I think everyone can agree that the US has made a habit of bailing out industry- from Chrysler in the 80s (which turned out to be a good deal for the US) to the airline industry (which was a travesty) to today, Bear Sterns:

http://news.yahoo.com/s/ap/20080316/ap_on_...EyqYEpvVDCpg9IF

However- at the same price as these bailouts- you could pay off every mortgage under 300k for every American citizen in the country.

Now, those that are consistant that no industry should be bailed out, ever, I understand and applaud your consistancy- but the truth is- we have bailed out major corp after major corp, and not even demanded a return of the board members salaries as a gesture of trying to achieve some fairness in this arena.

So my question- why do we bail out industry that has been horibbly mismanaged and corrupt, such as the airline industry and the financial industry- while ignoring the real pain being felt by individuals that are in fear of losing thier houses?

So my question- why do we bail out industry that has been horibbly mismanaged and corrupt, such as the airline industry and the financial industry- while ignoring the real pain being felt by individuals that are in fear of losing thier houses?

The real answer to this question is that our government is full of protectionists who pay lip service to the free market but do not actually believe it. And after their economic interventionism turns out to be a debacle, their only solution is more interventionism.

But to answer your question, i would assume that the logic that by bailing out securities firms like Bear Stearns, that we would in effect be helping individuals since less individuals would feel the effects of the government mismanagement. The fact of the matter is that the federal government made a pledge to increase individual home ownership. Bush would tout such numbers regularly when commenting on the state of the economy. But once again, good intentions do not make good economics. The Fed had artificially low interest rates which created malinvestment and the housing bubble we see bursting today. When the interest rates went back up - oh yea those people who could barely afford their mortgages no longer can afford their home with the increased interest rate. It is so stupid yet so predictable.

I don't think it's the same. Homeowners are going under because they played the market to an extent and got burned. During the last recession, I refinanced my house several times when interest rates got lower. Eventually, I got a fixed rate mortgage that changed from a 30 year loan to a 15 year loan. And I'm paying about $100 a month more than when I started. So, for $100/mo, I only have to pay half the time I originally signed up for.

Conversely, people took on loans with risks and when they got called on those risks, they are crying foul. So no - I don't believe we should bail them out. However, if/when (some are saying in about 3 weeks) Bear Sterns goes under, they are taking a lot of other big institutions with them. I think it is in the best interest of the country to try to avoid this. I'm not sure this is a bailout - isn't someone bankrolling these risks?

I should have known there was a reason for re-writing the bankruptcy laws - they've known all along this time would come. The bloodbath hasn't even started.

I notice they didn't re-write the bankruptcy laws for business- only for individuals-

and DR, don't you agree, if a very, very large number of people lose thier homes- they will take a great deal many other institutions with them? Why hold the individual that wants a place to live to a higher standard that the speculators at Bear Sterns?

I'm not sure this is a bailout - isn't someone bankrolling these risks?

While J.P. Morgan Chase is actually fronting the loan, the money is being dispersed from the Fed, and the Fed is assuming the risk on the loan.


So my question- why do we bail out industry that has been horibbly mismanaged and corrupt, such as the airline industry and the financial industry- while ignoring the real pain being felt by individuals that are in fear of losing thier houses?

People don't generate a lot economic activity. Corporations do. It's that simple...

dude-

The report reveals that over 99 percent of all American businesses are small, they create 75 percent of the net new jobs, and they employ over half of the nation’s non-farm private employees.


http://www.sba.gov/advo/press/03-43.html

In fact- I would argue, that saving corporations is BAD for the economy, overall- because it rewards bad behavior, and stifles the real hero of the American economy, by allowing bad corporations to continue, instead of allowing them to fail, and allow smaller, hungrier companies to take that business.

I see absolutely no benefit for propping up large corporations, often at the expense of the small business.

AS a small business owner- if my business fails, it fails- no goverment help, no bailout to keep my employees employed-

I would argue it is far more about lobbying and peddling influence than any real long term harm to the economy.

I believe it would be good to allow airlines, car manufacturers and giant financial houses to fail, and allow much better managed, smaller businesses an attempt to compete in that market.

There's a lot of truth to that, but I think that's only half the truth. Who are buying the small business products? Big business.

Obviously, there are many retail and service businesses that sell directly to communities and/or online. But there are many, many small businesses who thrive on the needs of big businesses. For example, GM is a huge company here in my super-secret undisclosed location. It's likely GM will shutter these plants within the next two years. The loss of those several thousand jobs won't be as bad as all the tool shops, engineering businesses, industrial suppliers, etc who will lose a large chunk of their business. Those businesses will be devastated and many will fold.

I think the same can be said of Bear Sterns, except on a much larger scale.

Then why not offer grants and loans to small business to pick up where the big business failed? Why not bail out the banking industry by bailing out the home owner? For instance- why bail out the big corp, why not bail out all the little corps? allow them time to bridge the gap and expand or whatever to fill this void- I mean, what is it that Bear Sterns produces that are being supplied by small business? Most small business don't have major firms investing in them, if they are even lucky enough to find a venture capitalist.

I suppose in the service sector, this may be more true than not- if you are a consultant for Bear sterns, and that is your only customer- you got problems. But I would prefer the small business to get a "bail out" in this case than the big firm, and allow someone more competitive to fill that void left by the big firm.

