rich's editor)

  • Report this Comment On February 06, 2009, at 7:22 PM, jolyroger28 wrote:

    Either Mr. Gibbons is a socialist in sheep's clothing or just plain naive. His assertion that regulation is needed to guard against irrational bank management is short sighted.

    One of the foundations of capitalism is the link the board of directors plays between the management and shareholders. Unfortunately this link has been broken by government laws protecting investors from their own recklessness, and laws favoring boards and management over shareholders. Just ask Carl Ichan, I'm sure he would agree with my last point.

    The government takes away the ability of shareholders to hold management and directors responsible, and now that the results have come to roost people are being fooled that whats needed is more government control. We've let the government take away investors rights, and are now fooled into believing whats needed is more government regulation to take away the risk they've exposed us to.

    Just ask why congress questioned the CEO's but not the actual directors who approved the pay? Could it be because boards have provided retired bureaucrats with opportunities? The laws that protect the management and boards are also largely driven by their fear of being taken over or broken up, so had the laws not been there maybe being taken over or broken up by private money would happen more often and we would have never been in a position to say they are too big to fail.

    I have suspicions that Buffet's support for this "socialist" managed economy may be less than sincere due to Berkshire's involvement in the financial industry. And besides, Buffet advises people invest in what they know, and who can honestly say they know how these banks make their money!

    People have to step up to the plate and take responsibility for their investments, including who they choose to invest with and even do business with...and quit leaving it up to government to mitigate the risk for them. Deny these irresponsible corporations, boards, and CEO's your investing dollars, and other business you do with them as well.....only deal with responsible people you Fools!!

  • Report this Comment On February 06, 2009, at 7:23 PM, piinob wrote:

    It is obvious most of the folks here are clueless. Too much Fox Not enough study. Good article repeating truth that needs to be heard above the din of the children.

  • Report this Comment On February 06, 2009, at 7:32 PM, tvuh wrote:

    how ridiculous. and this gets published?

  • Report this Comment On February 06, 2009, at 7:34 PM, laughtrack wrote:

    Repeal the Reagan tax cuts.

    Some of you folks need a history lesson from a valid source, rather than the right wing noise machine because your ignorance is appalling.

  • Report this Comment On February 06, 2009, at 7:36 PM, jolyroger28 wrote:

    "It is obvious most of the folks here are clueless. Too much Fox Not enough study. Good article repeating truth that needs to be heard above the din of the children."

    What a well thought out response! I guess it is easier to just blindly follow than educate yourself.

    P.S. I don't even have Fox, I work a blue collar job, pay a crap load of taxes, use nest to no government services, get no government handouts....and most importantly....educate myself beyond what the politicians and bureaucrats tell me.

  • Report this Comment On February 06, 2009, at 7:41 PM, claregwentworth wrote:

    Tom recently promised to do more reading and hopefully he will start by what really caused this meltdown. It wasn't a lack of government intervention, but an excess of it. Back in the late nineties the admin and congress were pressuring bank to loan to more people and they gave fannie and freddie the assignment to buy these mortgages even if they didn't meet their criteria. Before that banks knew better than to loan to people who were not good risks. But along came government backed Fannie and Freddie who were instructed and incenivized to buy smelly paper. The banks did the obvious thing and wrote smelly mortgages and sold them to F & F at a profit. When Barney Franks was questioned on this during an administration and congressional effort to correct this dangerous and eventually disastrous situation in about 2006 he was outraged and leapt to the defense of F & F saying that they were doing a terrific job and not doing anything that wasn't sound business so they kept buying smelly paper and the banks kept selling it to them. Coincidentally Barney Franks were receiving huge (6 figure) contibutions from F & F. If the government hadn't pushed for this siutation this wouldn't have ever happened.

  • Report this Comment On February 06, 2009, at 7:51 PM, 9640 wrote:

    There is nothing wrong with capitalism, it is a very effective economic system for distributing capital and goods However it does not safeguard us against those who manage it. Wall Street and our financial leadership were driven by greed and short term benefit to their compensation packages. Our regulatory watchdogs were incompetent, lazy or both. Our Congress, guardians of the people's interests, were bought off. So we the sheep that repeatedly elect them will pay the price of whatever they decide to do for the benefit of their constituents (read those with checkbooks) and eventually we the working class, our children and grandchildren will pay.They, of course, will be retired in their clubs and on the golf courses bemoaning the high taxes.

  • Report this Comment On February 06, 2009, at 8:02 PM, miaaway wrote:

    I know are law makers think were inept,maybe they should read some of these comments it might open there eyes.If the motley fools think this is a great bailout, they might be the ones who are inept.

  • Report this Comment On February 06, 2009, at 8:11 PM, ReillyDiefenbach wrote:

    Well, it appears that the majority of the right wing nuts who populate the threads here at Motley Fool are ready to scamper lemminglike over the cliff of free market capitalist dogma. How did the free market work out for ya,guys? Oh, it's the minorities' fault?Well, guess what, geniuses, you've had your shot, and the nation isn't buying your self-serving drivel any more. You're fired. Alan Greespan, Ayn Rand, Milton Friedman, Robert Rubin, Phil Gramm,Henry Paulson, all you selfish characters are gone as of this coming week. You've failed utterly and completely. You're done, finished, finito, hit the bricks and never open your pie holes again as long as you live.

    And another thing. Anyone who uses the word socialism as a pejorative should be compelled, Clockwork Orange style to sit through a slow bus tour of France and Sweden with their eyes clamped open, just two of the possible societies available to us should we ever have the brains to free ourselves from the yoke of big business. Countries where the roads are kept in perfect order, where just about the only fat, undulating bovines are behind the pasture fence, where health care is universal and COMPLETE, not only if you don't get very sick. Understand folks, there is no such thing as a financially catastrophic illness in either of those countries. It's called a social comtract. You say your kid has to take out a loan for 50 thousand a year to go to law school? How about zero in Canada if you're not wealthy? Sound like a deal? No? You'd rather give more money to the top one percent?

    Nah.

  • Report this Comment On February 06, 2009, at 8:14 PM, crawlfish wrote:

    I think that this is one of the best times in my life to invest in stocks and finally I have the ability to take advantage of it.

  • Report this Comment On February 06, 2009, at 8:39 PM, jfklekotka wrote:

    perhaps the fools are actually in charge! The bailout is not a good thing. American taxpayers are footing the bill. Nowhere in the Constitution does it allow for such behavior. The taxpayer is a servant to the government. This must change and the only way I foresee change coming is by revolution. Time is running out.

  • Report this Comment On February 06, 2009, at 8:48 PM, ejohnson343 wrote:

    Yeah great advice "buy in value now" yes my advisor totally whiffed a year ago November as well with "great fundamentals" "favorable environment" "shallow bottom" "V recovery" etc... I bailed myself out at (15%) contrary to 99% of advisers group sheep advice to stay all in while they followed each other to the slaughter house with other people's money. Sorry but you and your peers credibility is now hovering around Al Gore levels. My adviser has since been fired and I have come to realize if you want it done right "do it yourself"; that does sound familiar.

  • Report this Comment On February 06, 2009, at 8:51 PM, sfrookie wrote:

    To TMFDiogenes: This article WAS about the stimulus, not just the bailout. What else could the author be referring to in the section about the "New Deal"? Combine that with the timing of this article, and it is clear that this author is right in lock step with the president and democratic congress on this thing. It's a bit frustrating to have to read this stuff from a company I give money to.

    TMF seems to pride itself in independent thought, to a fault sometimes. You loose credibility when you allow people to author articles who show political bias - not to mention a complete ignorance of recent history.

  • Report this Comment On February 06, 2009, at 9:19 PM, Ross3408 wrote:

    Mr. Gibbons opines on a subject about which he demonstrates little knowledge. I humbly suggest that he spend an hour or two at least skimming the writings of the late, great Milton Friedman. Of note also is, "The House of Morgan," by Ron Chernow.

    Our nation's crisis, IN ITS ENTIRETY, has been created and fed by the federal government to allow it gains in dominion over free markets and to assist re-election bids by the party now in power.

    Very few members of Congress understand even rudimentary economic theory or finance. Nearly all of those members are trial lawyers, schooled in the business of fleecing the deepest pockets available and little else. Their only interests are self-enrichment and re-election.

    To paraphrase Henry Kaiser's famous quote: "Over the long term, a nation gets exactly the government it deserves." As of now, we deserve no better than what we tolerate.

    Ross3408

  • Report this Comment On February 06, 2009, at 9:19 PM, mechawonton wrote:

    I am just not sure that this particular bailout

    is all that great. We could be well on our way to learn a new lesson come 2020.

  • Report this Comment On February 06, 2009, at 9:22 PM, vbguy78 wrote:

    Suggest changing your name to "Obama Fool". Note that Daley in Chicago has refused to name the pork barrel projects he is funding under the "stimulus".

  • Report this Comment On February 06, 2009, at 9:31 PM, Taxinator wrote:

    I'm very disappointed that TMF included this thread/story in its newsletter. I'm out.

    I'm going to cancel my membership. When you start endorsing top-down central planning (a la Roosevelt and Obama plans) over free market capitalism, you lose all credibility in my mind. If you'd simply prefaced or rationalized the comments by saying that "the people" feel that way or that "the market" is based on these over-simplified sentiments about the current economic situation and we should invest based on that misinformed milieu, then I might give you a pass. But to support outright nationalization of private industry and socialism/fascism/authoritarianism as an acceptable approach to economic woes is unacceptable.

    Goodbye.

  • Report this Comment On February 06, 2009, at 9:56 PM, mouse54 wrote:

    Those who believe socialism is a great concept can always move to a socialist country. Those of us who prefer capitalism should not be forced to surrender our rights. As to the bailout, the only way the government gets money is to take it from working people or to borrow it. I am willing to bet that our government does not have the 800 - 900 billion dollars the current bill requires sitting around in a bank account, given the current debt that they carry, so they will need to borrow it. Adding approximately one trillion to the debt, even if it does serve to stimulate the economy in the short term, results only in larger debt, more taxes required to pay the debt, and, therefore, less discretionary income for the taxpayers over the long term. In short, the bailout/stimulus package will ensure that less money is available throughout the economy in the future. As someone else noted, the best way to stimulate the economy is to give the money to a large portion of the American population. It is the people who make the economy work, through investment and spending.

  • Report this Comment On February 06, 2009, at 10:08 PM, rdhalste wrote:

    Those citing the Citybank jet as an example of poor spending haven't done their home work.

    First, the jet had been on order for several years and required a healthy down payment...LOST

    Second: They had two Falcon 900s to sell and even at the present depressed market that was $4 million more than the cost of the new jet.

    Third: The new jet would have come with a warranty that would have eliminated costly maintenance for several years.

    Fourth: They would have needed one less full time crew on call.

    Fifth: There were penalties that probably ran into several million for canceling the order.

    So, here we have a good case where spending money is saving a LOT of money, but public and government's *misguided* perception cost CityBank millions of dollars to make it look like the government forced them to stop spending.

  • Report this Comment On February 06, 2009, at 10:08 PM, TMFDiogenes wrote:

    sfmrookie,

    The reason I'm reminding everyone that this is an article about the bailout rather than the stimulus is because the timing is confusing. Less than 200 words of a 1000 word essay were about the new deal. The rest was about the bailout. That means that the vast majority of comments calling Richard a socialist aren't only mistaken, but missing the whole thrust of the article.

