What if no bailout happens?

[WildCat]

Care to elaborate on this? I don't see the connection I must be missing something.

He's a Ron Paul disciple.

 

[XBoxWarrior]

Personally, I think this is the GWB's last grab at the American's cash...Just steal 700 freakin' billion dollars on the way out the door.

Even conservative members of congress are gonna fight this give away.

It's a joke, and should be taken as such.

When I bought a couple thousand shares of MSFT, I could have lost all that money, or made the killing I did.

This bailout is like a dude jumping into the Sands casino and betting all his cash on 21 black, then the wheel stops on 7 red, and the gambler yells, "I WON".

I hope congress will refuse this non-sense.

 

[dudalb]

I am a proponent of the abolition of central banks, sound money, and 100% reserve banking on demand (non-time) deposits. This would serve to eliminate the business (boom-bust) cycle, enable free market interest rates, and enable steady, sustainable economic growth without monetary policy arbitrarily benefiting bankers, real estate owners, or any other special interest.

It would also eliminate almost all bank loans, and make money for new businesses almost impossible to get.
Frankly, Tippit, like so many other opponents of fractional banking, although they claim to love the captalist system, do not have the slightest freaking idea of how it operates.

Wildcat: You know what I think of Ron Paul, but has Paul advocated the abolition of fractional banking? I know he is heavy into the Get rid of the Fed woo,the Gold standard woo, and the let banks print their own money woo, but I was not aware he anti fractional banking.
And, to be fair, a great many libertarians have split with Paul over these issues.

 

[dudalb]

Personally, I think this is the GWB's last grab at the American's cash...Just steal 700 freakin' billion dollars on the way out the door.

Even conservative members of congress are gonna fight this give away.

It's a joke, and should be taken as such.

When I bought a couple thousand shares of MSFT, I could have lost all that money, or made the killing I did.

This bailout is like a dude jumping into the Sands casino and betting all his cash on 21 black, then the wheel stops on 7 red, and the gambler yells, "I WON".

I hope congress will refuse this non-sense.

You really don't know much about economics, do you?
Or do you want the whole economy to collapse so we can have the Socialist Revolution you so despertly want?

 

[Beth]

I don't know if it is veering off a cliff. That is the genuine *fear* of policymakers. and for "why", this is going in cirles: because the financial payments system is at the centre of almost all economic activity in the developed world, and mortgage foreclosures, at the rate they are occuring, are not.

Well, it's nice to know not everyone agrees that the economy will veer off a cliff. But I heard on NPR tonight about how Sec. of Treasury Paulson says that if congress doesn't act quickly, the results will be dire. What does that mean in this context? What are the dire results he is predicting will happen without massive intervention? Does he think civilization will break down like in New Orleans after Katrina? Are people going to be dying because the stock market is in turmoil? I just don't get it.

Anyway, thanks for your response. You're worth listening to.

 

[Gurdur]

..... But I heard on NPR tonight about how Sec. of Treasury Paulson says that if congress doesn't act quickly, the results will be dire. What does that mean in this context? What are the dire results he is predicting will happen without massive intervention? ....

1) House prices going waaaay down. Lots of people caught with negative equity.

2) Quite likely a fair few runs on certain banks, leading to their closures.

3) A hell of a lot of bankruptcies in any case.

4) Big unemployment, very nasty general recession for a long while.

Those are the dire consequences he is talking of.

 

[Delvo]

1) House prices going waaaay down. Lots of people caught with negative equity.

They SHOULD go down. Overpricing is exactly the problem.

 

[Beth]

1) House prices going waaaay down. Lots of people caught with negative equity.

I can understand that's a problem, (I don't especially want to owe more than my house is worth) but it also makes housing more affordable to those who can't afford the high prices it's been at. At any rate, that doesn't seem to quite rate the description of 'dire'.

2) Quite likely a fair few runs on certain banks, leading to their closures.

With most banks having federal insurance for their deposits, this seems like this effect would be limited.

3) A hell of a lot of bankruptcies in any case.

I'm not sure that it's a problem that requires a $700,000,000,000 solution. Bankrupcy laws were tightened up a few years ago claiming that would solve the excessive bankrupcy problem.

4) Big unemployment, very nasty general recession for a long while.

Those are the dire consequences he is talking of.

That last is the only problem that really could be considered dire IMO. Unfortunately, I don't have much confidence that a) this is inevitable without quick action or b) that this proposed bailout would work to avert it. I suspect it might be better to use the funds in other ways to deal with that situation. Thanks for laying some reasons out. I appreciate the info.