I guess it does go a bit deeper into our societal fixation of giving our leaders a "pass" and the most powerless in our society, we expect uber-responsible behavior?

These are very reasonable questions that deserve an answer. There are three reasons why Bear-Stearns gets propped up in preference to small businesses that I can think of:

First, it's easy to see its failure and to verify the authenticity of its claims. Small businesses, because there are so many, are "hidden" due to their numbers. It's simply harder to deal with the larger numbers: to hand out the checks, to ensure those checks go to truly duressed businesses AND to verify/enforce the strings attached to the checks after they are received.

Second, Bear-Stearns, unlike small businesses, is a publicly traded company on a major exchange. It's failure has a negative psychological effect on that exchange as well as the national/global market. A loss in confidence (greater than what we have now) would be a major blow to the US economic system. The Fed simply cannot allow this to happen as it might force us into depression territory.

Third, bailing out a major financial institution makes supply-siders all warm and fuzzy. That is, an increase in supply *must* bring the rest of the economy along with it; never mind that it was an over-abundance of supply that caused Bear-Stearns to fall so hard in the first place. Supply-siders have the tendency to ignore anything which contradicts their naive trust in top-down economic theory (but, of course, "demand-siders" do the same thing as well, sigh...). Tax cuts, anyone?



Well, Bear-Stearns is hardly getting a "pass" but I understand what you're saying. When businesses get bailed out like this because to let them die would cause too much collateral damager, I stop to wonder at how much the Fed really believes in free markets. The free market *should* be robust enough to allow these companies to die; the Fed clearly doesn't agree. It's a sure sign that our economy is on pretty shaky ground.

It turns out JP Morgan is going to buy Bear sterns for a whooping two dollars per share.

marketwatch

Those stock options aren't lookin so good now

I would bet money though that every single board member and the CEO, CFO etc will walk away with more money than every person on this board combined.

They should be banned from even having money. They have to beg for food the rest of thier life kinda thing. And clean subway bathrooms to sleep in them.

Eh, upon further review- I am a little harsh on this management team- seems they weren't that bad- they just got caught on the sub-prime lending problem out of thier control.

So why not let it fail, and just give every home owner in America a free home under 400k? Or refinance everyone over 400k for, say, 2.0% ?

So my question- why do we bail out industry that has been horibbly mismanaged and corrupt, such as the airline industry and the financial industry- while ignoring the real pain being felt by individuals that are in fear of losing thier houses?
I suspect that it's political influence, although I admit I didn't do any research on which companies have donated to the political parties. The leaders preach a free-market system, but recent history shows that Government money often goes to politcally well-connected firms, such as the no-bid contracts that went to Haliburton.

I think the other reason why Government bails out Big Corporations over the little guy is because it's probably easier to do than to make real economic reforms. For example, for the past 10 or 15 years, the Government has been telling America how fine the economy was, and they've been showing the numbers on Wall Street as "proof" of America's prosperity. But for any American who lives in a town where the only employers are a Walmart and a few fast food restaurants, Wall Street has no connection to Main Street. It's more cheaper for the Government to bail out a few large Corporations than to rebuild ALL the factories that have been closed since America started running up trade deficits.

CR pointed out that the Government's decision to bail out Chrystler in 1980 was a good decision. Despite the fact that US automakers are not the best, they are very large employers nonetheless and they do actually make a product of value. So, Chrystler is one of America's economic crown jewels. On the otherhand, it is very outrageous for the Government to bail out Bear Sterns. Despite being one of the nation's largest investment firms, Bear Sterns has apparently not invested much in productive assets like factories and R&D, but rather completely speculative investments like Derivatives and SubPrime Real Estate.

You question shows a fundamental misunderstanding of what is going on here.

As to your examples:

Investment banks and other fin institutions have been investing in commercial mortgage backed securities (CMBS--bonds serviced by real estate debt) for years, indeed ever since the S&L crisis, when securitized debt was created. Almost all long term residential and commercial loans since the early 1990s has been put into pools, and underwriters have issued bonds repaid by the cash flow from these loans. The system was a huge boon to liquidity as lenders could immediately sell their loans and the CMBS were a good investment. When the residential CMBS market began to have problems, as individuals could not service or refinance the adjustable debt on their homes that funded the CMBS, it created an irrational panic (as panics always are) and investors, mostly overseas, fled the CMBS market, deflating the value of the CMBS. Overnight, portfolios that were valuable were ruined. The Feds could have stepped in to guarantee a portion of the CMBS principal, but didn't, and the panic rose to a fever pitch, taking lots of fin. institutions with it. There is nothing mismanaged and corrupt--just a usual financial panic.

As for the airlines, if you recall, airlines operated since about WWII with routes and fares managed by the Civil Aeronautics Board (CAB). Every airline knew the routes it had and the fares it could charge. All airline managment had to do was keep costs in line with fares and you couldn't help but make money. Under Reagan, this regulation was removed. Older airlines had a salary and cost structure that harkened back to the CAB days, and with union contracts, reducing wages was tough. New airlines like Southwest had a much lower salary and cost structure and beat up the old, blue chip airlines. The older airlines have all gone through bankruptcy, shed their old, expensive cost structures, and are now more competitive. Again, no corruption, just growing pains going from a regulated to unregulated route and fare arrangement.

