October 3, 2008 9:09AM
Forget the Bailout: Here’s a Better Way
By Elizabeth MacDonald
“The whole aim of practical politics is to keep the populace alarmed, and hence clamorous to be led to safety, by menacing it with an endless series of hobgoblins, all of them imaginary.”–H.L. Mencken
The $700 bn bailout of the financial system, what Congress wants you to call a rescue, even though the bulging $850 bn piece legislation is now a well-lit Christmas tree of gimmes, has been given a giant thumbs-down on Main Street. The U.S. House of Representatives is getting set to vote on the Senate’s version of this bill.
However, there is growing recognition that spending $700 bn in taxpayer money on purchasing (and insuring) toxic paper could be a highly flawed form of intervention.
And a growing chorus of economists and stock-market analysts agree.
Below is a roundup of alternatives from the best thinkers out there, including a Nobel Laureate and other respected economists, who say there is a better way. I’ve also tossed in an amusing idea from actor Russell Crowe.
If you need a reason why you should take a look at the alternatives, here’s a sampling of quotes from Congress, pulled together by The Wall Street Journal, defending mortgage finance giants Fannie Mae and Freddie Mac at hearings in late 2004, in the runup to the housing bubble, prior to the implosion of these two recklessly managed, publicly traded companies – companies that doled out plenty of political donations to buy cover for uniform, profound incompetence.
A reader also emailed me this video so you can see Congressional legislators in action defending the health of Fannie Mae and Freddie Mac.
Rep. Maxine Waters (D-Calif.): “Through nearly a dozen hearings, where frankly we are trying to fix something that wasn’t broke, Mr. Chairman, we do not have a crisis at Freddie Mac and in particular at Fannie Mae under the outstanding leadership of Mr. Frank Raines.”
Rep. Maxine Waters (D., Calif.): “Mr. Chairman, we do not have a crisis at Freddie Mac, and in particular at Fannie Mae, under the outstanding leadership of Mr. Frank Raines. Everything in the 1992 act has worked just fine. In fact, the GSEs have exceeded their housing goals.”
Rep. Gregory Meeks (D-NY): In a hearing several years ago about a report on the safety and soundness of Fannie Mae and Freddie Mac from their regulator, Armando Falcon, Federal Housing Enterprise Oversight Director, Falcon came under fire. Meeks said; “The GSEs have done a tremendous job. There has been nothing that was indicated that’s wrong with Fannie Mae, Freddie Mac has come up on its own,” adding the regulator was trying to give the two a “heart surgeon [sic] when they really don’t need it.”
Rep. Barney Frank (D., Mass.): “The more people, in my judgment, exaggerate a threat of safety and soundness, the more people conjure up the possibility of serious financial losses to the Treasury, which I do not see. I think we see entities [Fannie Mae and Freddie Mac] that are fundamentally sound financially and withstand some of the disaster scenarios.”
Rep. Barney Frank (D-Mass.): In the same hearing several years ago about a report on the safety and soundness of Fannie Mae and Freddie Mac from their regulator, Falcon, Frank attacked Falcon: “I don’t see anything in your report that raises safety and soundness problems.”
Sen. Christopher Dodd (D., Conn.): “I, just briefly will say, Mr. Chairman, obviously, like most of us here, this is one of the great success stories of all time.”
Sen. Charles Schumer (D., N.Y.): “And my worry is that we’re using the recent safety and soundness concerns, particularly with Freddie, and with a poor regulator, as a straw man to curtail Fannie and Freddie’s mission.”
Franklin Raines, former head of Fannie Mae: “These assets are so riskless that their capital for holding them should be under 2%.
Richard Syron, former head of Freddie Mac: “If I had better foresight, maybe I could have improved things a little bit. But frankly, if I had perfect foresight, I would never have taken this job in the first place.”
Note: Raines was forced out of Fannie Mae in December 2004 after the Securities and Exchange Commission launched an investigation into alleged accounting problems at Fannie Mae involving an estimated $6 bn in accounting problems. The Office of Federal Housing Oversight sued Raines in 2006, accusing him of aiding accounting shenanigans at Fannie, which allegedly involved the delay of reporting losses so top executives could earn large bonuses.
The suit attempted to recover the $50 mn Raines in pay got based on billions of dollars in overstated earnings. In total, OFHEO demanded $110 mn in fines and a clawback of $115 mn in bonuses for three executives accused, including Raines.
Raines, Fannie’s former chief financial officer and its former controller settled the case in April 2008, agreeing to pay fines totaling about $3 mn, paid for by Fannie’s insurance policies.
