I Admit It: I am torn over the bailout

[JSojourner]

I don't know how to feel about this thing.  I agree with EVERYTHING the detractors are saying about CEO bonuses, regulation and making sure ordinary Americans are bailed out.

However, I also honestly get where Paulson and others are coming from when they talk about the vitality of liquidity. 

I have my own business.  I am extremely fortunate that my wife has a good job with benefits so, if I have a few bad months (and I have!) then fine.  We still have health care and the bills get paid.

But my business thrives on cash.  The more I have, the more inventory I can buy and mark up slightly.  Hence, more profit.  When I don't have cash, there's no new inventory.  And the old inventory looks even older.  And like a used car that is perfectly fine, it suffers from "lot rot".  It simply carries the perception of being undesirable.  Because it hasn't sold.

So without quick and sufficient cash (which is sadly, too often the case these days), my business suffers.

Wouldn't the same be true of investment firms? 

I'm not offering a paean to big business here -- like I say, I agree with what Bush and Paulson's critics have said.  I'm just saying I understand where they are coming from when they speak of liquidity.

Or have I completely misunderstood what liquidity is?  That's possible -- economics are NOT my strong suit.

[Fmr. Pres. Duke]

Well I'm a business major which is much like Economics. I will say that I am torn over it too. My principles are against big government intervention, but I am scared of what will happen if we just let the market decide. These businesses don't have any liquidity at all, so if they don't get relief, they can't do business. If they can't go business, ordinary Americans who use them or invest in them will be really hurting.

Things are getting bad now that my family's income class is beginning to feel it. We've got a lot of investments in the market and my college fund has dropped 30% this year which is big considering I'm paying $50,000 a year in tuition. I'm just afraid if this bailout fails that my life savings will go down the tubes. A lot of people, including the investor class, will be hurting.

I'm surprised you're possibly against the bailout. I figured you'd be a regular old Keynesian when it came to this.

[War on Want]

I am also torn on the bailout. My principles on trying to stimulate the economy from the bottom up and have the end of recessions help the working class in the long run rather than the upper middle class. I also have problems with accepting the huge amounts of money being spent on this, when it is probably just a slight fix in many cases.
At the same time, I realize that this bailout plan needs to be passed fast in order to have an affect on the economy and that this may be a good way to fix some problems that might happen in the future. I understand that much of this bailout plan would greatly stimulate the economy but at the same time I have huge doubts that it would.

So in other words I lean towards supporting the bailout on practicality and lean towards being against it on principle.

[War on Want]

I don't feel at all torn, even with a Morgan Stanley employee for a father.  The government needs to back off and let the market fail.  It's going to suck but it's the natural boom and bust cycle.  The more you fight it, the worse it will be next time the bust is supposed to roll around.  There are ups and downs, we can't just have the ups and expect the government to work as a ratty old rope bridge across the downs.  The more we use that ratty old bridge the more likely we are to fall through right in the middle of a horrible depression.

I agree with you in some ways but there are fundamental problems with the financial sector that can't just be fixed just by the market correcting itself. I mean sure a pretty severe recession would probably stop many companies from having their risky loans and mortages that got us in the mess but couldn't it just be solved through more regulation and have a more minor recession? I mean I can understand being against the bailout but I think more regulation(for once) would be easier on the country that market self correction.

[Sensei]

I don't feel at all torn, even with a Morgan Stanley employee for a father.  The government needs to back off and let the market fail.  It's going to suck but it's the natural boom and bust cycle.  The more you fight it, the worse it will be next time the bust is supposed to roll around.  There are ups and downs, we can't just have the ups and expect the government to work as a ratty old rope bridge across the downs.  The more we use that ratty old bridge the more likely we are to fall through right in the middle of a horrible depression.

I agree with you in some ways but there are fundamental problems with the financial sector that can't just be fixed just by the market correcting itself. I mean sure a pretty severe recession would probably stop many companies from having their risky loans and mortages that got us in the mess but couldn't it just be solved through more regulation and have a more minor recession? I mean I can understand being against the bailout but I think more regulation(for once) would be easier on the country that market self correction.

Yeah, I don't necessarily agree with Fezzy's bridge analogy. The bailout probably won't cause a horrible depression.

[Verily]

Ultimately, you're right. We do need to reintroduce liquidity. I have been increasingly troubled by the demand for no oversight and instant gratification, though. The market isn't going to fall through the floor while they know a bailout is coming. Basically, the Democrats have all the right positions on this, at least right now: Pass a bailout, but make sure it's going where it's needed and where it's appropriate rather than just throwing money at CEOs.

