Wake up America!
Posted on September 29th, 2008 at 9:12 pm by Alaina SegoviaI realize no one wants to pick up a $700 billion dollar bill, but have you considered what can and will happen if we don’t do something to get this economy moving?
Right now, as you read this, our entire financial system is in gridlock. There is no confidence in the market place and banks are not lending to each other. These loans are a vital piece of our economy. Few businesses have enough cash to operate entirely on cash flow and require loans to grow their operations.
So what does this mean? It means that many businesses, particularly small businesses will become stagnant in growth or may not be able to continue functioning at all. Unless you have great credit, which few Americans do, you will not be able to get a loan for a house, a car, or any unexpected life events.
The trickledown effect is that many small businesses will go under, leaving 160 million jobs at risk. You think housing prices are low now? Wait until no one can get a loan to buy one. The auto industry is already in trouble. People will not be able to get loans to buy cars. Banks will continue to collapse. How many have we seen over the past two weeks? Washington Mutual went under this weekend and Wachovia was sold off this morning. Here we have three major industries that will be immediately impacted and, with the sharp decline in these industries, many people will lose their jobs. That won’t be the end of it. Eventually, every industry will be impacted and many more people will lose their jobs.
We are in the midst of a financial crisis and, if not handled properly, this could be the worst financial meltdown that our country has ever seen. I don’t mean to cause you to be fearful, but you need to understand the gravity of this situation. $700 billion sounds like a lot, but when compared to the hundreds of trillions of dollars moving through the market, it’s a drop in the bucket. The purpose of this bill is to allow banks to feel some security and start loaning money again.
Look in the mirror and be honest with yourself. How much debt do you have right now? I’m not just talking about loans. What about your credit cards? If something happens to your job or you have a change in circumstance, will you be able to pay your bills?
Politicians are getting an overwhelming number of calls and emails telling them to vote against this bill. I’ve heard Americans are against this 99 to 1. How many of us are educated enough in economics to understand the full scope of this issue and advise Washington on how to handle it? Very few.
I know what you’re thinking. Why should the government spend my money to bail out those greedy guys on Wall Street? Wall Street only played a part in this. This started with the individual consumers that bought houses they can’t afford, followed by the banks that gave those people loans, then on to Wall Street who traded the bad debt, and to Washington that, not only failed to regulate, but pressured banks to offer sub-prime loans. This is not a Wall Street bail out. This is a bail out of not only our economy but the entire global economy. If you watched the market today, you saw that it close down 778 points. That was over a trillion dollar loss today alone. If you invest in the market, whether you have your own investment account or a 401k, look at your account balance. How much did you lose today? If the market doesn’t turn around, you can count on losing much more. The Asian markets are just now opening and the European markets will open within hours. Expect to see those plummet. Several European banks were nationalized this morning. Expect to see more.
No Economist knows if this is the right approach, but what they can all agree on is that our economy, and the global economy, needs liquidity immediately and will tank if the banks don’t start lending money again and soon.
To all politicians: Get over your partisan politics, quit trying to take credit and place blame. Do what’s best for the people of this great country!
To all Americans: Picking up this bill is much better than the alternative. Start calling your Senator and Representative to urge them to pass this bill now.
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I have to disagree with you….Personaly, I felt much better knowing this failed — it was a bad bill. There was alot of junk in the bill that had no place in the “bail out” — things like money for special interests, voter registration campaigns, giving power to the Treasury that was unconstitutional etc. And the $700Billion was just a figure that Treasury pulled out of the air, there was no data point to really support this sum. If the congress is going to do something, then they need to make it a WAY better something. I think that’s what the public was telling them. Hopefully, they will listen, and if they come up with another goose egg, will send them back to work on it some more.
I don’t know what the answer is and I don’t pretend to, but I do know that if liquidity is not injected into our economy immediately, we’re going to have a lot more problems that a bill for $700 billion.
No matter what the solution is, we need liquidity and we need it now.
See, I see credit as the problem here — we’re trying to solve the credit crisis with more credit, to me this just does not work. I think if we just let the market work itself out, it will. Have you read the Forgotten Man — the New Deal made the Great Depression worse. Government is not always the solution. I think if the banks knew they would have to work it out for themselves, they would, and they will work out beter solutions for themselves than the DC crowd. And I just can’t believe it when Bush comes out of his cave to tell us that this is a good thing, that we somehow will turn a profit and so on….if it’s that good, the private sector would be all over it.