Raines also agreed to donate the proceeds from the sale of $1.8 mn of his Fannie stock and to give up stock options, though the options were worthless. Raines also gave up an estimated $5.3 mn of “other benefits” said to be related to his pension and forgone bonuses. In the end, Raines kept most of his largesse — in 2003 alone, his compensation was estimated at over $20 mn.
The Experts’ Alternatives
William Isaac, former chairman of the Federal Deposit Insurance Corp., 1981-1985: Isaac suggests that the government might be better off injecting money directly into ailing institutions and taking preferred stock or equity warrants to help pay for the investment. Isaac’s idea echoes the Swedish government’s response to its 1991 banking crisis. Called the ‘Stockholm Solution,’ Isaac’s plan would be to set up a government-backed company called ‘Securum,’ which would recapitalize distressed financial institutions.
Nobel laureate Myron Scholes (and former partner in troubled hedge fund Long Term Capital): Similarly advocates that the government only invest in troubled bank debt senior to existing debt and in preferred stocks senior to existing shares in any banking entity under duress. If all goes well, the government eventually gets out with a profit.
Brian Wesbury, chief economist of First Trust, advocates against a public rescue and instead a private sector plan that lets private companies instead hold these distressed assets:
Why not allow financial firms with structured (Tier 3) assets issued between December 2003 and August 2007 to suspend mark-to-market accounting for those assets, and receive government insurance as a backstop?
This would be a temporary solution, not requiring any ultimate change in Sarbanes Oxley or mark-to-market accounting rules, and the government could even make money by selling insurance with less risk to the taxpayer than buying them outright. In essence a firm could sequester, or firewall off these specific assets from the rest of its balance sheet, and either finance this itself, or bring in outside financing.
The firm would promise to hold the securities to maturity, or until government insurance was no longer needed when it liquidated the assets. All of these deals could be settled in the private sector, in multiple locations with the government looking over the shoulder of each deal.
Janet Tavakoli, founder and president of Tavakoli Structured Finance and one of the best market analysts on the dangers of credit derivatives: Rather than adopt any form of the Paulson Plan, which uses billions of taxpayer dollars and forces risk and potential losses on taxpayers–instead of those who enjoyed the gains–I advocate an alternative.
Instead of the Paulson Plan, we can force creditors to accept a restructuring plan (this was done during the Great Depression). Creditors (debt holders) including credit default swap counterparties would be compelled to accept a restructuring plan. That requires partial forgiveness of debt in many cases and/or a debt for equity swap (in which the government takes equity stakes in these companies).
If we are determined to violate personal property rights, I prefer it be done through a forced debt forgiveness and a forced capital restructuring (debt for equity swaps), rather than through a massive bailout (any of the various forms of the Paulson Plan).
The Paulson Plan destroys capitalism (those who stood to gain –- and already made off with large gains –-should bear the risk) and violates the spirit of democracy established by the Founding Fathers of the United States.
R. Glenn Hubbard, dean of Columbia Business School, former chairman of the Council of Economic Advisers under President George W. Bush, and Chris Mayer, professor of finance and economics and senior vice dean of Columbia Business School. The two advocate a rescue of Main Street, first printed on the editorial page of The Wall Street Journal:
Housing starts are at their lowest level since the early 1980s, while there are more vacant houses than at any time since the Census Bureau started keeping such data in 1960. Millions of homeowners owe more on their mortgage than their house is worth. Foreclosures are accelerating.
House prices continue to fall, weakening household balance sheets and the balance sheets of financial institutions.
We propose that the Bush administration and Congress allow all residential mortgages on primary residences to be refinanced into 30-year fixed-rate mortgages at 5.25% (matching the lowest mortgage rate in the past 30 years), and place those mortgages with Fannie Mae and Freddie Mac. Investors and speculators should not be allowed to qualify.
The historical spread of the 30-year, fixed-rate conforming mortgage over 10-year Treasury bonds is about 160 basis points. So a rate of 5.25% would be close to where mortgage rates would be today with normally functioning mortgage markets.
The direct cost of this plan would be modest for the 85% of mortgages where the homeowner owes less on the house than it is worth. Lower interest rates will mean higher overall house prices. The government now controls nearly 90% of the mortgage market and can (and should) act on this realization.
Homeowners would have to give up the right to refinance their mortgage if rates fall, although homeowners could pay off their mortgage by selling their home. For borrowers with lower credit scores, the mortgage rate would be greater than 5.25%, but it would be less than their current rate.
Now, what about mortgages on homes that are worth less than the total amount of the loan? These mortgages could be refinanced into a 30-year fixed-rate loan to be held by a new agency modeled on the 1930s-era Homeowners Loan Corporation. New mortgages would be made of up 95% of the current value of a home.