[Kaine for Senate '18]

Same here.  Although I'm usually for government intervention in the economy, I think this is a huge mistake.  We should let the market bottom out, and then step in to fix it; it seems to me that we're giving alchohol to someone who just got out of AA with this bailout.

[Ban my account ffs!]

Liquidity is basically your ability as a business or individual to convert your assets into cash.  Right now these banks are suffering because their assets are tied up in bad loans... so they're stuck because they don't have the money lend to people, not to mention they're skeptical about doing it anyway.

If the government buys out the mortgages, then these companies will have cash that they can loan out to people.

This is where I'm against it... we shouldn't be rewarding these companies.  The government should really provide some subsidization and loans to the companies that aren't bogged down and buy the "toxic assets" from the failing banks at bargain basement prices.

Banks like U.S. Bancorp and Wells Fargo are in a good position to lend money to consumers, and some financial help from the government would help them greatly... this is also the case for small regional and community banks.

I think if anything, the government should only "bail" out these companies to the point where they are basically starting over.  They should take huge losses on this because the taxpayers shouldn't have to reward their mistakes.

But if the government can give them just enough to survive while taking the bad assets away, they can hopefully heal their wounds and move on while the more responsible banks hold the economy up.

[NDN]

I'm not opposed on free market grounds. I'm more concerned that this will just cause massive inflation due to the massive debt it would incur (1 trillion deficit?) and further destabilization overall. If I was sure it could save the economy I'd endorse it without hesitation. I'm not an idealogue or idealist about these things.

[Ban my account ffs!]

I'm not opposed on free market grounds. I'm more concerned that this will just cause massive inflation due to the massive debt it would incur (1 trillion deficit?) and further destabilization overall. If I was sure it could save the economy I'd endorse it without hesitation. I'm not an idealogue or idealist about these things.

This is why it would be a good idea to have a temporary 10% tax on income over $1,000,000.  This will at least stymie some of the inflation.  Save the rich by taking money from the rich.

[Torie]

It is a disturbing lesson that there is a moral hazard to financial institutions making big bad bets, and even more disturbing that much of the problem was caused by government pressure to make imprudent loans for political purposes. There seems to be no realistic way to avoid giving subsidies (on or off balance sheet in the form of guarantees) to the perps. I think the degree of the crisis may being hyped to some extent, and certainly the need to rush to judgment is.

Bottom line, is much of this is beyond my pay grade. One is being asked to trust the judgment of players rife with their own conflict of interests. It is also telling that I have read nothing so far that intelligently wades through this all, and measures the risks and rewards in a creditable way.

[Ban my account ffs!]

I think there needs to be effective regulation that ensures that these companies are looking closely at who they are lending money to and how much they are giving.

We as Americans must also learn to live within our means.  I think that is imperative regardless of what side you sit on.  I just believe in using government as an effective tool to increase those means... but you should never live beyond them.

We can't make the mistakes taht were made in the Great Depression.  We can't stand back and do nothing and we can't choke the market with regulations.

We need to boost spending on infrastructure and make investments in the economy to get the gears turning again.  Putting people to work rebuilding our highways and railroads will give people more confidence and they will start spending again.  No tool is as effective as positive thinking and hope in these times.

We need to let the economy correct itself without letting Americans fall through the cracks.  By investing in things like our infrastructure and schools, we are putting people to work building a strong, long term foundation for our economy.  This will have a more positive effect than direct government intervention that seeks to set wages or prices.  That will simply scare people out of investing which is important at this time.

That said, we do need a modest tax increase on the wealthy to help towards balancing our budget.  I don't advocate a rise to 70% or 90%... but again, I believe a 10% tax on income over $1000,000 to help pay for this bail out is important.  Sure, it will discourage a small amount of investment... but no more than just letting our debt run up more and more to the point where long term investments in our country seem futile under crushing debt.

So... thank you for reading my completely random and disconnected thoughts on the issue.

[NDN]

I think there needs to be effective regulation that ensures that these companies are looking closely at who they are lending money to and how much they are giving.

Agreed, although part of the problem was/is in fact government pressuring to give money to people who otherwise would not get loans.

We as Americans must also learn to live within our means.  I think that is imperative regardless of what side you sit on.  I just believe in using government as an effective tool to increase those means... but you should never live beyond them.

Agreed.

We can't make the mistakes taht were made in the Great Depression.  We can't stand back and do nothing and we can't choke the market with regulations.

I'd dispute that we did 'nothing.' We did try a lot of idiotic things like protectionism and tax hikes the last time around. The problem was that the government just didn't have a good game plan last time around.

We need to boost spending on infrastructure and make investments in the economy to get the gears turning again.  Putting people to work rebuilding our highways and railroads will give people more confidence and they will start spending again.  No tool is as effective as positive thinking and hope in these times.