    Now, if we want to accuse basically every economist from Greenspan to Buffett to Volcker to Roubini and politician from Obama to Bush of being a "socialist" because they know that TARP in some form or another is necessary to save our financial system, fine.

    But please, before another person accuses Richard of being a socialist, stop.

    Then decide a) were Bush, Paulson, and Bernanke who took temporary positions in banks, and Obama/Geithner, who are buying assets from banks, all socialists for doing so, and b) have you drawn up a different solution to restoring the solvency of our nation's banking system?

    Because if you have, your country needs to hear it. If not, then you, like Richard and basically every economist, recognizes the ugly necessity of TARP.

    Thanks everyone for the lively discussion,

    Ilan

  • Report this Comment On February 06, 2009, at 10:09 PM, Abraxas365 wrote:

    On December 21, 2007, Motley Fool said Warren Buffett did not believe the subprime lending mess posed a grave danger to the U.S. economy. Please see "Buffett's Subprime Bets" in Foolwatch Weekly Digest. So much for the Oracle's expertise in where all this is headed.

    And if you guys actually believe Obama's energy policy will create 3 million new jobs, you must have been hitting that bong with Michael Phelps.

  • Report this Comment On February 06, 2009, at 10:11 PM, CapitalistPig01 wrote:

    The author makes an interesting comment without siting a source as though it were common knowledge. It's not common to me, so I thought I'd ask.

    What evidence is there that the bank failures are the result of "bad investments" that would be any different than investments that would have been made if "Glass Steagall" had not been repealed.

    My pointless is, Ronald Reagan is and always will be right when he said, "The answer to our problem is not more Government. More Government IS our problem." All you Reaganites out there, feel free to correct the accuracy of my quote... I know it's close, but probably not word for word.

    In the end, Barny Frank and his lackies created this mess and he (read the government) need to clean it up... or at least keep the bank failures from killing the economy. Once we're back on our feet again, finding way's to keep the Government out of our business will be the order of the day once again. Unfortunately, that seems to be a dying paradigm. For the last 30 years we've been teaching our kids from Kindergarden through MBA that socialism is the answer to all our problems.

    Whomever the sage was that reminded us that we get the government we deserve, was only too right.

  • Report this Comment On February 06, 2009, at 10:29 PM, estate1997 wrote:

    If you don't like the way this package is going, be in line at your bank with me Monday morning.

  • Report this Comment On February 06, 2009, at 10:29 PM, eugenevos wrote:

    Obama wants to create 5 mln jobs, really? Did you do the math (including Obama) how many jobs will be created per day? It's 3,424 jobs for each day of his 4-year presidency! Stimulus bill will help? You right! See this simple illustration of how it will "help": http://www.youtube.com/watch?v=dEDIyztZGBA

  • Report this Comment On February 06, 2009, at 10:34 PM, sfrookie wrote:

    TMFDiogenes (Ilan),

    Sorry if I was misunderstood. I didn't call Richard a Socialist. I don't think he is anymore than I think any of the people you mention are. I just think his article was misguided. And I think it is clear that he thinks "these government interventions will pave the road to recovery."

    I, along with many others, am really concerned about the level of involvement of the government in this whole thing. I think that we are a selfish, self-centered lot who are unwilling to "take our medicine", and therefore are looking to government to take care of us now, to the detriment and burden of those who come after us.

    Steve

  • Report this Comment On February 06, 2009, at 10:36 PM, BoctorBill wrote:

    I am not very happy about this particular bailout. If the money went to consumers in the form of vouchers for paying mortgages off, that would be something. Everybody wins.

    There is no reason that this should have happened any other way. This would be trickle up money that would be forced to trickle up, because there would be only one path it could travel.

    Only in our bizarro American society could direct, unchecked money to these financial corporations be considered a better idea.

  • Report this Comment On February 06, 2009, at 10:46 PM, rosym wrote:

    This discussion is on a third grade Rush Limbaugh level. I also might resign from the fool, not over anger at Mr. Gibbons, but rather at the realization that the vaunted fool community is populated by... fools. I guess I can't say I wasn't warned. The policies in such high regard here are very true to the policies of George Bush. Have you noticed that these policies have not worked out to our collective benefit? What makes you think it will work better if we keep doing it?

    I'm curious; how do you folks explain this conundrum: Clinton balanced the budget and created jobs. Then Bush cut taxes and stifled regulation and the economy fell apart? You keep saying read history. I don't think most of the commenters here have even read a newspaper.

    I'm not saying high taxes are an answer. I'm saying that it is not that simple. These are dangerous times, and you'd best be careful not to march too tightly to Rush's behind. The guy is an idiot.

  • Report this Comment On February 06, 2009, at 11:09 PM, fremmons wrote:

    If you think you have a suggestion about a petroleum industry supplier then I hope it is a short sale recommendation. I have been an oil and gas professional since 1976. Oil companies world wide are CUTTING their capital budgets with LONG KNIVES. We are probably looking at low crude oil and gas prices for at least a year and maybe up to three years, unless Wall Street starts speculating in crude again like mid 2008, or if the Iranians or Russians make a destabilizing move on the world political stage.

  • Report this Comment On February 06, 2009, at 11:25 PM, whoozyourdaddy wrote:

    rosym,

    In answer to your question: READ HISTORY.

    "For our collective benefit..."? Look around, I think you're in the wrong neighborhood.

    Clinton DIDN'T balance the budget, Congress (a Republican majority at that) did. Clinton does get credit for taking time off from Monica to sign the bill.

    The Bush tax cuts helped the economy, if you recall we were in a recession in 2002-2003, preceeded by the attacks on Sept 11, 2001 and the dot.com bubble collapse. The current mess is because of the housing market. You can thank Barney Frank and Chris Dodd for that one. In fact, if you want to narrow down just when the economy went to crap, you might look around 2006. That's when the Democrats took control of Congress. 4$/gallon gas soon followed.

    Considering Rush is definitely above you in the smarts department, I would have to ask: If he's an idiot, what does that make you?

  • Report this Comment On February 06, 2009, at 11:30 PM, starmomhome wrote:

    Oh please! What a stupid article! How long can we keep feeding the cow her own milk? Where do you think this "bailout" money is coming from?

    This article definately lowers my opinion of the Motley Fool.

  • Report this Comment On February 06, 2009, at 11:32 PM, Wanderer13 wrote:

    ReillyDiefenbach, TMFDiogenes and all the other socialists would do well to remember;

    this "stimulus" bill tries to pick winners and losers. In the "winners" column are ACORN, the NEA, and various other Democratic party favorites and causes. In the "losers" column are all the rest of us. All of this has been tried before, repeatedly; it was called "centralized planning" and was a feature of the Communist regimes in the Soviet Union, China, Eastern Europe and so forth. Despite years of practice and some of the smartest people on the earth (ever read Russian mathematics papers? Chinese chemical research?) they were not able to make it work, either in the long run or the short. There simply isn't enough data, mindpower and resources available to create a government planning bureau that can match the efficiency of a free market. Those who try are doomed to fail; those who fail will do anything to hold onto power, leading to the Killing Fields, Katyn Forest, gulags, Great Leaps Forward and similar atrocities. If you succeed in bringing this to America, I will find you and hold you responsible, along with all those who love freedom and value responsibility.

  • Report this Comment On February 06, 2009, at 11:34 PM, JPMillerHOU wrote:

    I have a lot to quarrel about in Richard Gibbon’s article This Bailout is Great!

    In the first paragraph Gibbons says, “The basis of capitalism is that the strong survive, while the weak collapse.” Ayn Rand defined, “Capitalism is a social system based on the recognition of individual rights, including property rights, in which all property is privately owned.” The basis of capitalism is not the strong surviving but rather rights which are necessary for all men including businessmen so they can use their minds to survive. Justice demands that those who produce are rewarded and those who do not produce are unable to collect rewards. But that is a consequence not the basis of capitalism.

    Gibbons further asserts, “The problem is that, as a country, we can't make decisions based simply on anger or capitalistic dogma.” Rights are not capitalistic dogma. They are the necessary condition for men to survive because their means of survival is thinking. Any violation of rights denies the individual and the businessman the free use of his tool of survival his mind. Rights are objectively derivable from the nature of man. Dogma on the other hand is an assertion in disregard of the facts of reality.

    Gibbons is contemptibly understated in his contrast between the huge abundance of food and every other good in the United States and the mass starvation of millions and chronic shortages of every conceivable commodity in the Union of Soviet Socialist Republics.

    Gibbons is wrong. No banker in a capitalist society would rationally choose to lose his depositor’s money, destroy his bank’s reputation and his own, or risk the wrath of his stockholders, or invite lawsuits and criminal fraud action by putting money into high risk ventures or loans to those who could not afford to buy houses. But we have a mixed economy with massive doses of poisonous regulation.

    Banks have been protected from one of the most severe market punishments of misdeeds ever since the FED started regulating reserve requirements. They have been cajoled, shoved, driven and threatened to lend to low income buyers by many regulations including FHA, VA, HUD and especially CRA. They were offered easy ways to unload shaky debt through the highly regulated Fanny Mae and Freddie Mac. They were forced by law to extend the same kind of incentive to all borrowers. Finally FED easy money policy created a Ponzi scheme that exploded housing prices so fast that huge profits could be made by unscrupulous bankers and many borrowers. Indeed Richard Salsman in his 1980 book Breaking the Banks pointed out that decades of such perverse regulatory incentives encourage scoundrels into banking, gradually replacing skilled honest bankers. Capitalism the system based on individual rights does not breed this behavior; socialistic regulation that denies the banker’s free use of his mind does.

    Despite such regulatory attacks on capitalist banking there are still honest bankers and successful banks. Witness John Allison and BBT.

    Finally Gibbons is wrong about capitalism’s inability to respond to the failure of the bad apples in the basket. If those banks who failed because of bad loans and bad management had been allowed to go bankrupt and their assets liquidated then they would have been snapped up by competent banks for mere fractions on the dollar. Incompetent management would have been booted instead of collecting bonuses at taxpayer expense. Good assets would have been even better managed and bad assets set for collection. Such collection would have gotten people who were incapable of affording homes out of their houses and those houses into the hands of people who could afford them. True, huge amounts would be lost this way too but lost by those who did not deserve reward - incompetent bankers and indigent home-buyers. This crisis would be nearly over if liquidation had been allowed. Instead regulators are planning massive spending that will only reward the failures and punish the producers. Mr. Gibbons is an apologist for rewarding failure and punishing all the rest.

  • Report this Comment On February 06, 2009, at 11:36 PM, whoozyourdaddy wrote:

    OUR government is going to create jobs (if at all) at a cost of over 200K dollars per job. So we're going to spend 200K to create a 35K job, millions of times over to equal a spending bill that will top 1,000,000,000,000 dollars when all is paid. And that's on the optimistic side. At the lower end of the scale it's over 500K/job.

  • Report this Comment On February 06, 2009, at 11:38 PM, whereaminow wrote:

    There, there, now, my Socialist friends. Take your soma. It's going to be alright.

    Remember "Everyone belongs to everyone else."

    1 gram of soma cures 10 bad thoughts.

    Orgy Porgy, Orgy Porgy........