The government might use two approaches to mitigate its losses. It could offer owners and servicers the opportunity to split the losses on refinancing a mortgage with the new agency. Servicers would have to agree to accept these refinancings on all or none of their mortgages, to avoid cherry-picking. Or the government should take an equity position in return for the mortgage write-down so that the taxpayers profit when the housing market turns around.
Our calculations based on deeds and Census data suggest that the total amount of negative equity for all owner-occupied houses is $593 billion. However, capping an individual’s write-down to $75,000 would reduce the government’s total liability to $338 billion and cover 68% of individuals with negative equity. Even this loss will be reduced as the proposal spelled out here raises housing values and economic activity, and contemplates loss sharing with lenders, hopefully matching the experience of the old Homeowners Loan Corporation.
While the net cost is modest compared with many plans on the table, it would require that the government could assume trillions of dollars of additional mortgages on its balance sheet. But we have already crossed this bridge with the explicit “conservatorship” of Fannie Mae and Freddie Mac.
In any event, these mortgages would be backed by houses and the verified ability to repay the debt by millions of Americans. In addition, by putting a floor under house prices, this proposal would raise the value to taxpayers of trillions of existing home mortgage assets already owned or guaranteed by the FDIC, the Fed, the Treasury, Fannie Mae and Freddie Mac, among others.
Congress would have to raise the overall borrowing limit and approve the new federal purchases of negative equity loans.
But it will likely take the Treasury much longer to buy troubled assets than Fannie and Freddie, and it would have to seek the involvement of many additional private actors, as opposed to using vehicles already in place.
Lucian Bebchuk, a professor of law, economics, and finance at Harvard Law School, author of “A Better Plan for Addressing the Financial Crisis,” idea first printed in the Financial Times: Recognition has grown that, notwithstanding these large costs, the proposed plan would fail to provide the financial sector with capital infusions that would be as immediate, large, and appropriately targeted as needed.
Because the bill would provide financial firms with extra capital largely through overpaying for troubled assets (or underpricing insurance for such assets), it would provide capital only following the consummation of complex and time-consuming processes and cannot be counted on to supply capital where and when it would be most useful.
Consider the government’s recent infusion of capital into AIG. Facing the risk of AIG’s collapse, the government provided $85 bn right away and received in return an agreed upon set of debt and equity instruments.
Had the bill passed on Monday and AIG subsequently needed assistance, the funds authorized by the bill might not be usable for such capital infusion by the government.
Purchasing the large and highly heterogeneous portfolio of troubled assets owned by AIG through valuation processes would not provide an effective and timely form of intervention.
The Treasury’s direct capital investments should be guided by the objectives of restoring stability to the financial markets and protecting taxpayers.
When a firm is solvent and undercapitalised, the Treasury should insist on getting a set of new capital securities that would provide the government with adequate return on its investment.
In cases in which a firm is insolvent and not merely undercapitalised, the Treasury should still be permitted to make a capital investment if it views the firm’s continued operations as necessary to avoid disruption to the financial markets.
Taxpayer losses from the legislation would be limited to such cases, and these losses would be kept to a minimum by the government’s investing in such cases only on terms effectively enabling it to take over the firm’s equity.
Congress should move quickly to adopt legislation authorizing the use of $700 bn for infusing capital into financial firms.
John Ryding, Chief Economist, RDQ Economics LLC, excerpted from a recent report: We suggest that a better program than the TARP [the Troubled Asset Relief Program] would be a troubled asset term lending (TATL) facility.
The Treasury could create a facility that would make conservative loans to private sector money managers to purchase mortgage assets (say at a 50% haircut to the assessed collateral value of the security). Such a facility would afford considerably more protection to taxpayers than the TARP and could not be viewed as a bailout.
The facility would very likely be profitable for the government, in our judgment.
…these troubled assets have been forced onto bank balance sheets and financed by FDIC insured deposits (with the taxpayer effectively on the hook if the bank should fail).
The lack of term funding means that private money managers have to buy mortgage assets on an unlevered basis, which, given a hurdle rate of return in the mid-teens, means that these assets will be bid for at only very depressed prices. In our conversations with various trading desks, the idea of a term-lending facility has been met with enthusiasm relative to the TARP.
So how would a TATL facility work? The financing arrangements would be for the maturity of the troubled asset. Leverage would be conservative, set at 50% of the assessed collateral value of the security.
Financing rates could be either fixed or floating (depending on the asset being purchased) and the financing rate would take into account the quality of the asset, the term of the loan, alternative financing options available, the financial strength of the borrower, and other market based indicators.
The structure of the loans would be similar to repurchase agreements and the traditional bond market form would be used to document the transaction. As with most repurchase agreement transactions, the lending would be done on a full-recourse basis.