If we continue to suffer a liquidity crisis, and investment banks go under, and commercial banks continue to tighten credit needed for new products because of failed investments, or even they go under, then our entire economy and a good portion of the global economy grinds to a halt, or worse, deflates. Tens of thousands of people will be laid off, from investment bankers to secretaries. Investment values collapse, industries cannot finance new investment in capital goods, etc.

An individual homeowner can always file bankruptcy, and if they have any equity in their house, they likely can keep it under a court-imposed repayment plan. Of course, this bailout plan just signed into law by Bush does provide certain assistance to mortgagors and provides some cash to them as well.

It's a question of scope; When an ant falls, only a few other ants notice. While this event is very important to the ant and his close friends, if an elephant falls, it will endanger the entire anthill below, and lots of green grass around the anthill. We all suffer when the elephant falls.

Oh, so our economy is so weak that one investment house will bring financial ruin to the globe? Tells the lie about how good our economy is I suppose?

Again- I am not talking about saving one ant- but the whole ant farm- and screw the elephant- they have been screwing with the whole ant hill all this time, and doing nothing but siphoning off resources of the ant- and when the elephant dies, the ants can scavenge the meat.

Once again- they backed mortgages- so pay off the mortgages and get rid of the white elephant and let it die.

Also- good ol' GW and company have re-written the bankruptcy laws so that the homeowner can't claim bankruptcy and will not be able to keep the equity on thier house IIRC.

You bail out home owners, you’re also bailing out the lending institutions. But bailing out the home owners might not solve the issue.

The stories have been repeated daily, home owners caught upside down in their mortgages. The last one I saw was typical, a couple got caught in a balloon mortgage and when it kicked in their mortgage went up over $900/month and they couldn’t meet the new payment.

Who’s to blame? I think it’s about 50/50 between the lender and the consumer. No doubt lending practices have eased up in the last 20+ years, one of the most obvious was no money down mortgages. And up until the mid 70’s when a couple applied for a home loan, if the woman worked and was of child bearing age her income wasn’t even considered. So this has been building for a while.

We’ve been living in a “false” economy for years supported by heavy consumer debt. One of the best lines I’ve read concerning the “stimulus” package that’s being offered likened it to giving a drunk more booze and I tend to agree. The average American household isn’t fiscally responsible.

In this regard I’m a little old school, Bear Sterns has no one to blame but themselves, why should the tax payers bail out a company that was mismanaged and had no problem paying huge year end bonuses.

And Quick I’m going to disagree, financial institutions are 100% culpable, they’re responsible for understanding their market from top to bottom. I’m no financial genius but I do understand that if you basically give away mortgages (no money down) with balloon payments in an overpriced housing market then couple that with record consumer debt, well, it’s just the perfect recipe for disaster.

With this type of "conservative" support, when a financial institution gets large enough, then its executives and major shareholders have nothing to fear. They can make the most egregious and perilous financial decisions and the Fed will just bail them out. There is little downside because the risk is so mitigated by knowing that they'll just be bailed out. In other words, these bailouts in effect set the bar quite low for risky investments.

The problem is that large financial institutions are making bad decisions affecting a huge chunk of our national economy. They are allowed "free reign" to do so because of "free market" principles. Except this isn't a free market, is it? When one of these financial institutions goes bankrupt, it *knows*, absolutely *knows*, that it will be bailed out. A free market would permit these guys to die. Why you make ask? It's very simple:

If a company *knows* that it won't get bailed out, then it will be far more conservative in its investment decisions. And, thus, it won't get itself into dire straights to begin with.

What I'm saying is that Fed/government bailouts make the problem worse not better. It may seem like the correct short-term decision but the effect over the medium to long term is exactly what we are seeing now.

If I were a communist or anti-free market, then I'd probably be advocating the position that you are, quick. But, I am neither. I believe in the free market. Do you?

I give 0% culpability to homeowners, at least about 99% of them. It is SOOO easy to scam the market if you are a mortgage broker- simply find someone that needs a home, and play on thier hopes, because the real estate contract is possibly the most complex thing your average homeowner will do in thier entire life- even a fairly savvy, by most standards, homebuyer is fodder for a slick mortgage lender. I mean, they may know all about ARMs and such, but who teaches them "points"? And penalties for early payoffs (which is illegal in many states, so, to get around that, they make sure they are not chartered in that state- but they don't tell you as much)

No, I don't blame homeowners at all, and I don't believe most of them were "speculative" buying- most just wanted to own a home, and the high rent prices = thier mortgage payments, or darn near it, and it was taught that owning is better than renting, and slick mortgage lenders played on that. Most didn't know they probably shouldn't be owning, in that market, and boom- they get's themselves a house.

I think a bailout of the homeowner is completely appropriate for couple reasons- a home loan forgiveness or uber-low interest plus equity would make millions of people solvent, and help far more people than a bailout of a shark will.

I am afraid you just don't know what you are talking about here.

The economy is terribly interdependent. We live off overseas investment. If we can't repay, the creditors go down; if we cannot continue to sell instruments to overseas investors, we go down the tubes.

