Am I understanding this correctly ? A bail out for the credit card company’s !!! Its late and I hope I am reading into this wrong.. PLEASE Mr. Government…..NO MORE BAILOUTS FOR THE CROOKS….Save the ” PEOPLE “….take the money from the rich who caused the problem and distribute it among the PEOPLE who were swindled …..Get all the money from those like that nitwit Angelo Mozelo from Countrywide Mortgage who raped and stole from the honest PEOPLE !!!! time is running out 2009 will be here with a furry….Americans wake up ….
Socialism for corporations is known as fascism and everything BushCo has ever done is fascist at its root. Why should this be any different, more money to the power elite, less power to the average American.
Welcome to slavery
Wake up, this is a plan by the bankers to shackle society by making it required that you are over your neck in loans in order to survive without a hope of ever paying off. Thus you are a slave to them FOREVER.
Unless there are jobs that ACTUALLY pay for a descent living. Say no to the bankers perpetual enslavement agenta
I just don’t know what to think of this. It’s proof positive to me that the people running this country do not have the good of the American people in mind. You CANNOT, I repeat, CANNOT borrow your way to prosperity. Prosperity comes when people have little to no personal debt and they have money to invest elsewhere. With 50+% of the population living paycheck to paycheck, many Americans have no capital to invest.
I’ve said it before: either salaries must come up or widespread deflation must (continue to) occur. This is the hard reality our politicians do not want to face. Until something is done about those two main issues, our economy will continue to tank. I have no faith in the current administration to change anything, and I have to say that I don’t have much faith in Obama, either. He’s on a lot of corporate payrolls, as well.
I don’t believe a word of it. This is not for consumers. It is just another way of giving money to the banks. We continue to Nationalize their toxic waste and they get free money to pay their gigantic bonuses.
Within my sphere of friends, I do not know of a single person that has not made major cut-backs in their spending practices. Even IF I had money, I’d be socking it away and not wasting it on consumer products.
Bluntly, I am not spending a nickel that I don’t have to.
Period!!!!
These bailouts are all ass-backwards. Why on earth would anyone want to encourage more consumption/waste and more overleveraging in the US? And if the US gov’t really wanted to “encourage” US banks to lend to US taxpayers, why not encourage Congress to legislate bank compliance? What are the hidden agenda behind the Federal Reserve and Executive branch bailouts? When will the media start providing critical analyses and exposing the dearth of transparency and disclosure on these programs?
Oh, I’m $200K underwater on my Las Vegas mortgage. I can now go out and buy a plasma TV on my credit card!
Right. . .
The average person on the street is completely leveraged just trying to pay for a living. Pay has, in no way, kept up with the cost of living. I make less now, in real dollars, than when I finished my advanced degree.
The problem with the average person is not credit; it’s *good* jobs. I’m not going to go out and buy anything if I expect my job to go offshore at any moment.
This is a demand problem, just like the Great Depression. Stimulating the supply is not going to increase the demand. You stimulate supply during stagflation, like in the early 1980’s, not during deflation.
Washington just doesn’t get it.
The likely effect will be positive and smaller than America hopes.
It is true that about 2/3rds of past consumer lending was being financed by packaging up loans and selling them ["securitization"]. It is also true that this funding source abruptly dried up in early October.
However, what you have to realize is that this funding was supporting the riskier portion of total consumer lending and that, with the pending recession almost officially declared (and looking to be fairly deep, too), it would be bad policy to continue making the same relatively poor quality loans. [Think about it -- if you were a banker and could decide which loans to sell and which to keep, you'd keep the better quality ones and sell the riskier ones, wouldn't you?]
Knowing that the hedge fund industry is/has/will apparently decline by trillions (we do not yet know the total size of the industry’s repayments to its clients for 12/31 — but the individual funds do and are acting to raise the cash needed), 200 billion isn’t enough to offset all of what they were funding.
Meanwhile, back at the bank, — since the banks are trying to reduce their overall loan exposure, what is likely to happen is that some loans the banks would have made anyway, or already have made, will be funded by this program instead.
So, I predict that the entire 200 billion a) won’t all go to new lending (some will be siphoned off for old loans by the banks), and b) won’t be big enough to replace all the funding that has disappeared.
Btw, the 600 billion earmarked for mortgages likely isn’t enough either. All it will do is replace the now disappeared funding for FNMA, GNMA, and FRE.
This has zero to do with making sound, safe loans.
