I am very annoyed with how many (innocent) people are reacting to the $700 billion bailout, and politicians are as usual being as stupid as they can be with election on the way. I cannot give a vote, but I know what's going on. I have been reading on innocent people complaining about the economy and about the bailout, but they don’t have any understanding. They just hearsay on how the economy and capitalism would change. They also just show abhorrence to Wall Streeters and don’t want the bailout to take its place. I have been trying to explain, but I gave up talking to the general innocent public.
Story: The US Government and the Fed are working on a $700 billion bailout plan on buying bad debts of financial institutions, and are waiting for the approval of the Capitol. The politicians want to include bad student loan, car loan, and other bad outstanding loans in the bail out.
The reason for this bail out is this: there is no liquidity in financial market.
What the US government and the Fed are trying to do is to give liquidity in the market to stabilize operations.
To make up for the emergent liquidity, the institutions sell assets very cheaply, and this further decreases withdrawal of investments and worsen the liquidity situation.
The US Gov and the Fed is trying to stop this vicious cycle.
Is this necessary? Yes.
But these are the argument points that blurs the necessities:
1) The plan proposed intends to draw $700 B from tax payers.
2) The money seems to be saving asses of those who caused all the problems: Wall Streeters, and seems to harm all the tax payers.
3) There are politicians keep saying things about the crisis with the presidential election coming, and they add blames to the Wall Streeters.
Here is what I say:
For 3, who cares whatever politicians say. It's all because of politics that $700 B is proposed to be paid out of tax payers. If Bush hadn't increased the government debt exponentially, this would not be as big of an issue.
The cause of all these problems is bad REAL ESTATE loans. There is no point of adding other kinds of loans like student loans and car loans in the bail out. That's total BULL CRAP.
For 2, Yes. It's saving asses of the Wall Streeters who were dumb and stupid enough to loose fundamentals of investment and asset management with short term gains that turned out to be exponential long term loss. But, whatever happens to your investment or savings, FDIC will cover only $10K. So, anyone or any entity that has more than $10K would certainly be affected by the financial market if there is no bail out.
For 1, using tax payers money would gives more confidence to the financial market. Here, I don't have a stand but I know the reasons.
Using tax to bail out would hurt many people - as it is calculated to be $2000 per American (or aliens working, including babies), and that's a lot of tax. But given how much tax cut the Bush administration had been giving out including recent $600 rebate, this could be understandable. This should be the tax he should have taxed to run the economy better, if he had plans and executions like Bill Clinton on economy.
Tax money would mean no strings attached to the financial market, and everyone loves free money.
But, as with the AIG $85B bail out, the US government could ask for some stake in return. Although this would include additional risk in the market, it could provide incentives for the institutions to perform better in whatever they have to do.
Some people say let the market handle its own problem. The thing is, it’s no longer only market’s problem, it has become an international problem.
If you wait for the market to fix itself, with lack of liquidity in the financial market, given that the US government and the Fed does nothing, almost every institution would go bankruptcy and everyone will end up having cashes hidden in their closet safe.
Overseas institutions cannot help much, since they will be busy saving their own asses as they lose their assets in the US and other places. We can see this as Barclays and Nomura only buys cheap bankrupt Lehman operations other than Goldman Sachs or Morgan Stanley.
Can the US infuse this money elsewhere, say on Social Security or Health Plans? The answer is NO. The money is not going to where it’s needed the most and there won’t be any multiplier effects or whatsoever to the economy as the money would be held on instead of being circulated.
The US government and the Fed seem to be trying this:
1) Put liquidity into the economy, and lower interest rates for the time being. (The Fed had kept low interest rates throughout 2008, and many were wondering what the heck they were doing with rising prices, now I guess we all know why.)
2) Most likely this would induce relatively high inflation.
3) Raise interest rates to induce saving and control inflation. (If no domestic saving, currency inflow also can do the work.)
This is going to take some time, but it certainly is a sounding plan rather than LET THE MARKET FIX ITSELF. It’s going to hurt, but it does sound less painful than LET THE MARKET FIX ITSELF. Remember, it’s the market that has screwed all of us.
What government has to do is increasing regulations. The recent real estate bubble was a result of a leak in the regulations where investors saw enormous returns to go crazy enough to make things this bad.
Although some innocent cry for the death of capitalism, this probably is just a correction on the capitalism as it calls for more regulations from the government. Certainly the market was not efficient and had (big) flaws.
Currently, the biggest issue probably is if the $700B is enough. If not, what’s going to happen?
My answer to that is I DO NOT KNOW. I am not a qualified economist (yet) to say on whatever is going to happen. But I expect other countries to do something as they are also holding assets denoted in the US dollars.
With all the crazy things going on, I would certainly want to see how the global financial market would be shaped as institutions go through several transformations. I also wonder how regulations would be changed.