I realize that things are bad, but we kind of put ourselves here, and I really feel we deserve what is coming — and this is me, a person with no debt, who saved for a house and always pays the bills on time, every time. It also bugs me that everyone keeps running around saying that “the end is near!” and yet no one, not one person in Congress would say that this bill would work. And what if it did pass and next week we needed more money to bail out something else?? When does it stop? How do we pay for it all? Credit? How much ‘full faith and credit’ does the US government have? How much money can we print before we start using it to paper the walls?
I think if this were not happening 36 or however many days we have till the election, this crisis would not be the crisis that it has become, that the members of Congress would be taking their time to figure things out and taking more measured steps to make sure the solution is better than the problem in the first place. Because as it stood the bill was bad, very bad….and I would rather suffer than mortgage my children’s future.
I don’t know what the solution is either, but I’m not going to believe the “end of the world” rhetoric anymore, and I will continue to demand that my representative do the same, if he will is another story, but there has to be a better solution than what was on the table today. I think today we saw the system work for the people, because people woke up and got involved…this is what makes our system good, we can and do have a voice, we just have to get up and make it heard.
Good points.
Also? We have succumbed to the idea that home-ownership is somehow a right. Sorry, but it’s not. It’s a privilege. That’s not meant to be snotty; it’s meant to be realistic. Buying a home is a privilege that anyone who really wants it can achieve it. By giving credit and sub-prime loans to any Tom, Dick, and Harry–even though they can’t afford it–has cost us severely. Government needs to wake up and smell the bad legislation and policies.
We’re more clogged up than 6 days on the prune diet.
How many gallons of gas will 6 tomatoes, 2 cucumbers, and a pair of shoes get me? That’s what we’re left with without any credit to extend.
The abuse of credit is understandably irritating. The abuse of credit will continue if we yank all ability to extend any of it without this kind of plan. Let’s not replace one abusive extreme with the other, no matter the understandable feelings we all have.
We can (and should) make it an incentive plan, and a restitution plan, but there needs to be a plan.
This is where I part company with diehard libertarians. That’s what we’ll end up doing - dying hard without any ability to do business because of no credit extension.
Without credit, we all fall back to harder, more tangible collateral, and who knows how far down that will flush the economy until the ship gets righted.
You mean the die-hard Libertarians like Ron Paul that have been predicting this mess and were once again proven absolutely correct? Damn, sucks being right.
Most of the time you make really good points. But for today - so much to disagree with, so little time to post.
Loose credit is and has been the problem. Allowing the government to issue credit to themselves with money that has no real value will eventually bring our economy to its knees, if it hasn’t already. When they print more money, they are robbing you and your family of your hard earned money. Your savings and your salary are worth less each day because the government keeps injecting new money into the economy effectively devaluing the currency. That’s why you have to get those 3%-5% raises each year just to stay afloat - not get ahead - just keep up with the effects of the declining dollar each year. How long do you want to let this go on? How many Trillion Dollar packages will it take before you are willing to say enough? Do you really believe that the people who caused this mess are going to be able to fix it? Are you really willing to let the government print one trillion dollars and use it to buy up assets from failed institutions? What makes you think that the government will be able to manage those assets any better than the private market? I work in this industry and I can tell you that there are many companies out there that will buy these assets at MARKET VALUE. Not some artificial propped up government price-fixing value, but at their REAL market value. The market is frozen because those investment banks are waiting for the government to buy them out at 50-60 cents on the dollar instead of 20-40 cents. The longer we sit around and talk about a bail out, the longer the market will wait in a holding pattern. Why would they sell anything until they find out if the tax paying sucker is willing to buy them out at an unrealistic and unfair inflated price? As soon as the bailout is either done or dead, the market will start to work again. Sure some investment banks will become insolvent. Fine, let them go bankrupt and be taken over by their creditors. In the long run the economy will be stronger and your savings won’t be eroded by an overnight influx of a Trillion dollars thrown into the hands of very bad managers.