A sound, safe mortgage loan in an environment where housing prices are falling is one with a very substantial cash down payment — or else a very cheap, relative to seller’s hopes, contract price.
My guess is that any house bought today for a price higher than what that house likely would have fetched in January 2002 will probably fall in value. Why January 2002? That is 1/2 way back to when homes were reasonably affordable [in 1996] compared to the incomes of the people who want to buy them.
In all too many areas of America, and especially in CA, Vegas, FL, and Phoneix, plus the special cases of the auto industry damaged areas of MI, OH, etc., prices of houses in “move in” condition are still far beyond what potential buyers can afford to pay.
That old 32% of income guideline was there for a reason.
Yes, I’ve worked in the financial industries concerned. Yes, I am and will continue to be a critic of their managers, especially their lending policies.
NO this plan will not work. The problem is not getting a loan it is the ability to repay it. Wages in the production industry have not come close to keeping up w/inflation. From 2003 to 2008 the price of heating my home was up 140%,water 100%,health insurance 92%, fuel 25%(4 months ago 100%), phone 82%. Now here is the kicker wages 27.5%, you do the math. I can’t afford to take out a loan to buy anything if I want to. If the government wants to help, GIVE me a raise.
Got to love Hank. He can not get Goldman Sachs and 30 + leverage out of his blood. He has turned the taxpayers and the 350 Billion so far into 2 trillion plus by my latest math. So 7 to 1 leverage so far and still going. I thought this is how we got into this problem in the first place.
“As a whole, the consumer is tapped out. So while the government may want banks to start lending again, the better the question is to whom?” Norris said. “Does Washington really want banks to go out and start making more problem loans just to have this same problem again in five years?”
This is the root of the problem right here. The American consumer is tapped out and guess what, that’s 2/3rds of our economic engine. Take care of the consumer debt and the consumer will start buying again, simple as that.
This is a decade of predatory lending coming full circle. The financial sector has fleeced the flock and is now wondering why it’s all grinding to a halt.
With 3.6 trillion dollars that’s been thrown at this the government could have paid off everyone’s debt, which in turn would render those “toxic mortgages” valid, which would take them off the books of the financial institutions, which would give them the capital to loan again plus they would someone to loan too.
This scenario is probably not fair to everyone, and those who play by the rules will feel like they’ve just been screwed (which we have)but it will reset the game so to speak and give the next administration time to put some checks and balances in place so this doesn’t happen again.
Just a thought.
What this idea ignores is that the banks are over-leveraged to the point that they’ve decided they need to build their cash reserves up to about three times what they’re now keeping. The bankers’ pursuit of their own liquidity is at odds with their other desire to lend money for fun and profit.
On the other hand, consumers have started to wise up about that other Bush doctrine: “when the going gets tough, the tough go shopping.”
Who ever actually voted for that bozo, anyway?
Americans who can be persuaded by the consequences of their actions are finally figuring out that debt’s a bad idea when you’re not making enough to support the debt you have already. That’s a good thing, in the long run, but it’s another headwind for lenders.
I want my bailout for when inflation caused by all the debt wipes out the value of anything I have saved. Surely I am more worthy than the idiots on Wall Street and in the banking industry who brought all of this on us – but then again those who have get more, especially when they do not deserve it, and everyone else has to pay for their luxuries. The bankers’ creed – I get by with a littel help from my friends.
Great America, let’s now borrow our way out. Now we can teach my kids that we can always borrow our way out of anything and live a lavish life.
As predicted the bailouts have no end. The U. S. Constitution has been overlooked. And it looks very likely that the USA is going to go bankrupt.
This will not open the flood gates to consumer loans. This still does not address the core problem that the market’s lack of trustworthyness and confidence.
8 trillion dollars stolen from the U.S. economy and no arrsts in the crime? Now the Federal(Big Brother)Government says we will spend 8-10 trillion dollars to fix it? How does doubling the loss fix it?
If you want consumers back, you will have to show them that justice is going to be served. We what the crooks who stole over half of our life’s savings arrested! We want to see some very big Wall Street, Banking, and Governemnt insiders put in jail first, if not my purse is closed.
Americans are afraid as hell and we are angry. Trillions of borrowed money goes to bailout highly paid bankers while taxpayers cosign the loan. And what happens? Their cost for our cash is zero and I get notices in the mail today saying my interest rate on one account is going up while a line of credit on another is going down.
Mr. Obama better fix this quickly or his approval rating will be like Bushs’ in a hurry!