Also, for a typical American, the revsied bankruptcy code works fine as a means to stop the f/c. It will not let you walk away from unsecured debt like you used to, but it will enable you to reorganize you finances and move forward.

Oh, I understand the markets just fine- I also understand that the goverment is enabling the behavior of these investment firms, as logo and leder has pointed out- it is time to stop bailing out ANY major corps, and just bail out thier victims instead?

The S&Ls, Enron, the airlines (possibly the worst bail out of all, we should have just paid for early retirement for every employee and let the airline go under, and then made the execs pay the money back, that bail out, like the S&Ls and junk bonds- were a straight up scam) - well, we even let folks like Michael Milken keep his money!

He had millions of victims- yet, he never had to pay all those folks back, and still lives in the lap of luxury.

It is time we stop enabling this behavior, help the victims, and let the criminals go broke and hungry.

Sounds great, but the "criminals", as you call them, make the markets that generate jobs and income for the entire nation. It is just not that easy. Herbert Hoover was a "let 'em fail" president, too, you recall.

Frankly, the two most dynamic economies in the world today are China and India, and both are managed economies. In this new era of globalism, you want your own govt playing ball with you, not against you, as a practical matter.

The Erie Canal was built with govt assitance....

CR, I’m going to respectfully disagree with you, that’s why I think it’s 50/50 on who’s to blame. Home buyers should know when and by how much their mortgages are going to balloon up, they need to prepare and budget for the increase.

In my example above, the home owner knew that in four years their mortgage was going up $900/month. That requires about $1500/month in addition personal income, which equates to about $18,000/year. That’s a pretty hefty increase in personal income for a middle class family over a four year period.

The lenders are just as guilty for holding the shiny object in their customer’s faces promising them home ownership when they know it’s a risky proposition to begin with. Tighter lending practices could have mitigated this entire situation.

For those who argue government should stay out of a free market economy I give you exhibit A of why government regulation is needed. Left to their own devices an industry can ruin an entire economy.

I think you need to read more on the “bailouts” you mention. They were actually government backed loans.

And this “bailout” is different.

Do we want to “bail out” people and their lenders (esp. their lenders) who bought houses because it was cheaper than renting – people who knew damn well that when the rates on the sliding scale mortgages went up they could not pay?

I think it was essential that Bear Stearns was bailed out.

That said, we have to see the human misery in this, too.

By selling Bear Stearns stock to Morgan Stanley - Chase, for $2.00 a share, 14,000 + people lost millions, billions in employee stock holdings. Wrecked are what some thought were safe retirement plans and money to college educate the kids.

Yes, quick the elephant didn't fall on the ant hill, but it did trample on the dreams of 14,000 people. Add to that another 7000 or so that lost or will lose their jobs.

It's not a pretty picture. Michelle Caruso-Cabrerra spoke eloquently about this shortly before noon on CNBC.

Oh, I misunderstood- you are a kensyian then? You are actually a big goverment liberal?

Hey- also- the Mafia did a great job of building Las Vegas and providing jobs, heck, they built an entire city, nearly single handedly- from various con jobs and what not- heck, they have done more positive job building and I don't think Bear-stearns has founded an entire city?

Doesn't mean they deserve thier ill-gotten gains, now do they?

Okay Ted, give homeowners and investors thier money back in the same fashion that Bear stearns get thier money back- extremely low percentage loans, and allow the re-valuing of all homes for individual home owners with less than a million dollars in net worth, at 2 dollars for every 30 dollars- and let bear sterns executive be liable for all other investor losses.

Ted- why are you so much harder on the homeowner than Bear Sterns? Why give bear sterns a way out- but not the homeowner?

CR, from your posts above, I can tell you just hate business. You probably like the corner bicycle shop, but DuPont or GM, to hell with them.

In case you haven't been able to tell, I am an American nationalist. I want a unified populace; I want a govt that ties businesses to this nation and then assists them with success (like, when Boeing fights Airbus for a bid); I want our nation to succeed above all others. I do favor private enterprise, but to do so at the cost of a prolonged and painful business crash when we have a central bank designed to regulate the availability of credit, well, not so much...

By the way, the Fed is not owned by the govt (although it is regulated to some degree by the govt), but is owned by its member banks. This is not the same as a govt loan from, say, the Treasury.

And that bank is backed by the US treasury.

I do not neccesarily hate business, but I do hate thier power and thier ability to buy lawmakers to make the rules special for them, while harder for the little guy.

Smaller, private, non-traded businesses are the back bone of this country- they are responsible for over 75% of non-farm new jobs, and make up more of the economy than big business, I know it is over 50%, but I think it is closer to 75% of the total economy- and small business is defined as less than 100 employees.

And most of the laws are still tilted to the big biz side, and that is wrong and counter productive.

I don't see large scale bailouts due to downturns in the economy, or really, any other reason.

It is far better to help the end user instead of facilitating the very bad decisions of rich people, who stand to lose, well, really nothing. Not one exec in Bear Sterns will lose thier homes.

Once again - why hold the people that are making the policie of lending and whatnot to no standard at all, while the consumers totally responsible - where you place blame is irrelevent- the home owner still has to pay, the people making the policies do not- and that is wrong and unethical, and should be treated as such.