Now, as if I haven’t gone on enough already, I totally disagree with your assessment of the government bailout of Chrysler. Yes, Lee Iacocca was a brilliant manager, but Chrysler was a poorly run company and deserved to fail. How un-American was it to prop up a loser so it could compete directly against the winners like GM and Ford? How does that even come close to being fair or capitalistic? GM and Ford were getting the job done. They were doing what America allowed them to do - risk capital and succeed in the real world. Why then, did the government think it should save Chrysler and in doing so punish GM and Ford with government subsidized competition? What would have happened if they just let it fail? It would have either sought out private capital and most likely given up control to an investor, or been consumed by its competition as we have seen so many times before in the auto industry. Instead, the good guys were punished with government subsidized artificial competition. Are we stronger today because of it? No. Auto makers have struggled because the government rewards stupidity and punishes the successful. The same goes for the airlines and Amtrack. Stupidity funded by your tax dollars because they are just too damn big to fail. What a crock, what a lie, and I can’t believe a fine conservative like yourself has swallowed it hook line and sinker. Then again, you are a Republican. If you were a Libertarian, you might understand.
Wow, I think I touched a nerve.
Well, next time, just take me out beind the shed and paddle my behind, why don’t you!
To borrow from the J-Mac: “Economics is not my forte.” So I may be speaking out of limited knowledge, unlike yourself.
But I’m just not convinced that the transition process you’re suggesting that we undergo to successfully navigate the ensuing recession wouldn’t be brutal. And I’m talking massive unemployment (like double of now up to 12-15%), with many key aspects of the economy taking major hits. Also, wiping out a half a generation of kids who cannot afford college - then where do they go with all that time, lots of resentment, and no future prospects? (To me, that’s the seedbed of radical revolution.)
That’s where I am hesitant to call myself a libertarian and ride shotgun on that kind of vehicle you’re describing.
Of course it will be brutal. There may be a lot of people that get wiped out, then again maybe the market will actually work without a socialistic intervention. But if not, would you rather risk loosing that half a generation of kids today verses a whole generation tomorrow? Everything you are predicting will only be worse down the road. Do you want to be remembered as the generation that pushed this off on their children? Are we so afraid of financial difficulty that we would rather sacrifice our children on the alter of socialism than do what is right today? A bankrupt society can not defend itself having neither the means nor the discipline to remain free.
If you are more worried about your pocket book than your freedom then, in the words of Samuel Adams, “Crouch down and lick the hand that feeds you; May your chains set lightly upon you, and may posterity forget that ye were our countrymen.”
I’m going to have to disagree as well. It was government involvement that led to the Great Depression; it was govt involvement that led to the recession in the early 90s and Bush Sr losing his job (and us getting Clinton as a result; thanks George).
165+ economists signed a letter addressed to Congress warning of pitfalls of this plan. There was too much ambiguity. Let the financial institutions fail; another one will just buy them out. The economy always rebounds in a free-market society.
Speaking of economic freedom…..
Did you know that according to The Fraser Institute (which produces the annual compendium ‘Economic Freedom of the World’), we dropped from #2 in 2000 to #8 in 2008 for the economic freedom rating? Not so good. Government involvement has shaken our economy. It’s time to rid ourselves of regulation and control.
The government may have started it, but fear and panic (e.g. bank runds) caused the great depression.
How are financial institutions going to keep buying each other if they don’t have access to cash?
Sure, it’s going to be rough for awhile. It’s not like every company is going under.
This plan just seemed so drastic and such a ginormous undertaking. There are other options available….like doing some sort of loan instead of a flat giveaway.
Alaina,
Come on, do you really think there is no capital out there? We have like 13 Trillion in GDP? Do you really believe it is all tied up with a few investment banks? Let’s not panic here. As soon as the market is allowed to fail, the good money managers from the financial, industrial and private sectors will come out and buy up any of the assets that have VALUE. The issue at hand is that we don’t want the government to buy assets at inflated prices and put a TRILLION dollars into the hands of people who have PROVEN they can’t effectively manage money. Those people need to be pushed out of the system or else we will be bailing them out again and next time it will be two trillion and then three… You get the picture? It needs to fail now, not later. Later will be much worse.
Yeah… there’s a wealth of capital out there… and yes, that was sarcastic.
I work for a Top 3 global consulting firm. We were within days of closing a deal with one of the top private global private equity firms, but the deal was put on hold because they can’t get the capital to buy us.