This is the dumbest idea I have ever heard of…besides the original bailout that is…and the tweaked bailout…
There is plenty of money out there, it’s the LACK of people willing to get raped by the banks is what they are missing! 6% mortgage! No thanks! My credit score is over 750! and unless I can get 5-5.25% forget it, I will not borrow more money!
Think about this, where my newer house(2004) is built. I would assume that most of the mortgages there generate at least $600 each month of profit for the banks and with 50 houses thats $30,000 where is all that money going?
I think most banks are just like GM and all their bloated salary’s thats where the money is at!
This will do absolutely nothing for the lending environment. Let us not forget, that in the end, The banks are the ones that decide who to loan to, what to loan, and how much. Without the fed stepping in and “forcing the financial institutions to lend” all this will mean is that once again, the consumer will get the short end of the stick. I will be very suprised to see this have any effect on the current environment, except for plunging us into a deeper hole that we are in. I love how the Treasury says it is “encouraging” banks to lend more. I wish the public could get ahold of all the internal memos from these banks that say that they are holding on to the “Bailout” money and have no intention of lending it out at ALL. Because they do exist. And the kicker is: the banks are being told by the Treasury, behind our backs, to stay liquid and focus on taking over smaller institutions
Please feel free to comment on and discuss the following economic bailout proposal. I look forward to your opinions!
First, I am a small business owner with a bachelors degree in economics. I also consider myself to be conservative with libertarian leanings. I would like to submit the following proposal for consideration:
Why not stimulate consumption by encouraging people and businesses to buy vehicles? Use the government bailout money to give “rebates” to the end purchasers of the vehicles. For $25 billion, a rebate of $5,000 per vehicle could be given to the first 5 million vehicles sold.
Recognizing that a lot of people need to buy cheaper vehicles, this money could be used to make the monthly payments for the first year to two years on the purchased vehicles, or to reduce the purchase price from the final negotiated level.
Another option could be to allow people to take the rebate money in the form of a check. Then, people would be able to use the money in the way most beneficial to them.
This stimulus could actually be a tax windfall to the nation due to the large increase in economic activity that would occur throughout the nation. If you assume an average vehicle purchase price of $20,000, and that 50% of the purchases would not have occurred without the rebate, the initial increase in vehicle sales of 2.5 million units at $50 billion. The additional flow of this money through the economy is normally around 5 circulations prior to the flow stopping. That would be another $250 billion in economic activity, for a total of $300 billion, prior to the spending of the rebates by those who choose not to put the money towards the vehicles.
If half of ALL 5 million vehicle purchasers spend on things other than their vehicles, that additional 2.5 million people times $5,000 equals an additional $12.5 billion on an initial basis. Given the same 5 additional circulations through the economy, the additional stimulus from this spending would be $62.5 billion, for a total of $75 billion just from the rebates.
The total of all of the economic activity that could be generated would be around $375 billion. If you assume that 33% of all of this activity is taxable wages or profit, that would mean that tax roles would increase by $125 billion. Assuming a 20% tax rate on this amount, the tax generated would end up being $25 Billion! The government would be “paid back” the stimulus money it spent!
Additionally, these companies likely would actually show profit, as well as many others. The stock prices of many companies would jump, and overall the stock market would recover, thereby allowing more people to invest in real estate due to having more money available for downpayments. Housing construction then picks back up and we are better off than we have been for several years!
Similar programs could be enacted regarding housing and other durable goods that are manufactured in the US as well.
Obviously, there are many assumptions in this post. I do believe, until ANY significant stimulus actually reaches the end consumers of goods and services, that we will continue the downward spiral that we are currently suffering. Please feel free to pigeonhole this idea as much as you like. I am hopeful that if this type of discussion continues that someone who has actual influence might somehow get reached with this type of plan, as opposed to simply prolonging the current environment by just plugging the holes in the financial dam by stopping imminent defaults and failures.
This highlights the difference between consumers and consumption. The goal of this new move is to give consumers more credit(aka debt). This helps consumption, but definitely does not help consumers. This might be good for the GDP but is very bad for human beings. We need to decide which of those we really value more. More debt is bad for consumers and bad for our government.
This is absurd!
So the plan is to take 200 billion dollars of tax payer money to give to credit card companies so they can then lend our money back to us at 22% interest because credit is tapped out?!?!
How about just give us the 200 billion and we will spend it to flow the money from the ground up!
Americans pay their bills when they have good jobs that pay a decent salary.