  • Report this Comment On February 06, 2009, at 11:46 PM, fremmons wrote:

    This is one of the best articles Fool has published. It has brought out a diversity of opinion I have seldom seen on a controversy that needs to be discussed. Besides, I love satire. But I can’t find the punch line. Mr. Gibbons can’t be seriously thinking the bailout is a good thing. The Bailout is more like a double amputation to save the patient’s life. It is making the best of a very bad situation that has its root cause in government housing policy and banking deregulation. Beware the next government policy. "A crisis should not be allowed to go to waste......" Rom Emanuel

  • Report this Comment On February 06, 2009, at 11:50 PM, nolove4money wrote:

    Wow!

    Great comments.

    Intelligent, insightful, passionate community...not sheep!

    Please post any other forums where I can find similiar conversation and research references.

    thank you very much

    There may come a time in the not to distant future when people of integrity, courage and self reliance may actually want to work together to survive and overcome the conditions of a failed society.

    peace to everyone...

    and God's peace to those of you who believe...

  • Report this Comment On February 06, 2009, at 11:53 PM, nolove4money wrote:

    Banks are hording cash (loans are not being made, even to solid borrowers), fact on the street and per public data. Residential and commercial mortgage defaults as well as credit card defaults are accelerating.

    The bailout and stimulus totals are less than 10% of the outstanding private and national debt that is collapsing in default. Even if the cash was going directly to service debt, create credit or create new jobs this year...it would still not be able to stop the locomotive collapse resulting from a debt/inflation based U.S. and global economy that is now imploding nearly identically to the 1929 crash but under a much more massive inflationary bubble.

    Read about the mkt, banking, gov intervention 1929-1936. Go to market browser.com (free portion), select chart, then economic chart...and start digging...

    VERY SCARRY!

    You guys need to read up (TMF staff). I am no authority but I have been spending literally hundreds of hours reading the most respected academics, historians and global heavy weight money managers...we are hosed...things are going to get worse...a lot worse.

    Go safe! Short Term U.S. treasuries (3mo Ts) for now as long as deflation persists NOT long term Ts. The minute inflation begins, run to gold, held outside of the U.S. The US gov has confiscated gold in the past (the last big crash), I don’t think it could happen again but why not cover that contingency?

    When respected top global money managers in the U.S. advise to have land, seed, fertilizer and other basic essentials as a hedge...you better think about the very real prospects of a severe depression in which access to basic goods may be limited.

    Depending on the continued solvency of the U.S. government, the U.S. dollar could conceivably lose its status as the world reserve currency...not immediately but perhaps in the next 1-2 years. Why do you think long term bonds are losing value...yes, cashed in to pay debt but foreign countries are also losing faith in the viability of the US economy.

    If/when the dollar turns the corner...after a deflationary period, it begins to sharply inflate...and the US must continue to service its ever increasing massive debt out of a diminishing GDP and diminishing tax base...the only alternative will be to print, print, print.

    Under these conditions inflation would sky rocket due to lack of demand for the dollar and huge debt service being paid by a currency that has no economic base to sustain its value. The dollar would literally start to move toward the value of the paper that it is printed on... This is not immediately immanent but assuming we remain on the present course, many very smart economists say that it is inevitable...2yr, 3yr, 5yr...

  • Report this Comment On February 07, 2009, at 12:06 AM, wtf2009 wrote:

    Wrong. Capitalism does work. To help illustrate my point, I'll be canceling my subscription. Best of luck, Fools.

  • Report this Comment On February 07, 2009, at 12:09 AM, pilikea wrote:

    What a pile of sophomoric garbage. No wonder I doubted the value of foolish advice; this article confirms there is no value between the fool’s ears.

  • Report this Comment On February 07, 2009, at 12:43 AM, ozaku wrote:

    I have to agree with the majority of the community responses. When I read this article I was shocked. It went against every capitalist notion in my body. I thought to myself, "gee, am I the odd man out?" "Is this bailout madness indeed sanity and am I the one last resister?" And then it hit me...the fool has been politicized. Those who buy into the New Deal as a good thing and Obamamania as a panacea have lost their way so far off of the path of capitalism, that they can no longer be trusted for their advice.

    When the new 800 plus billion "stimulus" package hits, and no one can remember where the money went, when the Chinese stop investing in our debt because they know we have no intention or recognizing it as such, when hyper-inflation hits in a year and everyone starts screaming at the Fed, when the auto industry starts producing "green" Yugos that the government makes us buy at a premium and enforces punitive tariffs to protect union jobs, please don't anyone be surprised.

    Before the fool became a money-making engine ("read this free article but be sure to join the latest miracle investment package they are pushing") they did some good for the neophyte investment community.

    Obviously they should stick to finances and stay away from economics. For that they can just rely on the House Democrats to perform miracles for an economy that as not even been suffering for a year yet.

  • Report this Comment On February 07, 2009, at 12:50 AM, Aussiealan wrote:

    I am a new subscriber to TMF and still learning the ropes so I hope you will bear with me.

    The current financial crisis is of major concern to everyone around the world, including down here in Australia. I followed the link with the intention of finding out more about how TMF works and how it would address the issue of this Bailout.

    I would not have been surprised to find that the article was a "How to make a million out of the Stimulus Package" item, rather than an assessment of the pros and cons of the proposal. After all, a financial site is not necessarily the place to expect to find in-depth analysis.

    It was a pleasant surprise to find that this was not a "How to.." article and I read it with interest. Even more interesting were the comments, which are clearly 90% negative or hostile. This is also not surprising given the catchment of the site. What was surprising was the number of comments that effectively questioned the right of the author of the item to hold the opinions expressed. Or at least to hold these opinions and his job as well.

    The arguments for and against the proposed Bill are well beyond my ability to assess, and as a resident of a foreign country it would be impertinent to express one. However, the vehemence of the posts raises fears about the ability of the United States to find a way in which all citizens can pull together to restore the country to its past position of strength and admiration in the world. There is a vast reservoir of goodwill towards the USA and it would be a tragedy to see it destroy itself with internal hatreds based on ideology.

    One or two contributors have referred to the temptation to regard everyone who has a different interpretation of events as being either a fool or a knave. Very few, if any, actions are wholly right or wholly wrong and the challenge facing any attempt at building a civil society is to recognise this fact.

    My father was fond of saying "Its a wise man that knows what a fool he is". He would have enjoyed reading what Fools have to say!

  • Report this Comment On February 07, 2009, at 1:03 AM, SIDLANA wrote:

    I agree with Andrew888

  • Report this Comment On February 07, 2009, at 1:22 AM, jimretired wrote:

    With all the threatened subscription cancelations I hope there is something in the STIMULUS PACKAGE for the MOTLEY FOOLS.

  • Report this Comment On February 07, 2009, at 2:13 AM, adlib5 wrote:

    what about the new deal keeping people from getting so hungry there are riots in the streets and destruction of the government. There are all sorts of unintended consequences for the plan of action that says let it all fail just as there are for doing too much. Innocent people will be destroyed. Personally I am well armed and will not allow my family to go hungry. We will eat off a public works social program or off of stealing from a rich guy or off the taxpayers while we sit in jail, when the wolf howls the man listens is how the Am,erican Indians described hunger. OK I am a long way from such drastic action but maybe some people are not. Hope is probably worth some cash.

  • Report this Comment On February 07, 2009, at 2:23 AM, DCDeliberate wrote:

    It is quite hilarious to me that Mr. Gibbons says it took the banks 9 years after the repeal of Glass - Steagall to invest poorly in ABS' and blow-up the system. First off, banks could not be investors if they did not take the bad loans that were found in the ABS'!! Banks had requirements to write these loans in order to participate in the benefits of a repealed Glass Steagall Act. SECONDLY and more importantly, were not Fannie and Freddie the instigators of theses very instruments known as ABS? And, because of their lack of disclosure oversight that regular banks HAD to perform under SEC scrutiny to operate, were not Fannie and Freddie able to bundle these very band loans with the good ones and sell them on the open market thus poisoning the WHOLE GLOBAL SYSTEM?!? F&F were making a toxic mixture for all their customers at the bar who were trying to cover the very losses they were enforced to make in order to continue to build their businesses under the opportunity of the repeal of Glass Steagall?

    F&F held 5.4 trillion of US mortgages and borrowed another 1.9 trillion to cover the rest. Who's stock has suffered the most in this crisis? The epicenter of the earthquake is on Wisconsin Ave. and McClean, VA.

    Hello Mr. Gibbons!! Where have you been? Do you watch the news? Do you see those pictures of homes with foreclosure signs on their yards? That is not B-Roll file footage from 1990-91.

    The Motley Fool has great info on it. But, it's opinionators stood out in the cold too long at the inauguration hoping to get a glimpse of Warren Buffet. This article is delusional at it's worst and not factual enough at best regarding the explanation of the current crisis.

    Get a clue Fool.

  • Report this Comment On February 07, 2009, at 2:54 AM, Buzzard9 wrote:

    There is so much greed oozing out of the pores of the writers on this posting that is sickening proof that we are in this pickle because of the rapid growth of such selfishness in our society.

    Greed has created this mess, combined with a putrid loss of concern for the welfare of the whole of our society. It matters little if this is driven mostly by banks, government or whatever when the dominant theme of all these selfish posters is "Me, Me, Me!"

    We really do need to see the collapse of this "Capitalist" economy for a while in order to appreciate what we have done to ourselves and our precious nation with such greed. It certainly sobered up our parents when they suffered through the 1930's and then had to sacrifice so much for WWII.

  • Report this Comment On February 07, 2009, at 3:06 AM, killben wrote:

    Your reasoning for Bailouts is pure baloney.

    You reduce your debt not by creating more debts but by repaying it or destroying it.

    Bankruptcies destroys debts.

    allow banks or companies that cant service its debts to go under instead of throwing more money at it.

    The only way to come out of this is allow free market to work, let companies go under, new companies will emerge ..

    ALSO SACK THE REULATORS, WHO WERE SLEEPING AT THE WHEEL, ENMASSE AND REPLACE THEM WITH PEOPLE WHO FORESAW THIS ..

    also do you really think you can get over this withoput pain

    world will not come to a end

    a new world order will emerge

  • Report this Comment On February 07, 2009, at 3:27 AM, demondriller wrote:

    So much debate and so many differing opinions and no guarantees that the TARP is going to straighten this out. Failure is a truly frightening prospect.

    With a lot of time on my hands since retirement I have read extensively about world financial matters. This was prompted after reading about the Enron scandal- why would top company executives already millionaires be prepared to jeopardise everything to become even wealthier- a constantly recurring story. One thing led to another and via Naomi Klein's book Disaster Capitalism? I was yet again left with more questions than answers.

    I was forced to conclude after all this reading that the world economy had never been about making the lot of the common man any better- a realisation that angered me because as a reasonably intelligent individual it meant that I had swallowed totally all the lies and half-truths fed me by the British press for the whole of my adult life.

    As far as you americans are concerned this reading leads me to one conclusion- that since the passing of The Federal Reserve Act on Christmas Eve (yes Christmas Eve) in1913, through WW11,the 1970's Milton Friedman Chicago School of Economics thinking, the unravelling of the Glass-Segall legislation in 1999 and up to today's crisis, the american economy has effectively been raped and pillaged by a highly organised group whose real allegiances lie outside the US. In a similar way the same group have effectively marginilised the Russian economy by using western banks finance to pay millions for state assets which were worth billions. As if to bear testimony to the suggestion that their true loyalties lie outside the countries in which they operate many of them are wanted for various financial misdemeanours in Russia and are now living in the West in countries like mine that sees nothing wrong with giving these people protection. The latest twist in this saga is that the current bunch are now defaulting on their loans to at least one British bank.

