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How about that failed bailout bill, then?

The only English-language channel that EPI and I were able to pick up in our hotel apartment in Croatia was CNN. There was no radio and as yet we have not bought a set of iPod speakers [that will almost certainly change before we travel again] … so basically we had CNN on a lot. Consequently we are now pretty well informed about current affairs in the United States. The ECONOMY IN CRISIS headlines screamed at us throughout the day and we became nearly as invested in the debate surrounding the 700 billion dollar bailout bill as if we were living in the US ourselves.

We’re home now and have just turned on CNN [with a hint of nostalgia, even though it’s only been around 48 hours] only to discover that the 700 billion dollar bailout has been rejected.

While watching the hoopla surrounding this issue in the last couple of weeks I found myself wondering what the average American thinks of this. I know a lot of people were opposed to the bailout because it meant taxpayer’s money was being used to bail out private enterprises. So – I’d love to hear from some of my American readers on this. [Or others too, for that matter.] What did you think of the bill? Was the US government right to propose the bill in order to salvage what could be saved, or should it not intervene? And what do you think will happen next?

[Second post today, so same weather as before.]

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  • Bluegrass Mama September 29, 2008, 10:55 pm

    Even though that bill was voted down, I suspect another will pass in the near future. I’m of two minds. As for the big investment firms and their overpaid execs, I wouldn’t miss them one bit. However, I hate to see average people lose their savings (shades of the Enron mess a number of years ago). Of course, the money spent will then not be available for other needed programs. I’m picturing a pie chart with a huge chunk going to war and another huge chunk going to the bailout. Take away the slices for earmarks, and all that’s left is crumbs.

  • meloukhia September 29, 2008, 11:23 pm

    My take on the bailout bill was that something definitely needs to be done to prevent a credit freeze (which is actually sort of already happening), but that this bill was not the solution. The terms of the bill which failed included basically unlimited powers for some of the people responsible for the crisis, no guarantee of return on the funds, and no clear indication of what the funds would be used for.

    We’ve already bailed out several companies in the last few weeks, and I want to see a structured plan which directly benefits Americans, such as a plan which includes write-downs of mortgages, returns on any companies the government buys shares in, and a restructuring of the existing financial system, which is obviously not working.

    I think a lot of average Americans are looking at the bill and seeing a payoff for Wall Street fat cats, which is to some extent true, but they’re missing the greater issue, which is that a credit freeze would totally destroy us.

    Also, we are clearly going to be taking a hit in already underfunded sectors like education as a result of this, which really bums me out. And, incidentally, earmarks are a tiny, tiny, tiny fraction of the federal budget, contrary to popular belief!

  • Professor Batty September 30, 2008, 12:43 am

    I wouldn’t be shocked if this was just part of an “October Surprise” by the Republicans to justify some sort of “emergency” to discredit Democrats, or even to “postpone” the election. That said, it has been evident for a long time that mortgage markets and property values have been diverging from any sort of realistic path. I think that most Americans, of all political persuasions, think that the current bailout proposals only reward criminal activity and without reinstatement of proper controls (which were eliminated by McCain and his cronies in the 1990’s) the situation will not change one bit. The reason the bailout votes are failing is that the legislators and senators who are up for reelection are receiving hell from their constituents and they have to at least make an effort to show that they are against it.

  • Jessie September 30, 2008, 4:32 am

    ^^ I agree with the above. Also, ugh.

    The bill was flawed (most take months to get through Congress and this was proposed and drafted in a matter of days). The flaws were political and intentional, and would allow some of the free-for-all we’ve seen under Bush. Also, corporate executives really wouldn’t be held accountable; the caps proposed were a fig leaf.

    I think government intervention is inevitable at this point, and another form of the bill will be passed. It’s all political, and the Republicans who voted against it did so because they want to be re-elected.

    Fortunately (in a very unfortunate way), neoconservative economic policies pretty much died today. Hopefully, we will learn from this, as the whole country seems to have finally understood that Republican fiscal policies have harmed, not helped, our economy, and are meant to help only those with the most money.

    Here is my proposed bailout:
    (1) 10% blanket income tax on all those who voted for George W. Bush once
    (2) 20% blanket income tax on all those who voted for George W. Bush twice

    Or, hopefully, we can do something like Sweden did in 1992.