Where are the jobs? The average American is loosing their life savings just to make ends meet.
Create good paying jobs – not corporate welfare.
Riddle me this Secretary Paulson.
How are dog breeding and government bailouts similar?
It all depends on whose bitch is being mated.
My head is spinning.
Is this really happening? Is there a person in charge who actually thinks the FED going down for another 800bl is a good idea?
This is insane. We just are not that big. We honestly do not have trillions, TRILLIONS for Christ’s sake to commit to this. We are BORROWING money to help over endebted consumers BORROW more money! The entire yearly economy for over half the people on the planet. Everything they produce, consume and create. Who is going to pay this debt? We are only 5% of the population! Who is going to build enough to pay this debt?
Knock! knock! Is anybody home in there?
We no longer need to worry about “moral hazzard.” This has become a moral catastrophy.
Gimmie, gimmie, gimmie. What exactly was being taught to our “best and brightest” at the nation’s top business schools?
I have heard people speak derisively of the “wefare mentality”. Well, how’s that fit boys?
We need capitalists who actually produce something other than a bail out line that forms on the left, the far left.
The banks do not need a “cushion” in order to loan out more money. They need the money to offset the losses they have incurred and the losses that await ahead with more foreclosures, job losses, credit card defaults, etc. They are not going to loosen loan terms and flood us with these bucks – they are trying to survive and they are going to hoard!
The problem with the world’s economy is simple –
The banks counted their profits based on anticpated returns on providing credit, and these same bankers and investors will NOT give up these false profits – thus BAILOUT TIME!
All this will do is allocate taxpayer funds to those who call the shots for our government, and make the upcoming depression longer and more intense than the one experienced in the 1930’s.
Wake up people! This is not a BAILOUT for the US economy – this is a wealth transfer before the overdue contraction. Do you really think this wasn’t planned? No money is being lost today – just transferred back to the extremely wealthy just like old times….
I hope not. I’m rooting for a return to protectionism. Life was good then for the working American. Workers now are on the global slave block. I want tariffs on foreign goods. I loathe the World Bank and the IMF. Goodbye to the global economy and good riddance. Welcome back, Keynesian economics!
One reference the media uses that consistently pops up is that of “struggling homeowners.” If they are truly “homeowners” they own their homes. They do not have a mortgage. They are not struggling to pay a mortgage on the property they “own.” They are not facing foreclosure for non-payment of a mortgage on a property they “own.” Maybe the use of the term “homeowners” gives those facing foreclosure a feeling that an injustice is being done because the home they think they “own” is being taken away for non-payment of a legal and binding contract. Just because someone signs mortgage papers to buy a house and is no longer paying rent does not make them “homeowners.”
The correct reference should be “struggling mortgage payers.”
Boise just announced 300 job cut in our small town; our local pub is laying off 4 people; two other small employers announced layoffs; unemployment is over 7%; homes on the market losing value.
Who is going to go to a bank and ask for a loan — are we headed right back to giving loans to folks who may not be able to repay them? Until the housing and mortgage issue is addressed head on this economy will only continue the downward spiral.
Lending money to banks, to lend to consumers is all well and good, but doesn’t help if consumers don’t have any money to repay it ! Wouldn’t it make more sense to dole out the 700 billion to consumers, to pay back all of the debt ? Thats win-win; get everyone out of debt, and eliminate all the bad debt the banks are holding ! Makes too much sense.
Seems the old administration and now the new one doesn’t get it. WE DON’T NEED MORE DEBT. WE NEED JOBS!!!
Maybe, but there are still way too many banks; some street corners have multiple banks on them.
Banks may be encouraged to lend more, but to whom … and will the borrowers pay ? Or, the banks can be forced to lend more, as the FDIC takes them over one-by-one, two-by-two, three-by-three, etc. But, the banks are very resistant to lending, as they are just trying to protect their own paychecks. In any case, the Fed needs to charge enough insurance and interest to cover the inevitable defaults that will occur and avoid losing taxpayer money.
What we really need is to increase people’s incomes and decrease their expenses. Declining costs of food, fuel, and housing are helping on the cost side. More needs to be done to reign in the costs of healthcare and education, which have been skyrocketing. Much more needs to be done to increase people’s incomes, with new onshore jobs in the real economy (services and goods producing sectors, not just passing pieces of paper around) and raises, too. These will come once Bush leaves office next year.
Funnel the money to the banks via debt relief for consumers, then the economy will trigger.