    So what is the point of this diatribe. What I really want is to be told it aint so. Please tell me that the Federal Reserve, the IMF, the World Bank and the Bush administration was or is not part of something evil.

    Still more questions than answers. One thing to bear in mind as an american tax payer is that vested interest on Wall Street might be very quiet at the moment but if things do get turned around they will be back for more- they have had their snouts in the trough for so long that it has become a way of life.You are at least very lucky in one fundamental regard- you have an honest President who would rather fail than become dishonest and be someone you can be truly proud of having elected. Over here in the UK it will be more of the same I am afraid. We cant even let our illustrious Scot travel abroad without feeling twitchy- he keeps claiming to have saved the World. At least we dont bear the responsibility of having elected him to this high office.

    Good luck everyone.

  • Report this Comment On February 07, 2009, at 3:33 AM, sabertoothtiger wrote:

    Thanks for the thoughtful article. I didn't realize unemployment DROPPED TO 14% during the depression. I think it shows we have a window of opportunity to prevent another great depression. Personally I have great confidence in the new Obama Administration and I know they will do a great job of managing the situation. I'm looking for a 3 year time frame to see the results clearly (either way). Sure it is possible things will not work out well, but I am putting my money behind my confidence in this team.

  • Report this Comment On February 07, 2009, at 5:39 AM, gemhoust wrote:

    JPMillerHOU,

    You wrote the best response, and I thank you. I should have written something similar, but I'm so sick of the attacks on capitalism that I'm just too tired to articulate thoughts. Thanks.

  • Report this Comment On February 07, 2009, at 5:56 AM, Soulscreamiv wrote:

    I don't believe your information is correct about FDR when you say:

    After these actions restored confidence in the banking system, Roosevelt focused on employment through numerous public works projects and agricultural programs.

    The results of this government intervention were impressive. GDP skyrocketed from 1933 to 1937, posting real growth of 9.4% annually -- a huge rate for a developed country. Unemployment fell to 14.3%.

    In fact, it was the war that brought us out of the great depression, because making bombs and planes put Americans back to work.

  • Report this Comment On February 07, 2009, at 6:07 AM, greyhound44 wrote:

    What DIM LIB nonsense!

    The article was a waste of time, but the comments are great.

  • Report this Comment On February 07, 2009, at 8:14 AM, Apatroit777 wrote:

    This article was a total waste of time. You, obama (puke) and the Demon-crates are fools!

    I reject obama and his socialist agenda!

  • Report this Comment On February 07, 2009, at 8:20 AM, michellelaidoff wrote:

    You need to write about why none of that bailout money has hit those people who all lost jobs in the last 30-60 days! Who cares about the bailouts if it isnt stopping manufacturing and companies who do under $2 billion in sales from going insolvent. Both my husband and I lost jobs within the last 30 days and own a home completely under water. Why? THE BANKS seem to be HOLDING ONTO THE NEW BAILOUT MONEY instead of giving loans to the companies on the brink of closing. They say, "Ah, we reject that loan request because its too risky!"

  • Report this Comment On February 07, 2009, at 8:39 AM, michellelaidoff wrote:

    You need to write about why none of that bailout money has hit those people who all lost jobs in the last 30-60 days! Who cares about the bailouts if it isnt stopping manufacturing and companies who do under $2 billion in sales from going insolvent. Why? THE BANKS seem to be HOLDING ONTO THE NEW BAILOUT MONEY instead of giving loans to the companies on the brink of closing. They say, "Ah, we reject that loan request because its too risky!"

    This is an example of trickle effect of the banks not putting the money into use: Both my husband and I lost jobs with every other employee because both the companies we work for went insolvent within the last 30 days and we also own a home completely under water. The press wrote that they couldn't get funding from the banks. Qimonda Semiconductor and Circuit City Store shut down within the last 30 days, Richmond VA. Employees were given a few hours to get their things and that was it. Qimonda didnt even bother to pay the severance it owed its employees, now Class Action Lawsuits are starting to pop up.

    Mich and John

    Richmond VA

    Children ages 2 and 6

  • Report this Comment On February 07, 2009, at 8:50 AM, expdecay wrote:

    Wow!

    I hd no idea Motley Fool was in bed with Obama's liberal, socialist policies. You should have included a photo; I'd like to see if you had a smile on your face. This revisionist history at it's worst! The "investment ethical oasis" just lost a subscriber.

    Thanks for saving me the trouble of not having read this tripe anymore.

  • Report this Comment On February 07, 2009, at 9:13 AM, celle2000 wrote:

    Looks like everyone is still arguing about whether the traffic cop (government) is helping the flow of traffic and preventing accidents or whether the traffic would be better with less (or more) policing and intervention.

    Over the decades we have gone well beyond that level of discussion as we surrendered more and more autonomy. The traffic cop has become the bus driver and we are all just passengers. Now do we want the driver to take his hands off the wheel? I think not immediately.

    I did not take on debt, but the government and a private bank cartel (federal reserve) can make my money worthless, they can tax my income, my earnings, my house: all based on regulation which I had no chance to vote on. Both political parties are beholden to the same systems.

    You let yourselves take the bribes, subsidies, social security checks, medicare, and all the other false benefits that cost more in taxes than you get in return. You voted for some things, against others, and some things by decree and regulation simply grew a little bit at a time.

    You accept social security taxes, yes taxes - imposed by los federales who do not pay social security themselves. That's right - they have their own vastly better pension plan. You accept what your forefathers would not - taxation without representation - how can the represent you if they are not subject tot he same laws and taxes as you?

    You let this happen over decades.

    Taking control of your own financial and political freedom is not one day's work. Use your common sense, use your vote, take some responsibility for yourselves and for the education and morals of your children.

    It takes time and commitment. I'm afraid whining does not really acheive much.

  • Report this Comment On February 07, 2009, at 9:17 AM, george3500 wrote:

    What a misleading and deceptive article.That Fdr's policys reduced unemployment from 25% to 14%

    when that 11% was selling apples

    and doing odd jobs to survive.

    Good by Motley, your cedibility is destroyed with this article

  • Report this Comment On February 07, 2009, at 9:26 AM, jaynic2000 wrote:

    You are really FOOLS! First off: Economics 101 there are different types of Depressions. 1. The Great Depression was a deflationary depression. The best of the type of depressions because a dollar goes a long way. 2. Stagflation: This is what happened in the late 70s early 80s. The gov't inflates to counter the deflation. Prices rises, wages fall. It was needed to counter the reckless spending of the Vietnam War era. 3. Inflationary/Hyperinflationary Depression. This is the worst of all depressions. Uncontrollable prices and wages that can't keep us. It happens when gov'ts print or creat fiat currencies when they are not able to sterlize it w/the sale of T-Bills. The rules of calculating unemployment were changed under Reagan to mask real numbers. If we were to use the same rules unemployment is around 17% like the Great Depression. We are currently in a deflationary depression working into a inflationary/hyperinflationary depression with all these bailouts and no one buying our LT T-Bills because they have their own problems. Dubai is completely bankrupt, China is having unrest, along with Europe. Why aren't you discussing gold and silver? Im up over 9% for the year, blowing you guys away! You can almost always count on the gov't screwing up economically - save most of our Founders and Pres. Andrew Jackson. He saved our great nation from the British private banks, Obama is surrounded by him.

  • Report this Comment On February 07, 2009, at 9:28 AM, axeman079 wrote:

    This article mises the point in several respects. First, pure capitalism is harsh, but it has no blind spots. The blind spots are created when government tries to manipulate capitalism through excessive regulation. The biggest mistake made in this article is the historical perspective of the New Deal. Fully revaealed 50 years after the fact, we discover that FDR policy actually dampened the economy and caused the Depression to continue. As a recover began in 1933, New Deal Policy caused a deeper depression...read analysis of the Great Depression starting in the 1980s and beyond. The sad point is that FDR knew what he was doing...he was trying to hurt the economy in order to move the U.S. toward socialism. That my friends is exactly what I believe our new President is trying to do as well.

  • Report this Comment On February 07, 2009, at 9:58 AM, boiler6700 wrote:

    This is the most controversial article I have ever seen come out of the Fool. I suggest the author re-read depression era history. FDRs New Deal did create jobs but they were short lived and isolated the private sector. It was the bombing of Pearl Harbor that got America back on its feet. When I last saw the headlines, only about half of the country currently supports this stimulus bill. Last time I checked the constitution said “We the People of the United States”. The Fool and its community have consistently proved that the average investor is smarter than Wall Street. Just look at CAPS. Right now I put my faith in the people than I do in our leaders. They got us into this mess.

  • Report this Comment On February 07, 2009, at 10:02 AM, kenrun wrote:

    MF insightful or typical of mediocrity? Someone said above that until now they were very good with their insights. Here are their results:

    MF's Performance S&P

    Stock Advisor 4.37% -25.09% (for the moment)

    Champion Funds -19.96% -27.15%

    Income Investor -9.57% -15.42%

    Hidden Gems -23.48% -28.88%

    Rule Breakers -27.74% -31.82%

    Inside Value -24.97% -28.21%

    Global Gains -39.27% -33.69%

    OUCH! not much different than the S&P.

    And yet they charge your for these investment suggestions?

    Better off throwing a dart.

  • Report this Comment On February 07, 2009, at 10:56 AM, zambartas wrote:

    Are you serious kenrun? Outperforming by 30, 7, 6, 5, 4, 4, and under performing by 6. I'd say that's pretty damn impressive to me. Good luck throwing your darts, I'll gladly take a 4% outperform.

  • Report this Comment On February 07, 2009, at 12:18 PM, wonder39 wrote:

    Here's a crazy idea: get back all the money previously given to the banks, give it to a federal bank, and let the government loan money to those who need it. Close down all the banks that took money and haven't used it as a "bank", whose purpose is to loan money. They have not acted as banks, and have voided their contracts. They should be no means be given any further payments for not doing what they are in business to do. America should not be held hostage by these organizations. It's ridiculous.

  • Report this Comment On February 07, 2009, at 12:44 PM, sokato wrote:

    I'm shocked at the blatant political partisanship of many of the responses to this article.

    To those who espouse the point of view that "Massive Government Spending" (the New Deal) was a failure since "WWII got us out of the depression" I have news for you: WWII was Gargantuan Government Spending.

    For those against the plan to use government funds to build roads, schools, car fleets, etc., would you be in favor of this: Let's use government funds and debt to build millions of guns, bullets, shells, uniforms, and shoes; hundreds of thousands of tanks, airplanes, jeeps; and thousands of coffins - and take that lot and blow up the whole thing in the Mojave desert.

    In 1937 FDR had to appease "conservatives" who didn't want to run up the national dept to pay government money to some uneducated people to build dams, or schools, or post offices. But somehow conservatives are ok running up the debt and paying the same people as soldiers and blow up all that money.

    Reality about the depression is two fold: 1) we got out of the depression from purely keynesian government spending, and 2) it was unanimity of purpose that enabled us to spend enough and accept the consequences.