Agreed.

We need to let the economy correct itself without letting Americans fall through the cracks.  By investing in things like our infrastructure and schools, we are putting people to work building a strong, long term foundation for our economy.  This will have a more positive effect than direct government intervention that seeks to set wages or prices.  That will simply scare people out of investing which is important at this time.

Agree to an extent. However, the problems with our schools can not be fixed with more funds alone. We're spending a ton on education at the federal level, more so than we ever before. It's not going anywhere. I'd agree with things like after school programs and student loans but right now we seriously need to trim the bureaucracy and implement other reforms like merit pay too.

That said, we do need a modest tax increase on the wealthy to help towards balancing our budget.  I don't advocate a rise to 70% or 90%... but again, I believe a 10% tax on income over $1000,000 to help pay for this bail out is important.  Sure, it will discourage a small amount of investment... but no more than just letting our debt run up more and more to the point where long term investments in our country seem futile under crushing debt.

In the long term we should increase taxes on the wealthy, however I'm unsure whether we should do that now. There is the inflation issue but historically that almost always makes things a lot worse during a recession. That said the Bush Tax Cuts were a mistake.

[○∙◄☻¥tπ[╪AV┼cVê└]

The original bailout plan was absolutely terrible. The compromise just reached is definitely better, but I'm still thinking about it.

[Gustaf]

I am also torn on the bailout. My principles on trying to stimulate the economy from the bottom up and have the end of recessions help the working class in the long run rather than the upper middle class. I also have problems with accepting the huge amounts of money being spent on this, when it is probably just a slight fix in many cases.
At the same time, I realize that this bailout plan needs to be passed fast in order to have an affect on the economy and that this may be a good way to fix some problems that might happen in the future. I understand that much of this bailout plan would greatly stimulate the economy but at the same time I have huge doubts that it would.

So in other words I lean towards supporting the bailout on practicality and lean towards being against it on principle.

That's an odd thing to say.

Anyway, I think this should be allow to run its course. These people took big risks in order to secure higher returns. They got those higher returns during the boom years. Then the risks fell out. No one had to be in this mess, if they are it is largely due to poor decisions. I can sympathize with helping home-owners who lost everything but slick investment bankers that became too greedy and failed at what they get paid astronomous amounts of money for handling...not so much.

[TeePee4Prez]

I'm torn as well.  And yes for the same reasons above.

Also, this is a wakeup call on general financial literacy of the American people.  I mean you have people making $50,000 per year getting no doc loans to buy $500,000 houses.  You also have greedy speculators and mortgage brokers in this quagmire as well. 

Again, not to make a PA 13/local issue again, but I've noticed housing values have skyrocketed in  parts of Northeast Philly despite the neighborhood getting worse.  I've even heard reports on people from out of state buying properties to put up for Section 8 rental income.  A lot of people who previously rented and had no money down were able to bid for houses that were normally far out of their price range.     

[frihetsivrare]

I oppose the bailout because this is money the government does not have.  I also do not believe that the government should bail out bad banks like Lehman Brothers and Goldman Sachs.  The market will not correct itself with government help like this.  By the way, Treasury Secretary Henry Paulson was high up in Goldman Sachs.

[Smid]

I think the bailout stinks! It's terrible that the Government is effectively rewarding businesses that took substantial risks, walked away with the profits and are leaving the taxpayers with the bill. I think it sets a bad example for the future, that it doesn't matter if you make bad business decisions - Uncle Sam is going to be there for you to pick up the pieces and get you out of the mess you've made.

But I think that it's necessary. I think that without it, more people are going to be hurt in the short term, as businesses collapse and people end up out of work.

I think that it absolutely stinks, but it is absolutely necessary. It's kind of one of those lose-lose scenarios, except I think it's a bigger "lose" if the Government doesn't go through with the bailout and they need to decide on the lesser of two evils.

Congressmen/women and Senators are elected to make tough decisions, and sometimes decisions they don't want to make. I don't envy them in making this decision. I think that no matter what they choose, it's not pretty. Your debt's going to increase, your economy's going to take a hit, your taxes will have to increase and your government services will have to take funding cuts. I think all of that is bad, but I think this is one of those bitter pills, that spoonful of medicine (or more likely, cod liver oil) that you really don't want to take but you have to if you want to get well again. I think the bailout stinks, but you've got to do it.

I posted Peter Costello's comments about it the other day... let's see if I can find the link...

https://uselectionatlas.org/FORUM/index.php?topic=84375.0

It's not often a conservative argues in favour of government regulation in the market, so I think it's an interesting article to read.