Some opinions on the bailout plan
Posted by Frugal on September 26th, 2008
As far as I can tell, majority of the people are opposed to this bailout plan. I on the other hand kind of support this plan. Why? Because I do believe that if this plan doesn’t get passed, I think we can look easily look at 20% offfor the stock markets in 1 month. That should be 950 at S&P 500, probably 8800 on Dow Jones, and 1750 on Nasdaq. That will kind of reset your 401K account value.
It is extremely unfortunately that Americans are not offered with another plan choice from others like Mish or Hussman offered (losses sustained by bondholders instead of the government). But Paulson’s plan is the only one what we got. In fact, I think whatever choices made now simply will not change the destination, but only change how we get there. Without a bailout plan, we will go down faster for sure, reaching a lower US dollar sooner. With a bailout plan, everyone can hang in there for a bit longer, and some banks will probably get undue benefits from it.
I personally don’t have a strong opinion for or against the plan, except making sure the transparency, oversight with veto power, and mortgage assets purchased thru market-based mechanisms. I think Democrats have put in very good reins around the plan, except the additional baggage of bailing out more homeowners without resorting to market-based mechanism (more moral hazards).
We will see whether there is a deal or not. This will just be another episode onto the eventuality.
More related posts:
Digg it Del.icio.us Reddit Furl BlinkList Newsvine Yahoo MyWeb
September 26th, 2008 at 7:55 am
i see your opposition stems from the fact that the market may fall 20%. i don’t understand why this matters. if it falls, it falls, but the country may be in a better position financially moving forward. Let the free market ride, we will not be looking at bread lines. Even if we were, so be it.
our country is insolvent right now, and this bailout will put us in a much worse debt position in the future.
Ron Paul opposes it, and he is a much more informed person than I , so I feel my opinion cannot be far off reality.
September 26th, 2008 at 10:38 am
Maybe someone could explain this part to me, as I haven’t heard it discussed much… If I were a bank that had toxic mortgages on my books and I received money to remove a portion of those from my books, I would take it. However, would I turn around and start lending to other institutions again? Probably not. I would consider myself fortunate for getting my balance sheet in better shape and use the extra cash to cushion my balance sheet for the rest of the problems I might have in this environment. What entices the banks to start lending again with this plan? Wouldn’t it make more sense to say “for every x $ you lend, we will buy some percentage of your MBS”?
September 27th, 2008 at 2:42 am
Mate,
Don’t you realise that the correction of 20% or whatever is just what we need to clear the decks and get back to a stable foundation? Just like the bailout plan won’t solve the underlying issue of people not being able to afford their house with the salary they make (especially on the coasts where you are looking at 7X median income for housing prices). If the expectations that future earnings will fall then the stock prices will fall to reflect this. It could prove to be a good future buying opportunity.
The bailout plan is a dead, stinking fish that is now rotting for everyone to see. The banks will make money at the expense of the taxpayer. Wall Street will sell off their toxic junk above market value to us and then find a way to buy it back later at well below their selling price. Making silly money on both ends of the trade, as usual. And they have people like Bush saying we are in panic when just 2 months ago the subprime mess was ‘contained’. Please don’t tell me you are falling for this too. I thought you were wiser than this.
Worst part of this is there is no 3rd party oversight, nor review in any court or committee. Just the word of Paulson, a Goldman insider that walked away with 50 million dollars during his exit. A man who says that firms wouldn’t agree to work with the plan if there were limits on CEO compensation for firms who passed their junk to the taxpayers. Hmmm, no conflict of interest there right?
-Mike
September 28th, 2008 at 10:57 am
Its damned if you do, damned if you don’t. If congress passes this bill, we’ll have inflate our way out of the mess. If congress doesn’t do the legislation, we’ll have a rough recession, possibly a depression.
My take: don’t do the bailout.
Its better that we put up the recession and avoid the long term inflation – that will wreck everything.
September 29th, 2008 at 5:15 pm
I think there is legitimate criticsm on how the bailout should work. Clearly the banks should not be in position to “make silly” money on both sides of the transactions, but to do nothing is probably not the right thing either. When banks fail, the whole economy fails. Banking really is at the center of economy. It was true during the great depression, and it’s true today. I’m distressed by this pervasive “Let Them Eat Cake” attitude. All of us need to put spite behind us and look at the issues with innocent eyes. The fact is that credit is drying up not just because banks choose not to lend, but they literally can’t…. If they were truly just “choosing” not to lend then we wouldn’t have a problem. The problem now is that even good companies are having difficulties accessing capital.
September 29th, 2008 at 9:57 pm
There should be NO bailout! Prices give you information, if the price of equities fall, you know their overvalued. Propping up losing companies with inflationary money is bad on two accounts. It overvalues an asset which should be falling based on fundamentals and adds additional money in the system out of thin air which always and everywhere is inflationary.
Papering over losing assets is not going to work. These overvalued entities need to fall, they need to correct. Most of our economy is phony and where it not for the Chinese and the Saudis, would not be tenable. We need to have a severe credit crunch, asset deflation to market and an economical realignment with an appropriate market interest rate to encourage savings.
“Bailing out” people who’ve made economic mistakes is a bad idea on many levels. We need to take our medicine, tighten our belts and slowly figure this out. People with capital need to re-deploy their capital in an efficient and productive manner. Sound currency methods should be enacted including but not limited to a commodity based currency (got gold?) along with tighter reserve requirements for banks. In this system things would be boring, after the initial realignment,but there would be TRUE economic growth and avoidance of these destabilizing economic events. Hopefully the politicians and the people of this country figure this out and we can continue our upward progress.
September 30th, 2008 at 1:37 am
Doug,
I appreciate your points. However the goon squad of Paulson and Bernanke are playing brinksmanship with our economy. After saying the economy is sound and the banking mess is contained for 18 months the change their stance within 3 days to stating the sky is falling and we need to rush legislature to fix it immediately? Sorry I don’t buy it and fortunately enough people on capitol hill have heard that their constituents aren’t happy either and are stalling.
I do think some form of bailout will go through eventually (the vote was very close) but expects the markets to crash this week. Confidence is low and markets don’t like uncertainty. However I believe we should not be held hostage by the bullies of the administration. Their track record plain sucks and we owe it to ourselves to challenge their agendas, especially when you can obviously smell the dead, stinking fish in the room.
For the small guys like you and I, try to keep saving money and keep your powder dry. I plan to increase my charitable contributions if I see others’ in need during the coming months. That is a better way to help people vs. selling out our future.
-Mike
September 30th, 2008 at 9:52 am
Dude you are lost in space if you think a falling stock market matters at all to anyone except those who foolishly listen to buy and hold morons.
capitalism requires clearing of excesses. americans that whine about their 401Ks taking a hit are pathetic…WTF do they have so much invested in stocks? 401ks that are in US Treasuries now are safe, as long as the US govt doesnt collapse.
there must be a REDUCTION not increase in the use of credit. expansion of credit will cause the ultimate failure of the US.