  • Don in Seattle September 30, 2008, 5:40 am

    The bill was flawed in many respects, and I feel good that it was voted down.
    Action needs to be taken, but it must be the correct action. I really hate this rush to action that seems to be running things in Washington since 18 Sept.

    Less than 2 weeks ago, Treasury Secretary Paulson and Fed Chairman Bernanke, in testimony before Congress stated, ” The fundamental economy is sound.” Now, we are being told that we are within days of the start of a deep recession or even a depression. Hey, what happened ?

    How can you believe in a recoverery plan written by these two men, when they have been in control of finances for the past 2 years (before the start of all of this), saying that things are OK all along and up to 2 weeks ago, and now tell us that if their plan does not pass, we face depression. And that their bailout plan will be run by these guys!

    Common. No one wants economic pain, but Americans tend to have a “head in the sand” mentality when it comes to probtlems. It is so much easier to worry about Paris Hilton than funding Social Security as the baby boom generation retires. Yet, I’m guilty myself.

    It is so easy to place blame, but in my opinion, things will eventuall change for the better. Again, IMHO, this is not the end of the world, just a contraction of a real estate buble that will taketime to work out. In the intereim, there is pain.

    But this liquidity problem is real, it needs to be addressed with a solution that solves the problem, and needs to be worked on quickly, but not with haste. I always hate it when people go into late night negociations. If this is so important, take your time and be well rested. I want a good plan, not a quick fix.

    What was offered and voted down was not a good plan. A better one will be devised, and it will pass. But in the meantime, there is a great deal of fear and financial anxiety concerning the future. Both here and abroad, stock markets are in termoil, due to uncertainty.

    I live in Seattle, and a few days ago, Washington Mutual ( a very large savings bank in the US) folded. A few days before this happened, I happened to drive by a local branch, and there was a line a block long, waiting to get into the small office and withdraw their money. Their accounts are insured by the FDIC ( a government agency), but it has come to the point here that no one trusts the government to do what the say they will do. Thus, I witnessd a run on the bank, just like films from 1929. Very difficult to watch, yet I know that this is aproduct of fear.

    People here are very fearful because things are so financially uncertain, but, in my opinion, this is a correction that needed to happen. While it is not the end of the world, it will cause economic pain. And it seems that pain goes around the world, As you know very well with what has happened in Iceland.

    Life will change, but we will survive.

    My thoughts anyway, but I would like to hear about your thoughts from Iceland, and in particular, the mood of the consumer. Are people lined up to make purchases at IKEA or Hagup, or are the malls empty. Do people feel confident to spend money on non-essentials there, and is it life like always, or has there beem a shift in the past few weeks?

    Thanks, Don

    This has happened many times before in the history of finance, when a particular asset class was “speculated” well above the fundamental value. The most recent example would be the dot.com boom/bust here in the late 90’s. Companies were created and sold on the market for high prices when they had no fundamental value. Does anyone remenber DrCoop.com?

    To go farther back into financial history, consider the “tulip mania” in Holland, when a tulip was valued for its floral beauty, and not the fact that it was just a bulb flower. That market crashed, as well.

    The point I want to make is that in a free market economy, when things are going great, there is always speculations to the upside, a bubble,which in time, comes back to reality.

    This bubble deals with the inflated value of a home, and how the purchase was financed. There is a lot of blame to go around, but that can wait. The bottom line to all of this is that there is a fundamental value to the underlying assetts .

    A house always has value, as opposed to a stock or a tulip.

    My thoughts? Undwind this from the bottom, not the top. It is difficult, but it will be worth it. Change regulations; no 3 letter entities (siv, etc.) in a holding company without disclosure that means you have no idea of what you are buying. Not that I could buy them, but firms I have investments with firms that can, and I want to know if they have.

    Alda, there is residual value in the assets that are the undelying basis in what had driven this entire mess. It is not that bad, yet fear seems to rule all.

    That is how I see it from here in the US.

    Can I ask you about Iceland?

  • Don in Seattle September 30, 2008, 5:55 am

    Sorry, in reading my post I realize that I wrote some lines for later inclusion, but they ended up in the post after my signoff.

    Not what I wanted , but the thoughts are accurate. I wrote this response ove a 4 hr time frame, and some times zi had to come in and out of the thought process, so some of what I wanted to say I pushed down to the botton, as I do not know how to edit on this website.