  • Report this Comment On February 07, 2009, at 1:05 PM, SteveT65 wrote:

    This financial disaster was originally caused by Congress and governmental policies which forced lenders to issue mortgages to unqualified people at financially unsound rates.

    They then protected the lenders from mortgage default by allowing them to package a large number of mortgages into securities which could be sold on the open market, thus discouraging properly qualifying the loan applicants.

    Congress multiplied the problem by allowing the sale of derivatives, where smart people could essentially bet against the housing market, which was bound to fail when the bubble burst.

    Interestingly, in all the hoopla surrounding the financial mess, Congress has made no move to correct the laws and regulations that created the mess.

    The Stimulus Bill should be called the Spendulus Bill, as Congress is only taking advantage of the crisis to pass pet programs they've wanted for a long time, telling the public it will help the economy.

    The real Fools are the people who have fallen into the trap of believing government is the way to solve all their problems.

    The market is and always been smarter than the government.

  • Report this Comment On February 07, 2009, at 1:11 PM, PeterPedro wrote:

    It's a shame you need a license to drive a car but not to run an economy. Not even the obligation to read a history book on the subject. The primary cause of the '29 crash was leverage. Familiar territory? The crash was then made worse by protectionism, which is a knee jerk instinctive reaction, but wrong. Whatever the rights and wrongs of saving the intitutions that should take a huge chunk of the blame for the current situation, the world needs Obama to enact a considered response, and closing down world trade does not fit the bill. Even if it is the easy one to swing past the voters.

  • Report this Comment On February 07, 2009, at 1:16 PM, kenrun wrote:

    Zambaris, I don't know about you but a loss is a loss. Your excitement to know that you are losing but not as badly as some others is a high price to pay for taking their advice and even then paying them for it. If MF were really honest with you they would have told you a year ago, pull out and either put your money in the bank or go short. I have done both and will not bother to list my profits. But the point is, why haven't they said that to you? answer is that they are pitching hope even during the down turns rather than miss an opportunity to sell someone out there a subscription.

    A loss is a loss and to know your lost less than the other guy is the wrong way to look at it. They question to ask is could I have at the vey least protected my money if not make a profit and I am telling so many have and are. Two more years of those results and you will be happily broke knowing it took you a little longer to get there that some of the others. Oh boy, aren't you the lucky one who will takes those results "anytime"

  • Report this Comment On February 07, 2009, at 1:40 PM, acordle wrote:

    The author omitted the causes of bank failures during Depression. Americans heard rumors that FDR was going to take their gold when he took office, so they began to make runs on banks' gold deposits (FDR eventually did require gold be swapped out for paper currecy) . Then in folly after folly, FDR adn the Fed kept interest rates too high and put up protectionist barriers to trade, the latter infuriating off other nations who in turn put up barriers, culminating in a global trade collapse which PROLONGED the Depression, making it 4 years when it may have been much shorter. We hear that FDR and his New Deal saved us, when in reality his policies and the Fed's put us their and kept us their longer. He DID succeed in growing the government and setting precedent for future anti-freedom policies!

  • Report this Comment On February 07, 2009, at 1:48 PM, tshw wrote:

    How about:

    Abolishing the Federal Reserve?

    US Gov issuing full-reserve currency and getting rid of this fraction-reserve banking which allows for exploitations by bankers?

    Some of what's in this video MAKES SENSE!!:

    http://video.google.ca/videoplay?docid=-515319560256183936&a...

  • Report this Comment On February 07, 2009, at 2:50 PM, THLG wrote:

    OMG! Somebody please take the cool-aid away from this writer. If you peel back the layers of this article, all that you will see is smoke and mirrors. Obviously, the intelligence of the audience was not considered before writing such and idealistic piece.

    To the Fools that be,

    Please do better to control the information that is released from your website. I have always looked to you for guidance, and for maybe the first time in over 5 years of enjoying your resources, I question your judgement.

  • Report this Comment On February 07, 2009, at 3:09 PM, lorrieannegee wrote:

    Dear Sir: I have not read all the comments but find what I have read very interesting. Explain please, why do you say the CEO`s have not committed a crime ? They have robbed a bank without a gun ! I am sure they are a little "sweaty" right now, not being sure if they are "home Free". A Bonas is not paid for Under Performance but rather for ABOVE AVERAGE performance. Seeing that they tanked the whole industry and have caused great PAIN to my fellow Americans, I think they should return the money or pay the price. "THOU SHALT NOT STEAL". This is one of the rules and regulations our country lives by. Maybe while they are doing that it would be nice if they prayed for forgiveness. Some people may NEVER get over the damage they have caused. Very, very sad......................................................

  • Report this Comment On February 07, 2009, at 3:16 PM, ljn45 wrote:

    After reading this, I would have a very difficult time having confidence in any investment recommendation by this writer. This logic has more holes than the Titanic and USS Arizona combined. I have much more confidence in the other reader's comments. We are all for salvaging our banking system but not so they can party hardy, buy French jets, get outrageous bonuses and turn around and continue screwing the investors.

  • Report this Comment On February 07, 2009, at 3:29 PM, lorrieannegee wrote:

    Dear Sir: I would like to thank ~ wonder39 ~ Sokato~ SteveT65~ Buzzard9~ DCDeliberate ~ for their comments..........GO TO THE HEAD OF THE CLASS............................................................. I will read more later..............................................

  • Report this Comment On February 07, 2009, at 3:35 PM, toddsnotafool wrote:

    Ilan,

    You have a good point. A few constructive alternatives and feedback would be good. We rode Rich pretty hard on this one, but like I said, thanks for drawing a line in the sand on this topic. I like the polarized feisty debate.

    By bringing up FDR, I think the article lead the reader into the direction of making you think more about the stimulus package, rather than the bank bailouts. Which I staunchly opposed also. I also think the tone of this posting string is due from the issue that by starting the bank bailouts, it sets up the whole stimulus package that has polarized the entire country on the issue.

    Just so we know where I stand, I could not disagree more with John Maynard Keynes. Keynesian policies allow an wide open door to legal corruption. Which is the real heart of the matter here. Our capital markets were working just fine before Hank Paulson and crew decided to get involved. The last proper correction was when Wells Fargo bought Wachovia. These buyouts would have kept happening and the market would have corrected itself, and we all would have taken our positions accordingly. Instead, a lame duck Treasury Secretary got a call from his buddies in NY at Goldman Sachs and they struck a backroom deal, which caused everyone else to back off. Everyone knows it and they should all be prosecuted; but he was operating within the legal power that has been instilled since Alexander Hamilton. So unless Aaron Burr get reincarnated, justice will never be served and we just have to live with it.

    The entire thing has been a set up for years. I even took on an FHA mortgage, myself, in 1999 with 5% down and said to myself, "this is an economic disaster waiting to happen"... but I took it anyway. The policies handed down from the government (with emphasis on Fannie and Freddie) which were encouraged by the banks along with the regulators who turned their heads, caused this entire mess. Obviously, they gave loans to consumers who had no business having the loans, and that group of consumers just didn't care. Adding more government intervention with an obvious lack of watchdogs is a major mistake. And who are they kidding? The banks have the money. If they can pay their top brass millions of dollars to ruin a company.... well you get my point. One socialist concept that I agree with, however, is the federal government offering a safety net and backing us with agencies such as the FDIC. That protects the consumer and helps to prevent a run on the bank. That may be only concept I would agree with in reference to FDR (Glass-Steagall Act).

    However, this entire scenario is a major turn away from a free market capitalist system that has proven time and time again to work and find its natural equalibrium. The other main cause of all this angst for doing these bailouts is the money has to come from one source - the working class tax payer. And who does it go to? The upper crust of the politically connected and the poor lower class. The middle class will be more enslaved than ever, or at least until the middle class becomes the lower class.

    My solution: centralize and beef up the regulation system (with another watch dog agency on them) and get the government out of the economy. It's that simple (even though I know that will not happen).

    Thanks for the discussion!

    Todd

  • Report this Comment On February 07, 2009, at 4:10 PM, Fliujniligui wrote:

    In face of the necessity, governments will help weak and disorganized financials survive for the sakes of the country thrive and survival. As an investor, I am very optimist that by investing selectively in the best financials around the world I will have good results sooner or later because I buy those companies who required little or no help from governments and if helped, were helped with advantageous conditions justified by their good financial position hence good negociation powers. Such businesses such as DB, AIB, TD, MTB will thrive while the others use government money to start back doing business and to lick their wounds.

  • Report this Comment On February 07, 2009, at 5:31 PM, ArizonaMildman wrote:

    I find the majority of these comments to be rhetoric spouted by a few misguided people who the economy doesn't effect anyway. Rather than think a radio announcer is mistaken you would rather believe the people who work for one of the biggest money smart websites are wrong because they don't agree with Rush Limbaugh. Show me Rush Limbaugh's economics degree. He is there to sell air time, not give rational thinking. He makes people mad, they call in, they argue, they make statements which effect which way some people vote and that is called controversy, his radio show thrives on it. He loves to have people hate him. But, he is feeding right into the fear that will cause us to lack the confidence to get out of this crisis. So, either be part of the solution or get out of the way and quit being part of the problem. There is more to economics than Tax Cuts for the rich and I would think considerng the state our economy is in because of people blindly follwing instead of thinking about simple sandbox economics (you can't take more out than you put in and still have something left) and trying to act like everything is OK and tell everyone that the fundamentals of our economy are strong, "hoping that someday we get lucky", as John McCain said. We are in a depression that most of you don't want to admit to yourself is happening. Do any of you think about who we have borrowed all this money from? I will say what the news media has been afraid to say. The people we owe all this money to were, as of a few years ago, still being called The Red Chinese, a communist country. Their brand of socialism is the kind of thing all the "wannabe" economists who are nothing more than loudmouths mouthing rhetoric and somebody else's speculation from figures that haven't existed since the sixties when Kenesian theory economics were in their first experimental stage. Back then they didn't incorporate them because they knew they only worked on paper. Of course John McCain and the rich news commentators who have investments in munitions, oil, insurance companies, telecommunications companies, etc. are going to be glad for all of this because they are the only ones making money from us going into a depression. John D. Rockefeller was rich during the first depression, Do you think the people standing in line at the soup kitchen were judging how well they were doing by his success? They are telling you to muddy the waters and make waves vote wise to keep them rich. Do you really think they care about others? Only a few of them do. OK, I am sure that Red China will be happy to bail us out when we keep fighting over the crisis until we fail completely. I am sure they will eventually have a few rules of their own to institute when we no longer look like an experiment that might succeed. We can't prove that yet because capitalism keeps needing their money in order to "act" like it works. Don't get me wrong, smart capitalism works. Look it up on Wikipedia and see if it defines any part of capitalism as how we live on credit mostly and tax cuts. http://en.wikipedia.org/wiki/Capitalism

    Especially look up the chapter on supply side economics. To those of you who think the government never lied to you, you better think back. They are happy to see it, because the one thing you people who want to argue and scream about socialism and nationalising banks better think about is this: if we listen to that fear we are going to start that to be a status quo when we fail instead of a temporary thing right now for a few tries. You who are still drinking the koolaid (which by the way was an expression started about Jim Jones, the conservative Christian minister who migrated to Guyana) of the same fear mongers who brought us here. They get rich while we become poorer and eventually have to let them tell us how to live because of the rules we have to follow because they control the money. Getting a credit card now is almost like selling yourself into indentureship, if you qualify. Next they will tell us what religon we can worship in. That is why we came to this country in the first place.