However, given the large haircut and to ensure maximum participation, we would propose that the assets are not marked-to-market for the purposes of making a margin call on a TATL loan. The funding for TATL would be the same as the TARP, namely the issuance of Treasury debt.
The attractions of a TATL facility over the TARP are significant. First, it directly addresses a market failure—namely the lack of a term-funding market to finance risky long-maturity private debt. Second, the U.S. taxpayer would not be exposed to first loss equity risk. The taxpayer would be, in effect, the senior lender against assets that are already at low dollar prices and would be afforded the additional protection of a 50% haircut from these prices.
The financing rate for the TATL facility would be well above current Treasury rates (perhaps in the range of 6% to 8% depending on the quality of asset being purchased and the strength of the buying firm), which would make the TATL facility immediately cash-flow positive for the U.S. taxpayer. (If, for example, the Treasury were to set the size of the TATL facility at $700 bn, it could return roughly $25 bn per year to taxpayers).
Private sector asset managers would own the assets rather than manage them on behalf of the government (as would be the case under TARP) and this would properly incentivize the managers to work out of positions and maximize returns. Assets would end up in the hands of those best equipped to manage the risk.
Russell Crowe, actor, first printed in the New Zealand Herald: The New Zealand-born actor announced, during a US TV talkshow appearance, a mathematically-flawed plan to cure America’s financial crisis.
“I have been intently watching the political process,” Crowe told talk-show host Jay Leno.
Crowe believes the U.S. government should give each American $1.5 mn.
His reasoning is the U.S. has a population of about 300 mn, so the $300 bn outlay is a fraction of the $700 bn financial bailout package rejected by politicians in Washington DC yesterday.
“I was thinking,” Crowe said.”If they want to stimulate the economy and get people spending so they can look after their mortgage … give everyone US$1 mn.”
His plan would actually cost $300 tn.
The actor is preparing for another film based on Robin Hood, and has grown his hair past shoulder length.
“I’m going to play Maid Marion,” Crowe, twirling his long hair, told Leno.
Crowe will play the Sheriff of Nottingham and Sienna Miller has been cast as Maid Marion.
Comment by Ruby2sday
Oct 3rd, 2008 at 10:04 am
Don’t forget Obama’s role with ACORN Housing. Google hits are exploding and we need to keep attention on this little detail that the MSM refuses to acknowledge.
Comment by Dan
Oct 3rd, 2008 at 10:06 am
ANYTHING has to be better than the crap Washington is putting out right now. Sadly, I am envisioning a signing ceremony in the Rose Garden where Bush declares “economic calm in our time.” Channeling Neville Chamberlain, anyone? We know how THAT turned out!
Comment by Anon E Mous
Oct 3rd, 2008 at 10:26 am
Let’s be “fair”. Rather than slective bail outs, let’s just declare a biblical Year of Jubilee and cancel ALL debt.
Comment by Granny
Oct 3rd, 2008 at 10:32 am
Privatized citizen retirement accounts - dividends from ALL federally acquired or 50% greater loaned out to corporate entities.
Don’t miss this ballgame.
Comment by Alana
Oct 3rd, 2008 at 10:34 am
I think almost any alternative would be better than this stinking mess. I cannot believe politicians are actually contemplating giving more power to themselves to fix this when they are the ones who screwed it up in the first place.
Comment by Granny
Oct 3rd, 2008 at 10:34 am
Bush wanted to dump the 2 trillion in SS coffers all along.
He never got it.
BUT - did get the 2 trillion via other venue.
Hey - Rome burned in LESS time than Lehman fell.
Comment by Granny
Oct 3rd, 2008 at 10:35 am
McCoy passes through the Gates to Eternity
to a backstreet alley
a street drunk sits there with a bottle
“What planet is this ? ”
:throws bottle:
Yeah, kinda like that
Comment by Douglass Montrose-Graem
Oct 3rd, 2008 at 10:40 am
SIMPLE SOLUTION for junk-mortgage crisis, without tax-payer funds
SIMPLESIMPLESIMPLE in THREE WORDS:
“Commoditize” junk mortgages!
Unbundle present “securitized” junk mortgages and re-bundle them into bundles of COMMODITIES ready to be listed on the planet’s most efficient and largest financial/commodity exchange, the CHICAGO MERCANTILE EXCHANGE [ticker symbol CME] - these new commodity bundles shall offer great variety to suit many PRIVATE investors differing tastes: bundled by state of origin, maturity, quality etc. Repeat -the buyers shall be NOT the tax-payers, but PRIVATE funds!