The nation’s psychological and fiscal house is in disarray. We have exceedingly high expectations that President Elect Obama will almost magically fix the problems we face. At the same time, we are covering the patient with innumerable bandages of out-dated and old processes. Both of these are recipes for disaster.
First of all, as much good luck as I wish for the new administration, if this was an easy problem to fix with current fiscal strategies, it would have been fixed by now. Therefore, I am proposing an unusual and outside the box alternative. This alternative feeds off of the age old concept of refinancing debt while including a new purchase and creating a solid payment plan to pay the new debt off.
As background (these figures were obtained through the Federal Reserve and Department of the Treasury):
• We currently owe approximately $10,500,000,000,000, or $10.5 trillion dollars. This is an absurd amount of money except when compared to the national GDP. And even in that case, it is high.
• We currently pay approximately $412,000,000,000, or $412 billion dollars a year to service this debt.
• This ratio provides an effective cost of 3.92%.
So what do we do? We refinance the loan, include items to mobilize the economy, and establish a payment plan. How? As follows:
1. Increase the national debt to $13,000,000,000,000. Or $13 trillion dollars.
2. As part of this $2.5 trillion dollar increase, we,
a. Bail out the financial/mortgage sector – done – $700 billion
b. Pay off consumer credit card or revolving debt – $1 trillion dollars
c. Invest in transportation sector improvement, fuel enhancements, etc. – $250 billion dollars
d. Invest in energy research leading towards energy independence – $150 billion dollars
e. Invest in space exploration and put an American on Mars – $100 billion dollars
f. Invest in medical research to eliminate cancer, Parkinson’s disease and HIV – $100 billion dollars
g. Provide an economic stimulus for those who do not have revolving credit OR other projects/research – $200 billion dollars.
3. Pay for it.
a. Based on the formula of 3.92%, freeze the interest to be paid on the debt at 3.5%
b. Cost to service the new debt, approximately $40 billion dollars a month
c. Implement a new 1.5% National Debt Sales Tax, which would generate, based on October sales, roughly $50 billion dollars a month
d. Apply ALL of the collected sales tax to the National Debt – NOT just service the interest but pay it off
e. At this reduced rate, without considering an economic boost or additional factors, the debt payoff would be roughly December of 2044 – roughly a 35 year loan
This would leave us with a new dynamic:
• Zero credit card/revolving credit debt – effectively increasing the available purchasing power of Americans by $1 trillion dollars,
• Flood the banks with cash – they would be able to both cover their losses from previous housing losses and look for ways to loan money out,
• Generate economic activity – increase jobs, sales and get businesses busy expanding to capture some of that new money in the system.
• Target needed investments to create the future that following generations deserve.
In part, my proposal can give us a space to accomplish many items if we take advantage of it.
• This will give us the opportunity to grow jobs and invest in new technologies and training skills to wean people off of welfare and get people back to work.
• This will enhance economic performance and grow the economy, allowing for more ownership potential from and for the people, reducing the need for expanding additional government services.
• This will give us a space to enact a Constitutional Amendment requiring a balanced federal budget.
• This will provide such an economic boost that the revenues generated would expand exponentially and would possibly speed paying off the debt.
• The removal of the servicing of the debt from the budget combined with reduced government services through a requirement to reduce its size combined with a growing economy would generate a reduction in the budget, enabling a reduction in base individual and business taxation.
• This will give us funds to dream about the future again, and the possibility of eliminating cancer, HIV and exploring the Galaxy.
• This will give us a window to review our trade agreements to ensure equality and fairness in those agreements and ensure the American worker is not being squeezed out as we move to a new energy technology base
• This will give us a positive momentum boost that should enhance our position in regards to restoring our morality, based upon optimism v. pessimism.
• This will give us the opportunity to take the time to plan, discuss and vision what America’s role in this new century really should be.
I’m not sure I get the Fed’s logic behind this. There is already liquidity in place and the price of money is low, but lending isn’t happening because people don’t want to borrow. Why would giving the banks more liquidity change that?
The American public seems to have woken up one day in the last two months and collectively decided to deleverage. Until people reach a level of personal debt where they are comfortable, don’t expect anything the Fed does to stimulate consumer borrowing.
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THIS IS ALL A JOKE !!!!! It is not about the consumer. It is about the banks.
The bailouts are to shore-up the banks against the avalanche of credit-card debt on the horizon. It would be ASININE to extend more credit to those unqualified.
People with good credit and low to no debt have no problem getting credit.