    Sorry all, but I still stand by those thoughts. I just shouldhave remembered that I sent them lower in the text, to be recaptured later.

    Someday I’ll figure it out.

  • Sirry September 30, 2008, 6:24 am

    “Oh, hey you know….sure”…….Katie, I’d like to use one of my lifelines….Maybe Sarah Palin will come up with a genius idea to solve this ‘ill’ crisis, while she watches Russia from her house.
    Imagine, this person might run the USA if she gets elected and McCain drops dead.

    But regarding the main topic here, I agree with Jessie’s bailout, especially with those that voted for Bush not once but twice! *idiots* is what I say.
    But what did the Sweeds do in 1992, Jessie?

    It’s all becoming childish I think. There’s a lot of talk about attempted assassination on Obama, so fear is being put in peoples minds. And then there are the Republicans that put on a sour face because the ‘Speaker of the House’ Nancy Pelosi said Bush’s economic plan was ridiculous and “built on budgetary recklessness, on an anything-goes mentality”
    Republicans are sour pusses.

    I don’t think there should have been a bail-out simply because there was no plan in how to distribute the money among ‘The People’ and there was no talk of reducing some of the CEO’s salaries.
    Some of them are making $40.000 A DAY! Not per week, not per month, but PER DAY!
    It’s offensive and some head chopping needs to take place.
    I say, like the Queen in Alice’s Wonderlands story: “Off with their heads”

    Maybe this is the beginning of a long awaited revolution….maybe not a bad idea, seeing how Bush is driving the USA into the ground, quickly and surely.

  • alda September 30, 2008, 10:30 am

    Wow. Thanks everyone for your responses. This just goes to prove the superiority of the blog over mainstream media. 🙂

    Facetiousness aside, your comments give me a much clearer perspective on what is going on and why the bill was voted down. I didn’t know it was so fundamentally flawed so obviously it being voted down is a Very Good Thing.

    Don – I’ll do a separate post about the mood here in Iceland shortly … yesterday was my first day back from holiday and there was all this drama and I think people – like me – are feeling a bit sideswiped. I think I need to wait for the dust to settle … at the moment everything is in a bit of a flurry, accusations of political conspiracies and such around the takeover of Glitnir by the Central Bank (all related to the Baugur case, if you’re familiar with that) and it looks as though Glitnir and Landsbanki may merge. But on the whole people are keeping calm and seem confident that their money is safe.

    Sirry – I watched that Palin video last night and was utterly appalled. Words simply fail. That woman CANNOT be elected to office. It would be an absolute disaster.

  • Jon September 30, 2008, 2:58 pm

    Everything from Batty’s conspiracy theory (always a sentimental favorite of mine) to Don’s essay all have a lot of truth in them. I think the bailout should come from the pockets of the arrogant, greedy bastards who have been making absurd profits for the last 10 years or so. A modern-day Robin Hood would be welcome about now. And Palin? Yes, living 200 miles from Canada and nearly 500 miles from Siberia certainly gives her credibility in foreign relations.

  • Melissa September 30, 2008, 3:05 pm

    I’m sorry, what was the question? I was too busy spending my $600 check from the government to pay attention to the failing economy 🙂

  • Vikingisson September 30, 2008, 6:54 pm

    You only had CnN? Now that’s torture. I only flip it on once in a while for comedy relieve. More than 1 minute of *any* u.s. news outlet is too painful to bear. lol about taxing voters based on previous choices, great idea.
    So if we don’t bail out the greediest of the greedy the economy will sink? Didn’t Bill Gates say the same thing if IE was removed from Windoze? So where did all that money go to? Is this crisis timed exactly as the liars planned it or did it come a few months too soon? I can’t decide…
    Is it just numbers pulled from a hat or does $700B sound a little too close to the official $ amount spent fighting a bogus war? Maybe if we bring our children home from Iraqi hell ya’ll’d actually have $700B to spend on something truly beneficial.
    Lesson I take on all of this, stop spending (borrowing) what I can’t afford.

  • Colin September 30, 2008, 8:49 pm

    My main objection to the bill was any taking on of debt that any entity wanted to write off. Comparisons were made to the Resolution Trust Corporation that came into being after the Savings and Loan debacle in the late 80s and early 90s, but the RTC took on *all* of the portfolio of the failed S&L’s and actually managed to make a profit off them. Acting as a buyer of last resort for known bad debt is not comparable.