My father’s company was trying to sell off a piece of their business, but the company that is trying to buy them can’t get a loan.
Notice the pattern…
How many more banks and ibanks can JP Morgan, Citi, and Bank of America rescue? They’re almost out of capital and there aren’t a lot of firms out there that do. Actually, Warren Buffet is just about there only person / firm left with that much capital.
I meant to leave a link for the Fraser Institute.
http://www.freetheworld.com/2008/091608_EFW-International.pdf
(Or, it can always be googled….)
We also need to look at Obama’s connection here. He sat by in silence as the Senate tried to reform Fannie Mae and Freddie Mac in 2005. He’s also taken $126,349 in contributions from them (the 2nd highest in the Senate).
And this is the guy running for the highest office in the land…..
Not only that but he signed a lawsuit against Citi for not making enough of these bogus loans! Working for ACORN he worked to ensure as many sub-prime loans to minorities and poor as possible.
This problem was created by government intervention on both sides. The government allowed assinine behavior to go unchecked. When there are ads on TV that say ‘if you have been turned down by everyone for a loan call us and we guarantee we can get you into a house’ it is going to implode.
As far as this bill, it is garbage. $700 billion was an extimate and a low one at that. The other problem is where do you stop? Multiple construction companies are currently lobbying congress for a bailout. Should they get it? What about agriculture when high commodity prices drop? Where is that line? The larger picture, however, is the fact that our government has tried to perpetuate a bull market that should have been corrected long ago. When each bubble has burst, instead of letting the market correct the government stepped in to keep it going. The market is cyclical and has to correct at some point. The bigger the bubble, the bigger the burst and we have rolled several bubbles into one.
In short, the government cannot stop a recession/depression. They can only delay it (and in so doing make the resultant one larger). The next couple of years are gonna stink, regardless of who is in charge. Time to give up a few luxuries, cut spending and live within your means.
Actually, RSE, a prune diet would have a rather cleansing effect. Perhaps we should all recommend it to our elected officials.
Oh, yea, was it peanut butter that plugs up? I get all those confused (so I steer clear of them all).
‘Universal Housing’ is what we’ve accidentally created with things like CRA and other gun-to-the-head pieces of legislation aimed at housing for the “poor”.
Whatever happened to leaders like Lee Iacocca? Now there was a businessman who took a gov’t handout with Chrysler, generated a business profit with it, and paid it back to the last penny. If that was what we we’re implementing here, I’d be more willing to back it. But I’d want those financial investment leaders pledging their blood and first borns to ensure that is what would happen (or die trying).
It still boils down to leadership providing a clear call and a steady hand.
Don’t see it in W “I’m out of here to Crawford” Bush -
Don’t see it in Nancy “Stare at the gift horse” Pelosi -
Don’t see it in B. Frank, C Dodd, and the other “thank you, sir, may I have another?” Dem leaders -
Don’t see it in either Pres candidate, frankly.
You can only spend once. The real problem is the lifestyle of the avarage American. The US has loaned money from foreign states because they were afraid the US economy would collapse. Howover, as long as Americans continue to life the way they do nothing will change.
The result will be that the US will loose its status as Superpower.
You can fight the symptons but if you don’t treat the cause you are bluntly said screwed!
I am glad the bailout plan (aka- Beginning of Socialism Act) did not pass.
The financial crisis is the result of financial institutions holding Wall Street hostage and demanding ransom from US.
Frankly, it’s OK if the country has a financial meltdown- all Americans need to learn to stop spending money they don’t have.
By the way, I practice what I preach- I am 38, with no debt of any kind, and I own a home with no mortgage. I am able to travel the world on a 37K salary because I don’t owe anyone anything!
I am a generous person, but I do not feel obligated to bail out anyone from their own foolishness, or the banks who loaned out the money carelessly.
If only Huckabee had won the primary… he would have been able to take over from this point.
You must not be married with kids either. You wouldn’t be going anywhere if so…
Actually, I’m married with 2 young daughters, but thanks for reading my 2 cents worth.
RSE, I appreciate your many comments on this blog, even though I rarely make them myself.