Quick, the jobs being generated by Bear Sterns are not the productive jobs needed for America to get its financial house in order.
As CR pointed out, when the Mafia "generated jobs" in Las Vegas, those were gambling casinos and hotel jobs. Bailing out the financial firms on Wall Street are not going to satisfy the foreign creditors. It's only going to have the effect of monetizing America's debt to other countries by inflating the supply of Dollars.

When the Free Market allows firms to fail, its the Free Market's way of telling the business leaders that they have to do a better job and they have to do something more productive than shuffle papers around. When the Fed Reserve bailed out Bear Sterns, the overseas investors were not happy. They see that the Fed Reserve only wants to stick other countries with the bills for America's excesses and the Foreign Investors have decided to put their money into gold and oil commodoties.

Well, I do understand investment very well, and well, brokerage houses have thier purpose as well, in fact, yes, they do add jobs because of the increase in capital available for re-investment into emerging businesses, but yes, by and large- ALL the "real" jobs created come by small business- NOT big business- in fact, big business continues to contract to some degree as employers, think of layoffs by major companies anyone?

I am saying- instead of paying out money, in fact, the taxpayer IS guarunteeing this money to finance the 2 buck buy out- and the major investors (the big guys, not the smaller victims, like, oh, homeowners, who's ONLY investment is frequently thier home) may get some money back.

But to the homeowners affected by this? Nada.

Instead, once again, take, let's see, 12 billion a month Iraq costs- that is 144 billion a year. Start at the bottom and work your way up in housing values for loans, doleing out 12 billion a month. The folks with up to 200k loans would come first- the feds buy out every single mortgage, pay it off. OR, refinance it at 1%, that way you have a return on the investment for the feds, Break even with administration costs or something.

then let the brokerage houses fail- in fact, bear sterns should just be shuttered. They have no mortgage debt with a homeowners bailout- so few if any lending banks would fail, also- there should be a rule that the home can not be sold for two years- or the goverment gets all proceeds from the sale, unless the sale is ordered by a court through criminal or family court sale. It can be re-financed in case of divorce, to the remaining spouse that is awarded the house, with the loan being refinanced based on current mortgage plus equity buy out cost. Then make them illegal to refinance for 10 years otherwise.

Home foreclosures are what drives something like this in the first place- don't forget! Take away the foreclosures- there isn't the "hard" economic fall.

So did the financial sector. Pay options, hybrid Intermediate-term ARMs and teaser rates weren't conjured out of the goodness of its heart.


Non sequitur. Health care costs was the most common cause for filing bankruptcy when Congress passed the latest reform. It probably still is. Although if Congress really had this in mind while they drafted the reform law they're just as culpable as anyone else for sitting on the bubble they expected.

Why do we bail out industry that has been horribly mismanaged and corrupt, such as the airline industry and the financial industry, while ignoring the real pain being felt by individuals that are in fear of losing their houses?
We can't help ourselves. We like bailing industries out. We buy into their mystique to prop up false economies. I don't think they're worth it over the long haul. Take no-proof loans for example:


The latest bailout calls for no structural changes to our financial system. The incentives for executives to gamble in a win-win situation continues. If I win, I win. If I lose, the taxpayer bails me out. If they ever lose I imagine the poor little rich boys and girls squirrel away enough capital in foreign accounts to continue buying out competitors or build a new start-up.

So nothing changes. We'll bail them out again.

And again ad nauseam.

We're goddamn stupid and too happy to reside in a financial reality of our own making.

Actually Lesly- they don't even need the offshore accounts. The money they take in is currently legal, and on top of that, most have clauses that demand the corporation pay for legal fees relating to defending their fiduciary responsibility. This means they get to use 16 lawyers not even on thier own dime.

Perhaps it is just me, and I am the first to admit that when it comes to economics, I watch American Idol, but my biggest problem with the bail out of Bear Stearns falls in line with the comments made by CruisingRam. That is, we are all awaiting our small $600+ tax rebates which was promised to help boost the economy. Where is this money coming from exactly? That is a helluva lot of money. Now, if it is the case that propping up the economy is as simple as giving money to every person who filed a tax return, then it would make logical sense that paying off every person with a mortgage under $250,000 would contribute enormously to the economic well-being of the country. If suddenly every person in the country no longer has to pay their mortgage, imagine where all that new money will go. If there's one thing we've learned from Americans, it is that Americans will spend, spend, spend whatever money they have in their bank accounts (and yes, I include myself in this critique).

So a major company comes crashing to the ground, but instead of letting it, the exact opposite of what should happen occurs. Government bails out the people who made the decisions which led to the collapse. The little guys (employees with 401k plans and stock options, small investors, etc.) get screwed out of their savings and investments, and there is nowhere for them to turn to. They must start over, while the corporate bigwigs generally get a pass and even get to retain most of their vast fortune often made as a direct result of poor management. I can imagine a bank manager siphoning off a few hundred dollars until their bank's vaults are cleaned out, getting slapped for ruining the financial institution and then allowed to skip off with their millions they spent years accumulating.