    While a lot of people have been taking the view that CEO’s are criminals, I’d settle for shady. What’s really a crime is that thanks to the likes of Phil Gramm (up until recently, McCain’s economic advisor), the derivatives markets were essentially unregulated. It wasn’t much of a secret that banks were moving their liabilities into those derivatives to get the loans off the books for regulatory purposes, but no-one did a damn thing about it.

    As for future bail-outs… I don’t know. I was okay with intervening to save Bear Stearns (to prevent the collapse of the hedge fund market) and AIG (to prevent the collapse of financial firms relying on their credit & derivatives insurance, as I understood it), because I could see a logic there. Just piling money out of the door doesn’t seem to make much sense.

    But hey, if we can put over $700 billion into the Iraq War (as well as who knows what in terms of downstream costs like disability payments, returning the US military to combat readiness, etc.), why not double down for a bailout? It’s all funny money at this point anyway.

  • Jessie October 1, 2008, 7:45 am

    Wow, this is so interesting to read others’ responses.

    Sirry, I read this article in the NY Times earlier in the week on how Sweden dealt with its banking crisis:
    http://www.nytimes.com/2008/09/23/business/worldbusiness/23krona.html?em

    I don’t know how realistic it would be to implement in the U.S., but it sounded like a much better plan – better than handing over a $700 billion check to Paulson! It just seems like Congress is dealing with this in such a rushed and haphazard manner, and we know where this kind of conduct (and trusting Bush) has gotten the U.S. Just ugh.

    Alda, it will be interesting to hear your perspective on the economy there and public confidence.

  • Rick October 1, 2008, 10:10 pm

    I am happy it was not passed. The US has enough problems with money as it is, to create more debt will likely not help anything if the world has little faith in the US Government.

    My view is on my blog here:
    http://stornisse.squarespace.com/journal/2008/9/29/finally-some-common-sense-for-now.html

  • RK in Los Angeles October 2, 2008, 8:25 am

    I’d like to chime in on this to say that although the bailout initially made sense to me, the more I thought about it the more I wanted to see a pressure put on Wall Street dig themselves out of the mess. At least try. A lot of people saw this coming a long time ago, the warning signs were definitely out there. I personally was not surprised. I don’t know how people thought it made sense to buy property with a variable rate mortgage when prices where going up, but they did. They offered housing to people in the US that really couldn’t afford it and just like the Wall Street people that sold them the mortgages, those people got greedy. I do have to say I have only a mild case of sympathy for the “victims”. You didn’t need to do extensive research to find out how and why this was a bad deal. But whats way worse though, is the fact that these mortgages were being sold by people who knew they were selling a defective product. Those people should be held responsible, fined and lose their broker licence IMO.

    To quote Joseph Stiglitz on his Guardian column:
    “We had become accustomed to the hypocrisy. The banks reject any suggestion they should face regulation, rebuff any move towards anti-trust measures – yet when trouble strikes, all of a sudden they demand state intervention: they must be bailed out; they are too big, too important to be allowed to fail..”

    Here’s another article on yahoo.com that puts things soberly in perspective by stating the fact that NASA’s annual budget is merely 17.6 billion, while the bailout plan chips out 700 billion. Social Security costs 606 billion annually. And if every American pays a dollar a day, it will still take 6 years to pay the amount in full.

    What a mess. But yay for Jessies bailout plan and I fundamentally agree with a lot of people here that bubbles pop and life still goes on. I’m actually considerably more worried about Niceland than US now. But that’s another story.

  • CarolQ October 2, 2008, 8:28 am

    I wish we could sue all the corporate parties that made these bad decisions just to get the stock valuation up. They got signing bonuses, stock options, and , AND millions of dollars to leave the company!!!

    The thing I really cannot understand is how the dollar is gaining on the Euro the last couple of weeks. What’s up with that? I’m not complaining but I just don’t get it.

    BTW, the 700Billion passed the House today (10/1/08) but it still has to pass the Senate. I really don’t know which way i want it to go. . . .

  • CarolQ October 3, 2008, 7:57 pm

    OOps, my bad, it passed the SENATE but hasn’t gotten to the House last I heard.

  • slacker April 29, 2011, 12:32 pm

    Great article , I am going to spend more time reading about this topic