  • Report this Comment On February 07, 2009, at 5:47 PM, investorpop wrote:

    Well, from what I understand now some in the Senate have developed a "stimulus package" that will be pushed through the Senate soon, more or less accepted by the House, and signed by the President. If you believe some, including the President, this is a good thing because if we took even a few extra days or weeks to improve this marvelous piece of work, the "sky would fall on us all", and we would never be able to get up. Seems kind of strange then that, according to what I heard on the TV last night, it will take as much as two years for only 80% of this package to take take effect. This "rush, then crawl" type of package reminds me a lot of the business strategies that many failed companies, some of which were very large, have employed. Consultants have referred to this type of strategy as "ready, fire, aim ! ". I am very disappointed that our legislative leaders are not more practical, more wise, and less political when it comes to the welfare of all of us, and our future generations. I am sick of all of the political rhetoric, and, again, am very disappointed in our political "leaders".

  • Report this Comment On February 07, 2009, at 5:51 PM, papanoraiseafool wrote:

    I was shocked by Maria's EXCLUSIVE enterview with Ken Lewis of BAC and the whining about the 500,000 cap.

    Lewis explantion was to retain good people you needed to pay them more? The same GOOD people that made the mistakes that cost us all so much!

    I'll be for the bailout again if they use some of it to jail these crooks.

    From crooks in the gov. not paying tax's to good old boys sitting on each other's board and giving each other fat checks. The cards are stacked against the little guy

  • Report this Comment On February 07, 2009, at 6:02 PM, 1stGradeStudent wrote:

    I regress:

    AGELESS WIT AND OBSERVATIONS

    Suppose you were an idiot. And suppose you were a member of Congress.... But then I repeat myself.

    -Mark Twain

    I contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.

    -Winston Churchill

    A government which robs Peter to pay Paul can always depend on the support of Paul.

    -George Bernard Shaw

    A liberal is someone who feels a great debt to his fellow man, which debt he proposes to pay off with your money.

    -G Gordon Liddy

    Foreign aid might be defined as a transfer of money from poor people in rich countries to rich people in poor countries.

    -Douglas Casey, Classmate of Bill Clinton at Georgetown University

    Government is the great fiction, through which everybody endeavors to live at the expense of everybody else.

    -Frederic Bastiat, French Economist (1801-1850)

    Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.

    -Ronald Reagan (1986)

    If you think health care is expensive now, wait until you see what it costs when it's free!

    -P.J. O'Rourke

    In general, the art of government consists of taking as much money as possible from one party of the citizens to give to the other.

    -Voltaire (1764)

    Just because you do not take an interest in politics doesn't mean politics won't take an interest in you!

    -Pericles (430 B.C.)

    No man's life, liberty, or property is safe while the legislature is in session.

    -Mark Twain (1866)

    The government is like a baby's alimentary canal, with a happy appetite at one end and no responsibility at the other.

    -Ronald Reagan

    The inherent vice of capitalism is the unequal sharing of the blessings. The inherent blessing of socialism is the equal sharing of misery.

    -Winston Churchill

    The only difference between a tax man and a taxidermist is that the taxidermist leaves the skin.

    -Mark Twain

    The ultimate result of shielding men from the effects of folly is to fill the world with fools.

    -Herbert Spencer, English Philosopher (1820-1903)

    There is no distinctly Native American criminal class...save Congress.

    -Mark Twain

    What this country needs are more unemployed oliticians.

    -Edward Langley, Artist (1928 - 1995)

    A government big enough to give you everything you want, is strong enough to take everything you have.

    -Thomas Jefferson

  • Report this Comment On February 07, 2009, at 7:12 PM, ralmaza wrote:

    That's right! All of you who mentioned WW II as the resolve for getting us out of the first great depression. Unfortunatly, if will take WW III to get us out of this depression.

  • Report this Comment On February 07, 2009, at 9:20 PM, enkelin wrote:

    What most people who disagree with Gibbons fixate upon is the mortgage issue. This is another Rovian propaganda tactic. What most have NOT done is investigate the nature and sources of the Derivatives that have collpased 2 countries already and a third is about to collapse (Ukraine) What does this have to do with US subprime mortgages? Nothing. The subprimes were just the canary in the coal mine. Remember that the Commodities Futures Modernization Act unleashed totally unregulated and non collateralized derivatives on ALL DEBT, not just mortgages but corporate, municipal, commercial real estate etc. The nickname for Phil Gramm's legislation that is similar to the Gramm Leach Bliley act that Gibbons referrs to but that is the real culprit for the credit crisis and the collapse of Lehman Brothers is "The ENRON LOOPHOLE" . that in itself should clue these readers into the shenanigans that congress allowed to happen backin 2000. I would reccomend that anyone who really wants to understand the nature and breadth of this collapse (800 trillion world wide in toxic derivative paper) to read about the Commodities Futures Moderinzation Act of 2000. Mortgages were only the first casualty, we will all be very lucky to get through this without losing everything.

  • Report this Comment On February 07, 2009, at 10:04 PM, athrillofhope wrote:

    Um, let's see ... the author(s) of this article voted for Obama. Which means they drank his Kool-Aid. And they believe the liberal/Democratic revisionist version of history, rather than the actual reality.

    This is the first article I've read on this website, and probably my last. The comments are far more educated and honest than the article. The article is a liberal revisionist wet dream designed to place blame politically and poising Obama to swoop in and "save the day."

    No need to rehash the excellent points made by those who posted comments that call this article hogwash. Liberal fiscal policy is to conservative fiscal policy what cancer is to life. The former can not create anything and exists only to leech from the energy created by the living. Liberals can not create wealth, they can only tax it from those who create it and thereby destroy the energy of a robust ecomony.

    This seems so simple. But truth always is. Only those who have a need to distort truth create complexities behind which to hide and distract.

  • Report this Comment On February 07, 2009, at 10:27 PM, bigbadone wrote:

    Motley Fool and CAPS -

    Instead of a poll about whether the S&P will will be above or below a certain level by a certain date, which, let's be honest, 50% will be right about and 50% will be incorrect, why don't you poll your readers about whether these bailouts are a good idea that will result in improved economic conditions after two (or X)years or if it will perpetuate our recession for longer had the government kept its nose out?

  • Report this Comment On February 08, 2009, at 2:50 AM, DCDeliberate wrote:

    EVERYONE SHOULD READ THIS TWICE. GREAT POST JPMillerHOU!

    On February 06, 2009, at 11:34 PM, JPMillerHOU wrote:

    I have a lot to quarrel about in Richard Gibbon’s article This Bailout is Great!

    In the first paragraph Gibbons says, “The basis of capitalism is that the strong survive, while the weak collapse.” Ayn Rand defined, “Capitalism is a social system based on the recognition of individual rights, including property rights, in which all property is privately owned.” The basis of capitalism is not the strong surviving but rather rights which are necessary for all men including businessmen so they can use their minds to survive. Justice demands that those who produce are rewarded and those who do not produce are unable to collect rewards. But that is a consequence not the basis of capitalism.

    Gibbons further asserts, “The problem is that, as a country, we can't make decisions based simply on anger or capitalistic dogma.” Rights are not capitalistic dogma. They are the necessary condition for men to survive because their means of survival is thinking. Any violation of rights denies the individual and the businessman the free use of his tool of survival his mind. Rights are objectively derivable from the nature of man. Dogma on the other hand is an assertion in disregard of the facts of reality.

    Gibbons is contemptibly understated in his contrast between the huge abundance of food and every other good in the United States and the mass starvation of millions and chronic shortages of every conceivable commodity in the Union of Soviet Socialist Republics.

    Gibbons is wrong. No banker in a capitalist society would rationally choose to lose his depositor’s money, destroy his bank’s reputation and his own, or risk the wrath of his stockholders, or invite lawsuits and criminal fraud action by putting money into high risk ventures or loans to those who could not afford to buy houses. But we have a mixed economy with massive doses of poisonous regulation.

    Banks have been protected from one of the most severe market punishments of misdeeds ever since the FED started regulating reserve requirements. They have been cajoled, shoved, driven and threatened to lend to low income buyers by many regulations including FHA, VA, HUD and especially CRA. They were offered easy ways to unload shaky debt through the highly regulated Fanny Mae and Freddie Mac. They were forced by law to extend the same kind of incentive to all borrowers. Finally FED easy money policy created a Ponzi scheme that exploded housing prices so fast that huge profits could be made by unscrupulous bankers and many borrowers. Indeed Richard Salsman in his 1980 book Breaking the Banks pointed out that decades of such perverse regulatory incentives encourage scoundrels into banking, gradually replacing skilled honest bankers. Capitalism the system based on individual rights does not breed this behavior; socialistic regulation that denies the banker’s free use of his mind does.

    Despite such regulatory attacks on capitalist banking there are still honest bankers and successful banks. Witness John Allison and BBT.

    Finally Gibbons is wrong about capitalism’s inability to respond to the failure of the bad apples in the basket. If those banks who failed because of bad loans and bad management had been allowed to go bankrupt and their assets liquidated then they would have been snapped up by competent banks for mere fractions on the dollar. Incompetent management would have been booted instead of collecting bonuses at taxpayer expense. Good assets would have been even better managed and bad assets set for collection. Such collection would have gotten people who were incapable of affording homes out of their houses and those houses into the hands of people who could afford them. True, huge amounts would be lost this way too but lost by those who did not deserve reward - incompetent bankers and indigent home-buyers. This crisis would be nearly over if liquidation had been allowed. Instead regulators are planning massive spending that will only reward the failures and punish the producers. Mr. Gibbons is an apologist for rewarding failure and punishing all the rest.

  • Report this Comment On February 08, 2009, at 3:00 AM, DCDeliberate wrote:

    I would also like to add that it is even more nutso that the government can now come back to the same banks they gave the first 350B to and then tell them the rules for getting the rest of it.

    CLASSIC MEDDLING. JP Morgan has already wanted to give the money back because now Obama and co. have decided the rules for how banks should be run in order for the bailout money to flow to them.

    HOW MANY PEOPLE IN THE USA get money in a contract and then discuss the terms of the contract post payment? DOES ANYONE FIND THIS MODE OF NEGOTIATING A BIT SCANDALOUS?

    When the bailout was proposed by Paulson to the banks, Wells Fargo did not want to sign the deal. Paulson came to the banks and basically forced them to sign it. Wells Fargo balked because they also balked and snubbed their noses at the Feds over the bad credit loans the Government was telling them to make. Wells Fargo said "no" to them and was saying no to the bailout. It took 6 hours of wrangling Wells Fargo to sign which I am sure they regret to this day. NOW the government is mandating terms of operations on banks.

    DISGUSTING!

    And another thing about all this FDIC only having 85 B which would not cover WaMu. How about taking the 750B PLUS the 2 Trillion the Fed has used without going through congress on this problem and covering the deposits of these banks that are going down. After all, it is what the government promised them in the first place. You make a bad loan, we will cover your loss.

    I guess the government does not want the money in the hands of the consumer. They might fund their Main Street lifestyles.