The question posed is why do we bail out corporations and not the little guy? The answer is plainly simple, but there are people who will vacillate and attempt to suggest that it will somehow benefit our economy in the long run. That is essentially bull (edited to correct and an aside: apparently two letters implying profanity is profane itself?). When government aids big business, it is called "economic security". When government aids the little guy, it is called "socialism". Both are forms of socialism, but only one brings with it a sense of morality and ethics (I'll leave it up to you to determine which is which). Government aiding big business is essentially a complete mockery of our free market, and I'm not even a free market believer! I think America's place in the world is teetering towards irrelevance, and when we find ourselves like the crazed uncle at the dinner table who is merely put up with, things will get worse. I don't know where we are headed, but I do think that the vast majority of big businesses will prove to be utterly disastrous for America's place in the world. NAFTA, CAFTA, and the WTO only make things worse, but that's a different debate altogether.

CR, I understand where you are coming from, but I think you are missing some of the picture. First, to explain why
'big business' sometimes (not very often, mind you, in fact quite seldom) gets help from the government:

1. Because the cost of not doing so is greater than the cost of helping them. Bear Sterns was a good example of this. The Fed was worried about the failure of the entire financial system, which would have wide ranging economic impact, quite a bit of which would hit 'the little guys' hard also. Already in NYC, they're talking about the economic impact of the Bear Sterns failure, and the greater impact it will have on the entire economy here. Had a wider ranging run on these banks occurred, it could have thrown the entire country into a depression. It's cheaper sometimes for the government to act to prevent such an occurrence than it is to deal with the fall-out, and also better for everyone else.

2. Bear Stearns (or any other business being bailed out) is one company. It is far far far easier to help one big company than it is millions and millions of smaller ones. The 'bailout' here was not actual cash, but guarantees on assets. To do something similar for all the individual home owners would require individual examination of all the loans. That's simply not feasible. If you make a 'one size fits all' solution, it, of course, doesn't really fit anyone very well, giving assistance to some who don't need it, but not to others who do--and the amount of help is not really tailored to their unique needs.

3. The impact on the economy of one big company is a lot greater. Again, consider Bear Stearns. Had the government not stepped in, then the run would have increased, and led to a loss of confidence in the entire financial system. This would multiply the actual impact many-fold. The impact from the consumer end just isn't as great, as the overall impact of any individual home owner is neglible on the overall economy. The issue here was not just one big business failing, it was the concern about confidence in the entire financial sector. So, again, it's a cost-benefit issue. The government gets more benefit for its cost in helping out Bear Stearns. This then means we, the taxpayers, get more benefit for the cost.

I would add, when considering what the 'cost' here was, that all that was provided was asset guarantees. No actual cash was really spent. So far, then, the 'cost' of this bailout was nothing. It was merely using the 'full faith and credit' of the government. This might change over time, as some assets require actual government cost recovery for JP Morgan. However, I still think the 'cost' of providing that vs. the benefit of maintaining confidence in the financial system will strongly favor the government's actions.

Well, sort of. They do deal in dollar denominated instruments that have the full faith and credit of the US. The do have the ability to increase the money supply.



Well, this has likely been true in every economy. Frankly, the rich and powerful do get something for their money.




Wasn't always so, but between envr regs, securities regs, tax policy, employment regs, and our generally populist bent of late, we have done everything we can to punish big business (esp manufacturing, and esp w ex post facto env laws) and make our work force less facile for them, no wonder they have elected to go elsewhere or sell out. Atlas has been shrugging for a while now.





Debatable. There are clearly some well-lobbyied tax loopholes, but anti discrimation laws have led to some class-action duesies.




Bear's largest shareholder lost 800 million dollars. Those that take the biggest dollar risks do get the biggest rewards, and suffer the biggest losses. It has always been so. This "bailout", as you call it, does not save the Bear shareholders. The "bailout" really aided JPM/Chase in the buyout more than help Bear.




The Fed just printed a bunch more money by lowering the FF rate, which should ultimately cause ARMs to adjust downward, making existing adj home notes more affordable. A lot has been given to those who act as if they did not know what the word "adjustable" means.

Quick and Hobbes- those that lost 800 millions- I dont' have any sympathy at all for- those or the most savvy and educated money managers in the nation- when they lose, they lost with eyes wide open, A homeowner is not that educated. Most are at a bit of mercy of the realestate agent and mortgage lender- and those two are very "hand in glove" with each other- most homeowners are just lucky about how honest most of them are. Very honest in fact, I have always been impressed about how well the industry has done in this area- but it also makes sense- most realestate agents operate on word of mouth advertising as thier biggest marketing device.

what the excuse is this: It is easier to help the bear sterns than the victims.

That is what bothers me a-plenty.

Okay- if this is not a "bailout" but a "loan guaruntee"- why not do the exact same for, oh, every home owner in the US?

Bear STerns and JP was able to do the "buy out" for 2 dollars on a 30 dollar share. Very easy to calculate- a 300k dollar home can be financed at 20 thousand to pay of the lender. That is all the lender has a right too- the 20 grand- they wil have to eat the other 280k.

It shouldn't. This helped prevent a major economic disaster which would have had profound impact on our whole economy.