 

[Gurdur]

I can understand that's a problem, (I don't especially want to owe more than my house is worth) but it also makes housing more affordable to those who can't afford the high prices it's been at. At any rate, that doesn't seem to quite rate the description of 'dire'.

Bloody dire for those so caught with negative equity, and I think you under-estimate the flow-on effects. Start thinking whole suburbs with a whole lot of boarded-up houses; invitations to crime and climbing crime rates. Detroit, Chicago, and so on.

With most banks having federal insurance for their deposits, this seems like this effect would be limited.

This is where the problem of private insurance comes in, and again, flow-on effects.

I'm not sure that it's a problem that requires a $700,000,000,000 solution. Bankrupcy laws were tightened up a few years ago claiming that would solve the excessive bankrupcy problem.

But certain stockmarket trading regulations were loosened 13 months ago. And others earlier still. That is where much of the problem lies.

That last is the only problem that really could be considered dire IMO. Unfortunately, I don't have much confidence that a) this is inevitable without quick action or b) that this proposed bailout would work to avert it. I suspect it might be better to use the funds in other ways to deal with that situation. Thanks for laying some reasons out. I appreciate the info.

Look, an awful lot of people are running around like chooks with their heads cut off outta fear and trepidation; the stock market is being all bearish again, because they now suspect the emergency bail-out is not sufficient.

A lot of good regulation a while back would have averted this all; note that predatory lending and the subprime market is illegal in many other countries other than the USA. But those countries lent USA banks money; and so they get done over too. It's not looking terribly good. I would say personally taht the consequences of no bail-out plan would in fact be very dire, unless you regard mass unemployment, huge waves of bankruptcies and so on as a mere laughing matter, in which case, OK.

Personally, I'm fairly safe and insulated from all that; but it is a social problem, and not just in the USA, but because of loans to USA banks, for other countries as well.

 

[dann]

The banks in Denmark are folding too!
An article about the international financial crisis: Anmerkungen zur Krise '08 (but not in English)

 

[BenBurch]

I think the harm is less if we allow the crash to proceed.

I believe all we will do with a bailout is enrich people who ought not be enriched, and postpone the crash while at the same time increasing its magnitude.

 

[Gazpacho]

Wikipedia's article on the Panic of 1907 is pretty darn good. I encourage you to read it.

What's at stake here is the ability to pay money at one place and have it received in another. Without that no business can operate.

 

[Blackadder]

To Beth:

I am not sure if the following fits somewhere in the picture, but I think it does. (Others will correct me if necessary)

You talk about your debit card. This implies you pay things with money you already have (on an account) This system ensures you don't buy many more things than your income will allow.

The problem lies with credit cards. Some Americans buy too much with credit, basically, buy now, pay later.

I read somewhere that the majority of Americans still have no or very little credit card debt, but a minority has a huge debt, so huge that on average the debt is around $10,000 per household.

So what has this to do with Wall Street collapses? I am not sure, but some relation will exist I assume. Money will be more expensive? So this debt is more expensive.. Banks will ask credit card holders to pay more back each month. More households will get into trouble, not able to pay back etc.... Feel free to elaborate on this, those who know more about it than me.

 

[Beth]

Bloody dire for those so caught with negative equity, and I think you under-estimate the flow-on effects. Start thinking whole suburbs with a whole lot of boarded-up houses; invitations to crime and climbing crime rates. Detroit, Chicago, and so on.

I agree, these are serious problems. But how is it that bailing out wall street financial firms will avert or solve this problem? Seems like it would be better to help out the folks who can't manage to pay their mortgages than the firms that lent them the money.

This is where the problem of private insurance comes in, and again, flow-on effects.

And again, what is the connection to the bailout of wall street financial firms? How will the US government buying up bad securities fix this problem?

But certain stockmarket trading regulations were loosened 13 months ago. And others earlier still. That is where much of the problem lies.

I recall my mother complaining back in the early 80's that the deregulation that Reagan was doing would lead to another market crash and depression. No disagreement with you here. The problem is, I don't see how bailing out the wall street financial firms is a particularly good solution to the problem.

Look, an awful lot of people are running around like chooks with their heads cut off outta fear and trepidation; the stock market is being all bearish again, because they now suspect the emergency bail-out is not sufficient.

Okay. The stock market goes up and down. It's been bullish most of my adult life, but I understand that bear markets are part of it's natural cycle. Why is this a problem that requires a $700,000,000,000 solution?

A lot of good regulation a while back would have averted this all; note that predatory lending and the subprime market is illegal in many other countries other than the USA. But those countries lent USA banks money; and so they get done over too. It's not looking terribly good. I would say personally taht the consequences of no bail-out plan would in fact be very dire, unless you regard mass unemployment, huge waves of bankruptcies and so on as a mere laughing matter, in which case, OK.