  • Report this Comment On February 08, 2009, at 3:06 AM, DCDeliberate wrote:

    THIRDLY - You see a great post, Repost it! The truth needs to be spoken loud and clear! The revolution of hearts and minds has begun and a bunch of fools foolishly outwitting the Fool author must do it!

  • Report this Comment On February 08, 2009, at 5:37 AM, dantegarcia wrote:

    Great post, JPMillerHOU. As I understand it, this credit crisis is worldwide. Can anyone give me an example of one country that has more banking regulations than the US but sustained a lighter economic hit than the US?

  • Report this Comment On February 08, 2009, at 5:49 AM, rbgibbons wrote:

    Canada. Switzerland.

    How about instead, you give an example of one country that has more banking regulations than the US, but sustained an economic hit equivalent to the US?

  • Report this Comment On February 08, 2009, at 8:31 AM, hoosierhog wrote:

    Warren Buffet may recommend the bail out because he purchased preferred stock in GE. General Electric just happens to be one of the many benefactors of this bailout. Can you say Smart Grid!

  • Report this Comment On February 08, 2009, at 1:55 PM, 44humble wrote:

    TMF, pay attention, this is market demand. I have read your article and all the comments. The comments are awesome, the article - not so much. Your audience is demanding indepth research. Your audience appears more intellegent than you. Take advantage of the interest you have created. You have an extremely intelligent audience. Give them something to listen to that they will respect, with sources and basis. You will then gain in respect, readership, and subscriptions. The majority of articles I receive are written with too much hype, not enough meat, extremely transparent. Take it up a notch, dont just sell sell sell, show an educated, informed opinion and you will be well rewarded.

  • Report this Comment On February 08, 2009, at 5:21 PM, whereaminow wrote:

    For those who have entered into this discussion late, I'd like to point you over to this post:

    http://caps.fool.com/Blogs/ViewPost.aspx?bpid=138329&t=0...

    which is a direct rebuttal of Richard Gibbons' position.

    David in Qatar

  • Report this Comment On February 08, 2009, at 5:36 PM, JRMtwo wrote:

    NO BANK EXECUTIVES TAKE HUDGE RISKS!

    The bank executives were forced to write unsafe home morgages. The unsafe morgages are at the root of the meltdown. Sen. John McCain's 2006 demand for regulatory action on Fannie Mae

    and Freddie Mac could have prevented the current financial crisis.

    McCain's letter -- signed by nineteen other senators -- said that it was "...vitally important that Congress take the necessary steps to ensure that [Fannie Mae and Freddie Mac]...operate in a safe and sound manner.[and]..More importantly, Congress must ensure that the American taxpayer is protected in the event that either...should fail."

    http://www.humanevents.com/article.php?id=28973#continueA

  • Report this Comment On February 08, 2009, at 6:56 PM, nando1301 wrote:

    The best way to get the loans flowing in the economy would be to nationalize a big player (say, BofA or Citi) and start using that bank as an aggressive lending vehicle. The competition would get the remaining privately-owned banks bank in the lending market (or risk losing market share to the new government-owned bank). The solution is not swinging from savage capitalism to total socialism. The solution is government intervening using capitalist tools (competition) to influence the market.

    Similarly, you don't need to put a cap on executive pay. You simply raise taxes on executive pay (like many other countries already do).

  • Report this Comment On February 08, 2009, at 11:48 PM, 303MStrong wrote:

    Interesting direction the comments are taking. We are 303.8 millon US Citizens strong. Versus One central bank, that we ultimately control. The majority of the readers that commented do not believe we are better with the bailout. Many believe the bank system is at fault. There are other solutions, and the federal reserve and other global bank systems know it. The animation titled Money as Debt by Paul Grignon does a decent job of showing the dysfunctional and undemocratic nature of the banking system. Many may say, So what. Well there are things that can be done, and they are now in motion... You can help. View it on youtube as money as debt, or visit www.moneyasdebt.net.

  • Report this Comment On February 09, 2009, at 2:22 AM, tbear2296 wrote:

    Something stinks here. Does anyone have a calculator? So far all I ever hear is that we are all screwed because of this bank-real-estate fiasco. Stocks are down, real estate is down, and it seems everything is down. The governments are printing out gobs of money. But, isn't there a conservation of money? I know I put real cash into the market and housing and they are down. Who is holding my lost cash? Who is holding your lost money? Someone would have us believe that it has all evaporated and now our only recourse is to print up more. We need an investigation. Some of these losses will be legitimate gambling losses. But for every legitimate loss there is a legitimate winner. Some of these losses will be because of the bank fraud and home owners who took advantage of the give-away loans. The money is out there, and someone is sitting on it. The stimulus needs to get these people who are sitting on the cash to get it moving. Some of this money needs to be confiscated because it was taken in a swindle.

  • Report this Comment On February 09, 2009, at 6:21 AM, usc82 wrote:

    The bailout is great? What drivel. Just shows how far MF will go to defend their terrible record.

    The bailout with all its pork is nothing but a spending bill driven by Reid and Pelosi and their favorite special interests. Ninety percent or more of it will have no impact on jobs or the economy for years, if ever.

    A better approach would be for the Messenger of Hope to stop preaching gloom and doom and catastrophe around every corner and instead be a calm and reasoned leader.

    Obama needs to tell Americans the truth: that the spending bill is not in he best interests of the country; that it is a politically inspired package of every spending initiative the Democrats could dream up; that future generations will be paying for it forever, and that it will devastate the dollar.

    Obama needs to lead by: tell the House and Senate that he will veto the bill in its current form; that he will approve only near-term tax-reduction strategies and stimulus projects that have an immediate (6-12 month) impact on the economy; and that he will waive existing environmental or other government inspired restrictions to insure that these projects are funded and initiated without delay.

    And... MF needs to get its head out of the sand.

  • Report this Comment On February 09, 2009, at 8:59 AM, Voodoochick wrote:

    A lot of bravespeek on this forum.

    If we let the banks fail and there was no money, what would your life be like? Do you seriously think that you would be unaffected by the fallout - that only the poor people would suffer?

    If Obama did what you "let the banks fail" and "screw the bailout" folks are proposing, then there would be some real screaming.

    Bring on the Hoovervilles - except this time we would have nicer cars to live in.

    This so smacks of "it can't happen here" reasoning.

  • Report this Comment On February 09, 2009, at 11:15 AM, rocketmensch wrote:

    Everyone who wants to blame our situation on Freddie/Fannie and "poor people who took mortgages they can't pay" is misguided.

    Think about this: a mortgage is a secured loan. That's why banks were willing to lend money to one-armed illiterate hunchbacks to buy half-million dollar houses.

    So what's the problem if people default on their mortgage, right? The banks get the house!

    The real problem is not that people are defaulting on mortgages, but rather that housing prices are dropping and the banks all hold bets that real-estate prices would keeping climbing forever.

    While I personally would be glad to let the banks fail, I also would be glad to drive some nails through a baseball bat and start hunting my neighbors for dinner. I suspect that most of the Republican know-nothings who are screaming about socialism in this forum are considerably better fed than myself and my neighbors. I also suspect that they will not thrive in an environment where they can no longer buy their physical security.

    In a few years, countrymen, this may come to pass. I'll see you then, so keep eating hearty. And be careful driving around in an Escalade or Range Rover--those are likely to become the most desirable of the housing options in the next few years.

  • Report this Comment On February 09, 2009, at 11:49 AM, fightingart wrote:

    What foolish ideas. If you had a problem with your personal finances, like spending more than your income, would you solve the problem by spending more? Capitalism works just fine. Too bad we haven't tried it in decades. Get government out of the way. They have done enough damage.

  • Report this Comment On February 09, 2009, at 12:07 PM, NotSoSerious wrote:

    Is the package really bailing out anything? I am for it if it is really a rescue package and not a pork-barrel spending plan or a tax-cut plan. Sadly, both sides are pushing their own agenda at the wrong time.

    Push politics aside, we all (directly or indirectly) were benefited from the long leveraging cycle for years. Both consumers and business had been enjoying the low cost of credit and are now starting to face the reality that those leveraging multiplying effect can also go the other way.

    We are undergoing a long deleveraging cycle, only time can unravel this. Can we afford to wait?

    Moving much beyond the initial subprime mess, the plunging house price continues to take a lot things out, it had already triggered global credit crisis, it had damaged corporate outlook, hence consumer and business confidence. If left unchecked, plunging house price can drop to 1980 level and wiping out equity (and wealth) of most american.

    I believe stabilizing house price is the key.

    Government is the only entity that can do something, but are they doing the right thing or leading us into a deeper mess?

  • Report this Comment On February 09, 2009, at 1:06 PM, gggordy wrote:

    The bank bailout is probably necessary. BUT, all the rest of it will only harm the economy. I lived through the 30's. You have your information wrong. The worst of the depression was in 1938. Unemployment set records. We only got oeut in 1942 when several million men were taken from the work force. We know now that in 1939 Roosevelt and Morgenthau had a discussion and concluded that all the spending had not worked. Look at the success of the Reagan success in 1980; that is the proof. The basic problem is that government doesn't make a profit that can be taxed.

  • Report this Comment On February 09, 2009, at 2:10 PM, NotSoSerious wrote:

    Banks are vital to our economy, bailing them out is important, but more importantly. Banks can only stand back on their own feets when housing price stabilized otherwise, they will constantly need new cash to cover their capital requirement.

    The rest of the spending package will do us harm.

  • Report this Comment On February 09, 2009, at 2:22 PM, george431 wrote:

    The Fool has definately got this wrong. This whole debacle goes directly back to Barney Frank, Cris Dodd, Fannie, Freddie and those in charge during the Clinton era. The first step is to jail to whole bunch. Have Obama replace all his financial advisors (which he will have to do because they are still there ie. Johnson & Raines) and try to get the American people to believe in what his 'CHANGE' really is. Socilaism is not an alternative, government control of any sector of our economy is a foot in the door of Socialism. Bad Bad,Bad

  • Report this Comment On February 09, 2009, at 3:33 PM, sallyho80121212 wrote:

    Fool, you do have this wrong. The stimulus that would work is across the board tax cuts. There is nothing in this stimulus bill that stimulates the economy, it burdens the economy with more debt than we could ever handle. It’s going to cause hyper inflation at least but more likely depression.

    And with such foolish insights that you fools have expressed makes me question my wisdom of reading your foolishness. So I’m canceling all of my connections with you fools.

  • Report this Comment On February 09, 2009, at 5:57 PM, DGenus wrote:

    Someone needs to read the fine print before buying in. Is this stimulus a one occurance bill or does it renew and refund for perpetuity? Fact is, many parts as submitted, do refund annually and continue. One big debt we don't need to add to our deficit spending that won't go away.

    This billl is hyped to be bi-partisan. In fact, it was drafted and submitted whithout bi-partsan input. Here is is: "Vote for it".

  • Report this Comment On February 09, 2009, at 6:44 PM, waynee5 wrote:

    Four years under Bush the First,bad economy and first Iraq war. 8 Years Clinton the First, booming economy no wars. 8 Years Bush ths Second, second Iraq war,american poverty and unemployment. The democrats just know whats best for us at home and abroad.

  • Report this Comment On February 09, 2009, at 10:48 PM, DCDeliberate wrote:

    After watching the President Obama tonight - I am thoroughly annoyed. He alluded to the banks being engaged in risky investments with other people's money. He then said, "Some were borrowing $30 for every $1 on their books.