This dove-tails nicely with the US Treasury’s present plan to have an army of appraisers appraise them
BUT under this plan the appraisal is the first step to have them listed on the CME for a PRIVATE SOLUTION of our crisis. References: please google my last name “montrosegraem” to get to my website which lists 50 years of top-level experience in finance and public affairs.
Comment by Peter
Oct 3rd, 2008 at 10:43 am
Yeah Russy Crowe….thats the ticket…..
One problem, where does that money come from?
Yeah, great suggestion…..lets inflate our way out of the problem.
Russy, little advise…go pick up some economic 101 books, historical great depression books and actually study how great depressions around the world have come to be before ya open your mouth on the subject. It’s fine that you want to study a script and act, but don’t open your mouth on any other subject, except maybe what good Australian beer ya had lately.
Comment by Ken
Oct 3rd, 2008 at 10:56 am
A look at different plans is a great idea! Not adding crap to a bad plan
Comment by SueHal
Oct 3rd, 2008 at 10:56 am
This is very confusing. The only thing I do understand is the fact that our representatives added a whole bunch of extras that are totally unrelated to the ‘bailout’. I am leary of the media and all their reports of gloom and doom and the sky is falling. When Nancy Pelosi came out yesterday and praised the fact that alternative energy was given bucks-I began to question her motives in this whole affair. Just how far would the media and the Dems go to try and get a win in Nov.-Pelosi showed she wasn’t really concerned with the ’so-called crisis’ when she focused on energy and when she intentionally blamed Republicans in her floor speech. I will remain confident-things may get rocky but after awhile it will settle down. I will not allow the media to whoop me up into a frenzy.
Comment by Michael
Oct 3rd, 2008 at 11:37 am
In the interest of full-disclosure, I am a Realtor. I think this bailout is insane and incredibly short-sighted.
Taking my Realtor hat off and putting my MBA hat on, let me offer the following:
I understand that liquidity is the problem, but injecting money does NOT guarantee that liquidity will improve nor will resolve the inventory glut. Looking at the St. Louis Fed’s credit numbers, credit is at literally an all-time high. This is like putting water in a blocked toilet and flushing again and again…it doesn’t break the blockage.
Now, I have not necessarily heard how this directly translates to dealing with:
1. Oversupply of inventory, created by
2. Rampant foreclosures
which seems to be at the core of the crisis.
I think the most conceptually simple approach (the devil is always in the details) is:
1. Provide a 40, 50, 60 year amortization for loans in trouble (maybe at rates like Glenn Hubbard shares above), not a 30-year rework…which essentially gets you to a minimally different payment.
a. This keeps homes off-market, creating price support due to static demand competing for a reduced supply (inventory) of homes. This has the ancillary benefit of keeping property values up (not artificially, but by ACTUAL, desired home ownership) which benefits state and local economies (who rely on property taxes)
2. Trade off a portion of the equity on the back end of the sale for the privilege of doing this, say 10%, for the opportunity to do this. This would have the effect of neighborhood stabilization (for remaining homeowners who might just get fed up and leave the keys on the counter and go at some point, if they see their homes go underwater to the tune of $100k or $200k)
a. Create a private investment fund for raising funds for this endeavor, perhaps with tax free benefits paying, say, 7%, after all, at 10% return on the back end, you would make 3% differential (mind you, I haven’t done an NPV analysis or time-value of money analysis on this).
Moreover, this would ESTABLISH VALUE of these mortgage assets due to increased (or, really, commencing) cashflows from the DISTRESSED loans (after all, 1/2 of something is better than 100% of nothing). This should increase cashflows in the credit market and permit the ability to loan in the market. The differentials (the other half of the loans in distress) would be funded through the private investment fund noted above.
If there were a gap remaining there, THEN fund THAT. I mean, we are putting 1/14th of the GDP into Wall Street in one bill. That’s insane.
The net-net is: You keep supply of available homes down. Due to the implicit requirement of having any given home needing to overcome its emcumbrances, these homes should not churn until value (and equity) is acquired. That is equity that can be used to move up somewhere down the road, or provide a legacy to these homeowners’ family and children.
Michael
Comment by chuck
Oct 3rd, 2008 at 11:39 am
Question everyone should ask: what do politicians of both stripes really know about economics. Of course they depend on industries like banking for moeny for thier campaigns for election and reelection. I can tell u just listening to a variety of talk radio shows both liberal and conservative: the people are upset.
Now the leaderships of Congress,white house and treasuty showed a lack to the public and this idea on thier part was poorly marketed. I believe that congressmen need to the read the fine prints of thier legislation. Second I’d like to see some of these politicans spend a day in the private sector to see how real people work and live. They should understnad the anger that is now rising. Frankly committees in congress shouldn’t waste time on this issue. They should remain and examine how the real estate market prices got depressed,how the subprime mortgage exploded like it did, and how just how serious the credit crunch is. Call in thier own lobbyist to query to see how deep this rabbit hole runs. Sometime being haste in solving the problem could only makes matters worse. Blame for this fiasco is all around.