If you have so much sympathy for all these homeowners, I'm curious why you're so against this action which helped avert a major economic crisis that probably saved a lot of them (and us) their jobs, and certainly would have made it much more difficult for them to pay their current mortgage or get another one?

because it may be "rare" but it is every so many years Hobbes. I find it kind of interesting that those that are so very, very against "entitlement" programs or help for the TRULY needy are okay with huge sums paid to bailout industry or company after company. We have had, in the last 20 years, a bailout of the S&Ls (though that was directly Reagan's fault as well), airline industry (oops, Reagan again), Enron (at least we have to pay alot for it, even if it isn't technically a "bailout") and financial houses again.

yet- what consequences are given to those that make the decisions that make these institutions fail?

None really- they won't lose thier only home, they won't be anywhere near poor, they lose really nothing, except for perhaps even greater wealth.

One of the big parts of a capitalist system is consequences due to failure- the only people not affected in our system is the big business owners- they come out rich as ever. You lose in business as a small business owner- the consequences are enormous- perhaps even deadly, as these kinds of stresses can cause you to freakn' have a heart attack and die.

The bail out is really fascism- big business and goverment working hand in glove.

Like Fargo says- when we help the little guy, it is derided as "socialism"- but have no problem bailing out big business that absolutely have no excuses for thier bad decision making.

But this subject really does highlight one thing: The conservative habit of blaming the most powerless in society for societies' problems, while giving the most powerful and rich a "pass", and really don't have a problem with them, and really don't deride them like they do the much less powerful in our society.

Again, CR, I hear where you're coming from but I think you're missing part of the picture. Bear Stearns wasn't bailed out to get some individual company out of a crisis...it was done to prevent that crisis from expanding and affecting all of us in a very bad way. This DOES help all the 'little guys' out.



Well, in this case they lost millions of dollars each, their company, and almost certainly their jobs. Considering that they did nothing criminal at all, in fact not even necessarily anything wrong, that's a pretty stiff penalty (which I am fine with, btw...they should lose all that in this case).



So, you'd prefer they just let the whole financial system fail, throwing us all into a depression? What is the backbone of a capitalist system? The financial markets. If that fails, it all goes to heck. Again, I'm not sure why you're so gung ho about all of us losing our jobs here.



Who's blaming the powerless here? Also, if you're so in defense of the 'powerless', then why are you so against an action taken that prevents most of them from feeling a great deal of pain?

Hmm, let me put it this way- the "sanctions" for failing on a home loan for an average homeowner- let's say, anyone and everyone on this board and in between we will define as "average"- so we don't get into semantics about what "rich" is -

look at what the consequences for failure are hobbes- you lose your house, that is like losing a family member. Very hard. May never recover from it completely. It is an integrel part of human "needs"- food, shelter and so on.

The executives at Bear Sterns- you seriously think they lose as much as an average person does when they lose a home? Or what about failure in business- failure in business can mean your home as well- depending on how much you risked to build your capital. Well, when an "average" person managed badly, and risked heavily- they ususally lose everything they own, and barely enough to keep alive in this country.

Bear and Sterns execs suffer no such risk.

On top of that- the entire "collapse" you are talking about is based on bad sub-prime loans. Okay- if there is no housing crisis- there is NO crisis.

It is losses associated with homeloans that cause most of the big ones anyway- right> Runs on banks, and all that?

So, why not extend the same low interest for pennies on the dollar of the value of our houses Hobbes?

Wouldn't that have a double positive on the economy hobbes? You would free up massive amounts of disposable income, so you would probably have to worry about inflation. Also- with inflation, savings is sometimes a natural reflex to more disposable income for value of "recreational" spend it now stuff. Investing makes sense.

So why not pump that money directly to the middle class of America, on the same large scale or larger- say- equal to the iraq war- 12bn a month until everyone in America has a house?

Or is that too socialist?

I think propping up the base of the crisis is better than bailing out the upper part of the crisis.

First, remember that much of what you are talking about is in fact being pushed by the administration.

Second, as I said in my first post, it is far far easier to negotiate a course of action with one company than it is millions of individual homeowners. Given that immediate action was needed, the latter course of action was simply not feasible.

Also, when you talk about pumping this money into the consumer end of the marker, keep in mind that no actual money has changed hands yet. It doesn't do much good to send out millions of checks for $0. Nor is it really feasible for the government to guarantee all those loans individually, either. What would then keep all those homeowners from defaulting on purpose? You give them a chance to get a free house AND have a lot more cash in their pocket, lots of them would probably take it. In fact, they'd be stupid not to.

I would say EXACTLY the same thing about a failing corporation, and give the S&Ls as an example- we bailed out banks, the S&Ls, and lots of folks took the money and ran. Our former governer was one of the "Frank The Bank" Murkowski.

Defaulting on a home loan, or walking away from a home, is usually done under great durress- simply because it is the most important purchase most people make in thier lifetime.

If there is a restriction time limit on re-sale of the house after taking gov't money for the refinance- I don't think you would have any home mortgage failures at all- or so low a percentage it doesn't matter.

As much as I enjoy this foot-stomping, "it isn't fair dammit" exchange, I need to interject. CR, you know me. You know that I am not a corporatist or a fascist. So listen to me when I tell you that your analysis of the current financial troubles is desperately wrong. Really.