I agree with all of you that Americans need to learn to live within our means and that owning a home is not a right. Believe me, I’m right there with you. Not only do I think Wall Street CEOs should be punished, but I also think that the politicians who pressured banks into lending money to people who couldn’t afford it should be punished (Obama included… read up on how he was involved in pressuring banks in Chicago). In addition, I think those people who defaulted on their loans should be punished.
2 weeks ago, I would have agreed that we didn’t need a bail out, but the fact that banks are no longer lending has completely changed the game.
Construction companies are already starting to feel the pinch because their customers can’t get loans to start new projects. It’s not as simple as a few more banks going under. This will impact almost every company in this country if liquidity isn’t pumped into the market. Credit is necessary for the growth of a business and the growth of an economy.
For those of us who aren’t in debt and live within our means, we won’t suffer near as much as many others, but it’s going to hurt. It’s going to be more than just tightening up your belt and cutting out a few runs to Starbucks. If you’re looking at selling your home, good luck. Hoefully you aren’t looking at buying one either. Are you going to need a new car? You’re not going to be able to get a loan. I hope you don’t have kids that are planning to go to college soon. Say goodbye to student loans. Are you in sales and do your clients require lines of credit to purchase whatever it is your selling? If so, start looking for another job. Are you planning to retire in the next few years? Start looking into to bonds and gold because your portfolio and/or 401k is going to shrink.
We need a short term solution to stop the bleeding and to get liquidity back into the market immediately. Once we do that, then we need a long term solution that will help get our economy back on track.
Your last paragraph is the perfect solution….how do we address the short and long terms? That is what Congress missed here….they just missed it. They need to try again and better this next time. They need to come up with a clean bill that only addresses this problem and nothing else. I don’t know if they can do that.
A government bail-out is not the answer. Here’s another solution:
http://www.daveramsey.com/media/pdf/the_common_sense_fix.pdf
Wow, only $50b. Now there’s a proposal I can live with and accept, and I often like what Dave Ramsey says on his shows.
So why can’t 538+50 men and women not get that kind of advice and use it?
Totally agree with DW.
The, “Mark to Market” answer is by far and away the one that makes the most sense.
http://www.bozark.net has an excellent article on it, and explains it well.
It is ridiculous to borrow money to pay debt.
I’m sorry, but I just can’t swallow this bill! I’m not willing to sell out, and trade liberty for supposed financial security, especially since I really don’t believe our government is capable of managing our markets to begin with. This bill really is putting the foxes in charge of the hen-house. Here in America people should be free to be stupid. And free to suffer the consequences of being stupid, as well. It’s not worth turning our country into a socialist dictatorship, where the government controls and regulates everything, and everyone, in order to boost your bottom line! It’s not worth it! I’d rather be poor, and free, thank you very much.
The economy may very well crash, but propping up bad decisions only delays the pain, and makes the crash worse when it happens. I am very pro-business and believe the homeownership is the first step to moving the country in the right direction, but ownership is a myth if the numbers are false, the note can’t be paid, and individuals have bought over their real worth. Frugality, reality, and THEN prosperity.
It’s not about homeownership, it’s not about Wall Street, it’s not about Washington. It’s about getting the banks to start lending again. That has to happen and that has to happen now!
Look at the economic reports that came out today. Auto dealers are reporting between 20 and 30% drops. Manufacturing is way down. Unemployment claims are way up. This is all due to the credit crisis.
How about wake up Politicians and see the chaos they refused to see coming. They were warned and instead of fixing the problems that were coming, they excoriated the messengers. Government always wants to throw more money at the problems and in this situation they never considered any other option! They loaded this bill with so much pork it became a JOKE! Yes I’m mad! I called my Rep several times asking him to vote no and surprisingly- he did! I am voting, but he is the only incumbent I will be voting for. I will likely not vote for either major presidential candidate. They are no different anymore. I love politics and have worked in one party for years, but I am so disgusted now that I am ready to grab a pitchfork and march on Washington. How dare they treat us with such contempt. They think they are smarter than us. They thing we are retarded. They see us as slaves and little people. We have built a house of cards and now we are adding floors to the collapsing house! Well, I want to flee the house before it really collapses. I’m getting out of debt and saving myself and hopefully my family. I don’t care how so called “educated” someone is in these faulty economics theories, they can’t solve the problem with more of the same faulty theories. We have sold our children and grandchildren into slavery so that we can have our cake and eat it too right now! AUGH!