Comment by A Believer
Oct 3rd, 2008 at 11:48 am
If we go down this slippery slope of government bail-outs ( I can’t bring myself to calling this a “rescue” ), then heaven help us. For the love of God, are we here in this great country that blind? Why are we risking our future to these bunch of losers in Washington? Store up your treasures in heaven, my friends. May God have mercy on us all.
Comment by j t (r-co)
Oct 3rd, 2008 at 12:10 pm
here’s an idea america. not only should we fire our congress members that vote yes, but lets take a stand.
if they do pass this bill, i say we take all of our money out of whatever banks they are bailing out and put our money in the other banks and credit unions. these banks deserve to go out of business for their poor decisions and greediness. if the government wont do it, i say we as americans take a stand and stop these banks from ruining more lives and costing us more money.
Comment by haylie newton
Oct 3rd, 2008 at 12:26 pm
god this suxx why in the hell r we even in this mess
Comment by Grant
Oct 3rd, 2008 at 12:28 pm
Stand by for Mission Accomplished Part 2: Hank and Ben’s Big Adventure.
Comment by Paragrouper
Oct 3rd, 2008 at 12:30 pm
Sadly, our representatives seem unwilling to listen to reason, whether from economic experts or from their constituents. Each American needs to carefully review how they choose to place their votes–and then vote “no” for every incumbent who votes “yes” for the bailout.
Comment by Tom K.
Oct 3rd, 2008 at 12:42 pm
Rob from the rich, give to the poor. It has such a wonderful ring to it, Hollywood can’t resist writing yet another script on the same theme.
Comment by hidclare
Oct 3rd, 2008 at 12:50 pm
I 2nd SueHal comments…its not just the republicans, it was also the democrats. Please read, read ,read all info before speaking out. Out politicians, lobyists and high paid greedy CEO’s are the ones who got us into this mess…they need to donate their big fat paychecks and severence paychecks back into the system to at least make a dent in fixing this problem!
Comment by John Ryding
Oct 3rd, 2008 at 1:03 pm
Why Actors Should Not Design Stimulus Plans! I have to point out that Russell Crowe’s math is a bit off. If 300 million americans get $1 million each that’s $300 trillion not $300 billion!! 300,000,000 x $1,000,000 = $300,000,000,000,000. The U.S. would rapidly become Zimbabwe, where inflation last measured was 100,000% and rising rapidly. But what’s $299.7 trillion between friends?
Comment by Brian
Oct 3rd, 2008 at 1:39 pm
anyone remember what happened to Marie Ationette? we should, as a people, rise as one and storm the capitol, ousting the lot of them. next run down the street to the White House and kick those morons out. then head north to Wall St set it ablaze. what do ya say? I’m in!!!!!!!!!!!!!!!!!!!!!!!!!
Comment by GLORIA
Oct 3rd, 2008 at 2:00 pm
The best way to solve it is to vote all of the congress out of office this November, but this of course will never happen. Most of the congress are rich and do not know what the average American does. They might have come from humble beginnings but once you are in Congress they become fat cats spending your money on anything they want.
Comment by DT
Oct 3rd, 2008 at 2:10 pm
IT PAYS TO STEAL BIG!
Today our corrupt, bought and paid for politicians, rewarded crooks on wall street for stealing and actually losing money doing it. Our politicans decided it would be in our best interests to give our taxpayer dollars to make up for their losses. Did I hear any politican say they would be giving back the tens of millions they got as contributions from these crooks? I didn’t think so.
Let this be a lesson to young people, if you want to be a crook, be a big one. Small theft will surely land you in jail. But, steal big enough and pay off enough politicans and you can walk.
Next up is to see politicans and wall streeters teaching college courses and writing books on the steps to take to steal trillions and get away with it. Yea baby I can see the infomertials now with politicans and wall streeters having the whole system on dvd for sale at $249, but if you act now, $199.
Comment by Don Graden
Oct 3rd, 2008 at 2:34 pm
After hearing last night’s debates, I’m a small business owner and I can only pay so much taxes before I will have to close the doors. I pay right now inventory tax to my city, county taxes, state taxes, and gov taxes, payroll taxes, and after hearing what the dem’s are wanting taxes for anyone over $ 250,000,00. Now i’m a very small business, $ 250,000,00 is not a lot of money in one year,how ever I pay alot of this back in taxes, this will leave me with what, more taxes to pay. I do not think I can pay anymore before I place a white flag over the door and a sign that will read It’s all your’s Obama. Do you think that back in the day, we as usa citizens would let this happen, the answer would be no. Has the house of representatives ever heard of the boston tea party? When do you think the Gov will come over to the peoples side, so far it is still a dark hole we are looking through. Only time will tell.