Also, hopefully, next presidents would know how to handle the budget better, and hopefully people will read and hear from more insightful people before complaining. There are things needed to be done and it can get better. Lastly, I found some respect for the Fed and maybe the US treasury, but not that much.
Story: The US Government and the Fed are working on a $700 billion bailout plan on buying bad debts of financial institutions, and are waiting for the approval of the Capitol. The politicians want to include bad student loan, car loan, and other bad outstanding loans in the bail out.
The reason for this bail out is this: there is no liquidity in financial market.
What the US government and the Fed are trying to do is to give liquidity in the market to stabilize operations.
To make up for the emergent liquidity, the institutions sell assets very cheaply, and this further decreases withdrawal of investments and worsen the liquidity situation.
The US Gov and the Fed is trying to stop this vicious cycle.
Is this necessary? Yes.
But these are the argument points that blurs the necessities:
1) The plan proposed intends to draw $700 B from tax payers.
2) The money seems to be saving asses of those who caused all the problems: Wall Streeters, and seems to harm all the tax payers.
3) There are politicians keep saying things about the crisis with the presidential election coming, and they add blames to the Wall Streeters.
Here is what I say:
For 3, who cares whatever politicians say. It's all because of politics that $700 B is proposed to be paid out of tax payers. If Bush hadn't increased the government debt exponentially, this would not be as big of an issue.
The cause of all these problems is bad REAL ESTATE loans. There is no point of adding other kinds of loans like student loans and car loans in the bail out. That's total BULL CRAP.
For 2, Yes. It's saving asses of the Wall Streeters who were dumb and stupid enough to loose fundamentals of investment and asset management with short term gains that turned out to be exponential long term loss. But, whatever happens to your investment or savings, FDIC will cover only $10K. So, anyone or any entity that has more than $10K would certainly be affected by the financial market if there is no bail out.
For 1, using tax payers money would gives more confidence to the financial market. Here, I don't have a stand but I know the reasons.
Using tax to bail out would hurt many people - as it is calculated to be $2000 per American (or aliens working, including babies), and that's a lot of tax. But given how much tax cut the Bush administration had been giving out including recent $600 rebate, this could be understandable. This should be the tax he should have taxed to run the economy better, if he had plans and executions like Bill Clinton on economy.
Tax money would mean no strings attached to the financial market, and everyone loves free money.
But, as with the AIG $85B bail out, the US government could ask for some stake in return. Although this would include additional risk in the market, it could provide incentives for the institutions to perform better in whatever they have to do.
Some people say let the market handle its own problem. The thing is, it’s no longer only market’s problem, it has become an international problem.
If you wait for the market to fix itself, with lack of liquidity in the financial market, given that the US government and the Fed does nothing, almost every institution would go bankruptcy and everyone will end up having cashes hidden in their closet safe.
Overseas institutions cannot help much, since they will be busy saving their own asses as they lose their assets in the US and other places. We can see this as Barclays and Nomura only buys cheap bankrupt Lehman operations other than Goldman Sachs or Morgan Stanley.
Can the US infuse this money elsewhere, say on Social Security or Health Plans? The answer is NO. The money is not going to where it’s needed the most and there won’t be any multiplier effects or whatsoever to the economy as the money would be held on instead of being circulated.
The US government and the Fed seem to be trying this:
1) Put liquidity into the economy, and lower interest rates for the time being. (The Fed had kept low interest rates throughout 2008, and many were wondering what the heck they were doing with rising prices, now I guess we all know why.)
2) Most likely this would induce relatively high inflation.
3) Raise interest rates to induce saving and control inflation. (If no domestic saving, currency inflow also can do the work.)
This is going to take some time, but it certainly is a sounding plan rather than LET THE MARKET FIX ITSELF. It’s going to hurt, but it does sound less painful than LET THE MARKET FIX ITSELF. Remember, it’s the market that has screwed all of us.
What government has to do is increasing regulations. The recent real estate bubble was a result of a leak in the regulations where investors saw enormous returns to go crazy enough to make things this bad.
Although some innocent cry for the death of capitalism, this probably is just a correction on the capitalism as it calls for more regulations from the government. Certainly the market was not efficient and had (big) flaws.
Currently, the biggest issue probably is if the $700B is enough. If not, what’s going to happen?
My answer to that is I DO NOT KNOW. I am not a qualified economist (yet) to say on whatever is going to happen. But I expect other countries to do something as they are also holding assets denoted in the US dollars.
With all the crazy things going on, I would certainly want to see how the global financial market would be shaped as institutions go through several transformations. I also wonder how regulations would be changed.
Also, hopefully, next presidents would know how to handle the budget better, and hopefully people will read and hear from more insightful people before complaining. There are things needed to be done and it can get better. Lastly, I found some respect for the Fed and maybe the US treasury, but not that much.