    DID HE KNOW THAT THOSE WERE THE BORROWING MARGINS OF FANNIE MAE AND FREDDIE MAC PRIOR TO THEIR COLLAPSE?

    Those are AMERICA'S mortgages they were gambling.

    Unbelievable brashness of this President.

  • Report this Comment On February 10, 2009, at 11:43 AM, rocketmensch wrote:

    To all the geniuses who are claiming that tax cuts will help us, I have a question:

    How does a tax cut help someone who is unemployed?

    How does an unemployed person help support our 70% consumer-based economy? He has no money to spend.

    Or is the idea that America would be a better place if we just tell those 5 million people to die and stop burdening us?

  • Report this Comment On February 10, 2009, at 11:50 AM, FleaBagger wrote:

    Rocket -

    The idea of a tax cut helping the unemployed is that U.S. corporations paying the highest tax rate in the civilized world would finally be able to pay someone's salary again, meaning the unemployed could get jobs again, and do something productive, instead of just buying consumer goods with made-up government money.

  • Report this Comment On February 11, 2009, at 12:54 AM, JPMillerHOU wrote:

    I would like to thank gemhoust, DCDeliberate, and dantegarcia for their kind comments on my post. I tried valiantly to elevate the discourse to the level of reason. Your responses and the lack of attacks suggest I succeeded with at least a few. I also thank Ayn Rand for teaching me that thinking is my most powerful tool.

  • Report this Comment On February 11, 2009, at 12:06 PM, kaltruck wrote:

    That's good that someone in their ivory tower has something to say about this bailout.

    I like the comment about truckers and farmers. Hate to tell you this big boy but you better pull the blinders off. The truckers are going broke and so are the farmers. How do you know this you say, I can't see any broke farmers or truckers and I'm way up here in my ivory tower.

    I'm both, a trucker and a farmer. I just sold corn for $2.80 a bushel and it cost me $4.00 a bushel to plant.

    Trucking: no freight to haul and what is there is cheap. All you have to do is looking at the number of trucking companies bankrupt or about to be bankrupt.

  • Report this Comment On February 11, 2009, at 5:03 PM, rocketmensch wrote:

    "The idea of a tax cut helping the unemployed is that U.S. corporations paying the highest tax rate in the civilized world would finally be able to pay someone's salary again, meaning the unemployed could get jobs again, and do something productive, instead of just buying consumer goods with made-up government money."

    Fleabagger, I realize that's the "idea." But there's little compelling evidence to backs up such a claim. People like to believe this is true as a rationalization for their own unwillingness to pay taxes.

    During the mid and late '90s, business was BOOMING. Profits were growing faster than a banker's coke budget. Stocks were soaring.

    And what else? Employment and wages were STAGNANT when corrected for CPI and inflation.

    The theory doesn't work. When profits get bigger, businesses don't "invest" by paying salaries--that's an absurd notion. They "invest" by buying shares in hedge funds and stocks, and making capital investments in foreign countries with cheaper labor. Neither of which increase domestic hiring at all. They reward their investors with larger dividends, and their executives with larger bonuses--even while they lay off their "overpaid" workers who helped make such profits possible.

    The best era for global capitalism was between '46 and about '70, when we had a fixed exchange rate and a global stimulus package called the Marshall Plan that made enormous investments in rebuilding war-torn infrastructure. Aside from all the money that came straight back to the US in the form of consulting fees, purchase of construction materials, and (eventually) interest payments, we ALSO gained such tremendous goodwill amongst our former enemies (Germany and Japan) that they became some of our staunchest allies.

    What happened in the '80s when Reagan cut income tax rates? Did we see massive growth in domestic JOB production? Not really--we saw growth in corporate PROFITS.

    There's no meaningful connection between greater profits and domestic jobs. In fact, as is now being demonstrated by every major bank on the planet that FAILS, there's not even a concrete connection between greater profits and a sustainable business. The banks were raking in the dough for years as they financed loans for overinflated home prices.

    But hey, just one man's opinion, right? So let's hear about all the great gains that labor has made since 1980. Or are we just repeating the credo without examining the facts?

  • Report this Comment On February 11, 2009, at 5:15 PM, rocketmensch wrote:

    The question remains--how does a tax cut help the unemployed? Businesses that cannot generate revenue because no one is buying their products cannot hire anyone.

    No one is buying these products because everyone has cut expenses because they've lost, or fear losing, their jobs.

    _Until_ we start putting Americans back to work, there will be no recovery for the US economy. It will not recover from the top down, because the top still has not quite caught on to the fact that USA is the largest 21st -century consumer market, and unless something shocking happens in a place like India or China, there is no potential replacement for US consumption waiting in the wings.

    How about if we cut taxes to zero right now? Stop paying for cops, stop SSI payments, let the crybaby veterans complaining about PTSD kill themselves.

    Get government out of the way, and let us pull ourselves up by our bootstraps. As soon as the cops in CT get their pinkslips, I'll head up to the Hamptons and do some "shopping" for a new home.

    Lots of folks thought the world depicted in films like "Mad Max" were scary. I agree with a lot of the posters here that such a world would be great fun if it meant I got to shoot anyone who tried to take my stuff that I rightfully steal for myself.

  • Report this Comment On February 19, 2009, at 7:22 PM, marktreat wrote:

    Nothing is to big to fail, but if the government gets to big, will it fail?

    -Mark Treat

  • Report this Comment On February 20, 2009, at 2:25 PM, Savannahguy wrote:

    Richard Gibbons makes good points in both of his articles on the bailout.

    Unfortunately, they are too few and far apart. Evidently Mr. Gibbons hasn't read the financial history and understood the cause and effect of FDR's "New Deal" or that he turned what may have been a short recession into a full blown depression that lasted for years. That's what government and socialist leaders do. Remove the middle class and capitalist incentive so that everyone needs them and their government.

    New Deal was a bad deal, just as "Stimulus" does nothing to stimulate anyone that invests in anything.

    Go back and read the books, Richard. Be sure to take your rose colored glasses off before you do. And please report back to us after you've learned what really happened in non-revisionist history.

  • Report this Comment On February 20, 2009, at 6:12 PM, jokelaw wrote:

    One of the basic tenets of behavior modification is that a behavior is reinforced by rewarding it. Think about it!

  • Report this Comment On February 20, 2009, at 7:23 PM, Utpcb wrote:

    I'm not sure why some are saying that the New Deal was a bad deal? Where are you getting your sources that say that the New Deal signed and enacted by FDR created and prolonged an even Greater Depression? With the signing of the New Deal, GDP grew yearly from 1934 (the year after the signing of the deal) and on. GDP is a direct measure of how the economy is doing. If you know this from economics 101, a recession occurs with at least 2 quarters of no growth...how is this measured? It is measured by the growth of GDP; therefore, if GDP grows then the economy is growing. Google it and see if GDP grew during the years after the signing of the New Deal.

    Then, read the Wall Street Journal and notice that articles show that the contraction of the current economy is measured by a decrease in GDP.

    Now if you wrote this comment because you were mad that the economic stimulus package of early 2008 did not do anything to stimulate the economy, then you are a little mistaken. I agree that that stimulus package did not work since it resulted in a net savings from consumers. Citizens that received stimulus rebates simply paid off outstanding debt and did not spend money on products that would increase demand for domestic products thus increasing GDP.

    The new economic stimulus package that was recently passed focuses on actual government spending that plans to stimulate aggregate demand. Even with aggregate demand increased, new jobs will be created and will further stimulate the economy through a multiplier effect ultimately increasing GDP and growing our economy.

    Basically, those that are posting comments telling others to "read what really happened in non-revisionist history" should probably not talk so much and go back and read themselves. Don't disrespect an article written with facts that past articles support with unnessecary comments.

  • Report this Comment On February 20, 2009, at 9:14 PM, Savannahguy wrote:

    Classic liberal argument: "go back and read...".

    That's it. No basis, no facts, no history. Go back and read. No... YOU go back and read. You are the ignorant one. This is the ignorance that allows history to not only repeat itself but be heralded into a Weimar Republic, which is what we have entered.

    You might want to read about that too while you're at it.

  • Report this Comment On February 20, 2009, at 10:31 PM, Kuzushi1 wrote:

    "The new economic stimulus package that was recently passed focuses on actual government spending that plans to stimulate aggregate demand. "

    How does funneling money to groups like ACORN and others "stimulate aggregate demand?"

  • Report this Comment On February 21, 2009, at 12:22 AM, giant123 wrote:

    Think we can hit the 1000 mark for rec's?

  • Report this Comment On February 21, 2009, at 2:08 PM, Utpcb wrote:

    "Go back and read Richard?!?!?" I think someone said the same thing as well.

    If you would like to pick apart an argument based on subjective opinions and not on facts, then go for it but you have no argument.

  • Report this Comment On February 22, 2009, at 4:04 PM, TheHague wrote:

    I believe it was said we are now in debt to the tune of $15,000 for every man woman and child because of the bailout!

    It seems to me that if W or B wanted to stimulate the economy in real and measurable ways that they would just mail a check to every citizen of the US for the amount that each us will owe for the bail out down the line!

    I can promise you that the economy would get stimulated immediately! Instead both have given the money to those who stole it in the first place!

    Nice job guys!

  • Report this Comment On February 23, 2009, at 9:40 AM, KenRtbcr wrote:

    Nice cherry pick on the GDP growth from 1933 to 1937. The GDP fell in 1938 and from 1937 to 1939 it was essentially flat. It wasn't until 1941 that the GDP had risen above it's level in 1929. FDR's record of government intervention is not very good.

  • Report this Comment On February 24, 2009, at 5:15 PM, GuitarRog wrote:

    Pardon me, but would not the best bailout be to let people keep more of their own money? Since we're ultimately paying for the bailout ourselves, why do we need the government to give us back our own money, after they've larcenously taken their own huge cut?

    Get this, my wife is the church secretary for the church we attend. Our church takes up collections to be used for member of our community who are hurting, and in need of temporary help. Our local social services division refers people to OUR CHURCH, because what we can offer them (gas vouchers and groceries,) are better than the "services" the government provides. And we are giving them money for this?

    Let us just keep our own money in the first place!

  • Report this Comment On August 07, 2009, at 4:11 PM, muddymx wrote:

    I am currently reading the latest book by Thomas E Woods (http://www.thomasewoods.com). It completely contradicts nearly all the statements made in this article and the arguments posed by our leaders in Congress who were of the same mindset.

    I am happy to see that so many fools and other Americans opposed the bailout. Mr Gibbons, please read Meltdown and then tell us how you feel about your strong stance.

    The government created this crisis, bailed out the employees and executives of bad companies at the expense of every American; and they have not saved investors anything.

  • Report this Comment On June 05, 2010, at 1:12 AM, whereaminow wrote:

    Boy this article looks stupid now.

    David in Qatar

  • Report this Comment On June 05, 2010, at 1:27 AM, automaticaev wrote:

    interesting reading here

  • Report this Comment On March 14, 2013, at 12:56 AM, WallaceStevens wrote:

    Wow, looking back at the posts: have to note an awful lot of religious zealotry.

    BTW, muddy, the government did not create this crisis. Paid sluts in the government created laws that enabled criminals to, legally, create this crisis.

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