I agree that good regulation and oversight would have been prudent. I agree that mass unemployment, huge waves of bankruptcies, etc. are serious problems. What I don't follow is the idea that bailing out the wall street firms is a good approach to avert that scenario. It seems more like throwing good money after bad IMO. Sometimes it's better (and cheaper) to simply accept the losses and rebuild from scratch than try to repair a broken system.

Personally, I'm fairly safe and insulated from all that; but it is a social problem, and not just in the USA, but because of loans to USA banks, for other countries as well.

Well, according to the news this morning, congress will likely negotiate some sort of bailout with the financial leaders by next week.

 

[seayakin]

I agree that good regulation and oversight would have been prudent. I agree that mass unemployment, huge waves of bankruptcies, etc. are serious problems. What I don't follow is the idea that bailing out the wall street firms is a good approach to avert that scenario. It seems more like throwing good money after bad IMO. Sometimes it's better (and cheaper) to simply accept the losses and rebuild from scratch than try to repair a broken system.

My main concern (and I don't have an answer) is will a bailout also encourage reckless investment in the future? Certainly, if we do nothing there will be a lot of short term economic pain (3-10 years) which will certainly be severe for many workers. From what I'm reading, some economists feel it will be so widespread that we can't afford to do nothing and others think the impact on the federal debt will be so draining on the economy to cause bigger long term problems. Anyone see forecasts, which scenario is most probable if we do nothing:

-Mild: 8% average national unemployment rate for 3 years and 30% of our homeowners becoming renters

-Mid 9% average national unemployment rate for 5 years and 50% of our homeowners becoming renters

-Severe 10-12% average national unemployment rate for 6+ years and 70% of our homeowners becoming renters (e.g Great Depression like)

Ben Bernanke studied the Great Depression as an academic and he clearly fears the latter consequence.

Personally, I'm very conflicted about the right way to go and how severe the risk is to the economy.

 

[cj.23]

How much actual cash do you use in your daily life? Not debit cards, not credit cards, not checks, but actual folding money? Because if the banks' investments truly tank, that will be what you're operating with.

I'm not the OP: Depressingly, only cash. I have a bank account I don't have any reason to use, but no overdraft as no bank will give me one, no loans, no stocks, no credit rating. My earnings are cash, from television, and I rarely receive cheques. I might try claiming some HB if things get worse though. I own no property beyond the things in my house - clothes etc. This is not even my computer, it's my housemates. So really I should not worry about Global Economic Collapse?

Actually, I think I should. If the banks go down, the supermarkets, the transport companies, all the people who provide me with food etc go down too? Dunno. Just asking!

cj x

 

[drkitten]

Care to elaborate on this? I don't see the connection I must be missing something.

You're "missing" the fact that Tippit is proposing bat-guano insane economic theories that have no relationship to the real world and get policy makers in trouble every time they even approach them.

Don't bother looking for the connection. It exists only in his fever-ridden paranoiac imaginings.

 

[drkitten]

With most banks having federal insurance for their deposits, this seems like this effect would be limited.

Federal insurance is actually quite limited; not only is it very limited in extent (only to the first $100,000 of deposits), but it also can take a lot of time for the claims to work their way through the system.

And that's why your debit card would stop working. If your deposits are in a bank that has had to shut down for cash flow reasons (i.e. there was a run on the bank) there's no reason for merchants to honor a promise to pay "eventually."

 

[Free Thinkr]

Simple answer : because if the banks collapse, credit will no longer be available, since most of the credit is backed by reserves held in investments. Heck, deposits will no longer be available as the money supply collapses, since those reserves are what your deposits have gone into.

How much actual cash do you use in your daily life? Not debit cards, not credit cards, not checks, but actual folding money? Because if the banks' investments truly tank, that will be what you're operating with.

You see? This is why the bulk of the money supply ought not be bank credits. This sort of catastrophe is inevitable. Now, not only do the banks get to walk away from the profits of this deranged monetary system, but the public gets the double-whammy of suffering the fallout, and paying for the bailout.

 

[Free Thinkr]

You're saying that if the government doesn't bail out wall street, my credit union debit card will no longer be any use to me? I honestly don't get the connection.

You know how there's money? Well, funny story: it happens that most of what you use in your day-to-day life isn't actually money created by the government, but credits, created by private institutions. Should it be the case that major financial institutions become insolvent, these bank credits will simply disappear. Essentially, it would be like the bulk of our money simply disappeared overnight.