Comment by CindyW
Oct 3rd, 2008 at 3:10 pm
Part of the problem is that the politicians and some clueless Americans just want a quick fix. They think they can fix what took years to get us into this situation by throwing more of our taxpayer dollars at the problem. That always seems to be Washington’s mistake. Until we address the core of the problem, we are just going to be tossing money into this big black hole of a bail-out. We as Americans need to let Washington know that we don’t want their quick “fixes”. We want “real” solutions but “real” solutions take time, hard work and persistance. Qualities too many of the politicians don’t understand.
Comment by June Matuszak
Oct 3rd, 2008 at 3:11 pm
Today we witnessed blackmail in motion and are now in horror as our government take us down the path to socialism. It’s something that Obama is campaigning on with his “robin-hood, redistribution policy.” It makes me sick to my stomach to see the leadership of our nation stuff a “bailout bill”…er “Rescue Bill” that is #1. not a guarantee, #2.stuffed with the following items that I don’t understand the benefit of how these earmarks will help the economy. I am a shamed of our government leaders who clearly had their own interests at heart, and am furious that they would take a crisis situation for their own personal gain. I am a shamed of Pres. Bush for not having the guts to say, “work on it some more and get rid of the crap.” The thing with socialism is that there is no incentive to work. For the first time in my life, I am fearful of the direction this country is going. ENRON had full investigations into it’s failure. Why is Pelosi, who wants committees and investigations on everyone and everything, not asking for a hearing as to why these companies failed, or had to be bailed out? Oh…that’s right, she’s a Democrat and she would have to ask her friends, Frank Barney,Chris Dobbs,Wrangle, Penny Pritzer, and Obama about their involvement with Fanny Mae and Freddie. Wouldn’t that throw a wrench into the elections?
Wooden Arrows designed for use by children (Sec. 503)
- 6 page package of earmarks for litigants in the 1989 Exxon Valdez incident, Alaska (Sec. 504)
Tax earmark “extenders” in the bailout bill.
- Virgin Island and Puerto Rican Rum (Section 308)
- American Samoa (Sec. 309)
- Mine Rescue Teams (Sec. 310)
- Mine Safety Equipment (Sec. 311)
- Domestic Production Activities in Puerto Rico (Sec. 312)
- Indian Tribes (Sec. 314, 315)
- Railroads (Sec. 316)
- Auto Racing Tracks (317)
- District of Columbia (Sec. 322)
- Wool Research (Sec. 325)
SHAME ON YOU!!! And a resounding applause for allowing us to “invest” in the mortgages you feds will “sit on until the economy is better.” I kind of feel that you all are discrimminating agaist me because I am financially responsible. Where’s my hand out?
Comment by Rick C
Oct 4th, 2008 at 12:59 am
I was in the lending industry up until about ten years ago. I left the industry at, what I considered, the beginning of this mess. I felt then and know now that the direction the lenders and the feds were taking could not be sustained. The loans were getting increasingly riskier and as long as fee income could be generated, the lenders kept pushing the envelope. I wasn’t the only one who felt this way, most of my colleagues, especially the more seasoned ones, saw it too. Many people made a lot of money off of this, taking advantage of the opportunity made available to them. But it was the top executives together with federal regulators that enacted the new lower standards, and they profited the most. Now that they’ve wrecked our economy we’re rewarding them for they’re irresponsibility and greed. Worse yet the government, “our” representatives, who were suppose to act as the checks and balances to prevent this type of calamity are the ones doing the rewarding. Rest assured we will not see this money again, but we will be extorted, by the IRS, to pay for it.
What we need is a party that represents”us” the average American, the middle class. Those of us who work 40+ hours a week to keep a roof over our heads and food on the table. If nothing else, the fact that both the Democrats and Republicans could agree to support this bailout should be seen as evidence that they’re not representing us. They’ve shared control over this country for far too long and we’ve allowed it. They can not and should not be trusted ever again. I applaud those, such as Ron Paul, who went against partisan politics and spoke out. We need to stop voting down party lines and seriously look at third party candidates. Individuals not “owned and controlled” by they’re party. People who’ve demonstrated honesty and integrity in the real world, instead of career politicians.
Comment by Joe Casale
Oct 4th, 2008 at 8:43 am
There is no question that Government’s role in creating this mess is overwhelming. The Senate in particular is a good old boys network,constantly scratching each other’s back.The House at least showed some courage, but then let the MSM convince them that public opinion was turning in favor of the bill.NOT TRUE! My personal assets are down 26%. I would have preferred they do nothing rather than do what they did. I am 73 years old, and would rather go out and find a job of any kind, to support myself, than live under a socialist government. That is what this move is, socialism.
Joe
Comment by Bill
Oct 4th, 2008 at 5:55 pm
In addtion to the Constitutionality of using taxpayer money to buy toxic loans, I am disturbed that this $850 billion will leave us unprepared for a much more major terrorist attack or nuclear attack. Our soft underbelly is getting softer and bigger. We also have the Medicare crisis coming up soon, and the social security crisis.
There are only two solutions: 1) Either raise taxes substantially or 2) inflate the currency - devalue the dollar - substantially. Number 1 is politically unfeasible. Nine out of ten constituents were against this bailout and will take pitchforks to Washington D.C. if they get a much larger tax bill in 2009. Number 2 is easier, as it’s the sneakier way to taxation.
I wrote both my U.S. Senators the evening prior to the vote in the Senate and pleaded with them to vote against the bailout. One was Jon Kyl and the other was John McCain. Both voted yes. I wrote Harry Mitchell (D) to ask him to vote against the bill when it came back to the House. He voted Yes, but at least responded with e-mail. He never addressed my points.
My solution is to pay for this bill by making immediate spending cuts across the board in all the unconstitutional spending. There’s hundreds of billions spent on HUD, FDA, FCC, CDC, NASA, DOT, FAA, and so on. Cut them all. Then give us a consumption tax, abolish all other taxes.
Comment by joseph
Oct 5th, 2008 at 6:14 am
If you really look at what has happened as a fact look at yourself for example. We owe more to the banks then ever. In short the banks own everything.
Comment by Gary
Oct 5th, 2008 at 8:22 am
Do not forget that Congress had complete and direct oversight of Fannie and Freddie, until they were nationalized, via OPHEO, which reported directly to Sens. Dodd and Shelby, and Rep. Frank and Bachus. OFHEO, in their annual report to Congress on 15 April, 2008, states “Fannie Mae and Freddie Mac … remain significant supervisory concerns. They both experienced poor financial performance in 2007 largely due to the rapid deterioration in credit performance associated with house price declines and disruption of the mortgage markets. Market value declines in derivatives caused by falling long-term interest rates also generated substantial losses.”
Pretty clear warning on mortgage losses. Plus they were losing money speculating in risky derivatives. Yet no one in Congress did anything. And they claim they never saw this coming.
Comment by Bob Meyer
Oct 5th, 2008 at 7:43 pm
I never cease to be amazed at the number of experts who are so much smarter than the market. Not one of them said “Drop Sarbanes-Oxley, stop guaranteeing mortgages, get rid of Fannie Mae and Freddie Mac and let business do what it does best - move assets into the most productive areas”.
If the experts were so smart they should be making money out of this mess right now without having to get Hank Paulson to rig the markets in their favor. The uncertainty produced by these ridiculously “porked” proposals is scaring everyone into not lending money. You never know what the government is going to do next.
Last week they sent in the FBI to find criminal bankers, and you can be sure that they will find them. The subsequent witch trials will have the defendants charged with casting spells over borrowers to break their wills and make them buy houses they couldn’t afford.
I’m not saying there was no fraud involved with some loans, but often the victim is all too eager to co-operate. There’s an old saying among con-men - “You can’t cheat an honest man” that expresses this very well. The really crooked loan brokers have already fled, there’s no more money to be made. All that will be left are the honest men trying to salvage their banks. The FBI won’t care. There’s been a crime and we need to publicly punish someone!
If you doubt this then try to find out what crime Michael Milken actually committed.
Imagine that you are going to see your banker and you find armed FBI agents seizing his records. Guilty or not, your banker’s career and possibly the bank itself are finished. One or two arrests on TV and there will be bank runs just like your grandfather told you about.
Then Henry Paulson will to on TV and decry the “lack of confidence” in American banks (of course arresting bankers on TV had nothing to do with this) and declare that with only a few trillion dollars more he can fix it!
Comment by Vegas
Oct 8th, 2008 at 10:28 am
Okay, my home is under a fixed for 5.375. I put 20% down. I can afford my mortgage. Unfortunately I bought my house in Vegas in 2004 so it is upside down because of the stupid investors that ran up housing prices that year. You could not find a house that had not been run up.
Housing prices have dropped way past my 20% down payment.
Will the program help people like me? We had to move to take care of my parents. Now I own two houses because I cannot sell the one I have in Vegas for more than I owe. 30 yr fixed, 20% down and I still ended up underwater.