If you went back in time and retroactively propped up the hundreds of thousands of bad loans then yes, you might be able to stave off or delay the current troubles, but the cat is out of the bag. What is plaguing the world Economy is not a mortgage crisis, it is a credit crisis. The financial industry has been playing Jenga with securities and debts. Sub-prime Mortgages just happened to be the last block they pulled from the foundation.

Global credit markets are being restructured (read "shrinking") as institutions lose confidence in their debts and assets, manipulations are exposed, and paper value is reconciled with book value... and restoring bad mortgages won't undo any of that.

While this is true it does need mentioning the credit contraction is not being handled evenly between all banks. The national banks are being bailed out with public money but the commercial mom and pop banks have no such safety net. The national banks deal with hedge funds, derivaties, and restructured mortgages. The commercial banks deal with the public. They are the front line to the public.

The only way for the smaller banks to return capital on a failed investment is to tighten credit lending standards and plead with Bernanke to up the rates. He usually does the opposite. Inter bank LIBOR trading rates between banks have dropped as they do not want to assume another bank's risk. The result is as you said a contraction. The difference is this, if your local bank suffers a credit contraction, they must accept the loss. If a national bank makes a bad investment, liquidity will be injected to overcome the loss and devalue the dollar. If the dollar drops too much on any one day any international holding of mortgage debt, and all asset backed commercial paper suffers a flight from investment. While the flight of capital affects both banks, the smaller banks have the error compounded with the Libor rate.

There are a couple of reasons why this is handled differently. One is that it is the bigger banks that essentially ARE the financial backbone...a crisis at any one of them is a crisis for the system. That simply isn't the case for the 'consumer' banks. Also, this flight of capital affects banks like Bear Stearns much more than the smaller banks, because it is that very capital that they work with. So, if confidence is lost in them, they get no capital, and they fail. Also, they way these institutional banks work with the capital is by leveraging it and packaging it. That leveraging increases the impact of any fluctuations many fold--much more so than the compounding with the LIBOR rate you mention. One could argue that Bear Stearns shouldn't have leveraged their assets so much, and they'd be right. But, they have paid the price for that...they have failed, and are being bought out, with their execs all losing millions of dollars. So, the issue then is to prevent that failure from cascading throughout our financial system. The 'bailout' seems to have succeeded in doing that, and we are all benefiting from it.

I disagree. The leveraging may have caused the problem but there is a more forgiving attitude at the high level. Bear Stearns was not unusual among the investment banks. Their leveraging was no larger and their tactics were no more aggressive than the policies of their peers. The lesson learned was that if it could happen to Bear Stearns leverage contraction could happen to anyone. Right now luck has more to do with staying afloat than good policy.

This could happen to anyone and I mean globally, a loss in one country could sink an investment bank in another country through interbank trades. Minimizing the chances of a chain reaction is the purpose of fast no-questions-asked bailouts. This provides some measure of maneuverability the smaller banks simply will not have. As a result we will see a bigger change in policy conduct at the local level than at the national level and the change will not be to most peoples' liking.

Hobbes- lets discuss a financial meltdown then, and it's mechanism.

most of the big, really bad, financial meltdowns, that actually harmed the economy, long term, were really the failure of homeowners to pay for thier homes, and the eviction and loss of jobs that ripple from that meltdown.

The great depression, folks "bet the farm" on the stock market. they lost thier home, and the ripple went through the nation, and the globe. There are lots of other reasons, sure, but it is basically prefaced on a housing/land crisis.

The complete financial meltdown you are talking about will not happen, in any meaningful way, that would have long lasting bad effects on the economy as a whole, without a housing crisis- in fact, it would be healthy at this point for the big financial insitutions to "correct' thier "exuberance" at this point. Consumer confidence would not be hurt, and would probably "cure" any ills by the failures of the big houses.

And really Hobbes- do you REALLY think these guys have paid a price for thier behaviors and bad decisions?

I mean, they ARE still rich, correct?

When execs start jumping on wall street, THEN we are on the right track, and not until. I think it is very,very good thing when wall street execs start killing themselves over thier decisions, and we need to tie financial decisions to total financial ruin, NOT to have them still come out rich!

That is why I support a LOAN to home owners on the same terms and de-valueing of mortgage as we have for bear-sterns for the average homeowner. I would deny it to anyone with an SEC license for running a publically traded company.

I tend to agree but as Hobbs has pointed out the Bear Sterns “cover assets” help probably saved other banks from being pulled into their mess. They are gone in any case and will likely be sued into oblivion for their irresponsible behavior.

As for the “homeowners” – some of them, the ones who actually can pay a little more if need be (although with the prime down this may be a moot point), should be helped. The folks who bought to “flip” and others who bought only because it was cheaper then apartment rent – should not be bailed out.

The appraisers who were giving the inflated values should be prosecuted if possible. They were part of the problem.

Boy- appraising of homes- what a wierd thing in our society. I mean- really, how do you honestly appraise a house- it always seems to magically be what it needs to be for the bank to finance a loan on that house- based on the "comps" of houses around them- which, may or may not be inflated in price as well- an appraiser can't help but go by comps in the nieghborhood- so how does an appraisor, say 'okay, the entire market is valued too high"- who is he to make that judgement? He can believe it until the days end- but really, in the end, he can only go by the comps.

Another 100 billion in bail outs provided for the banking industry- but not homeonwers:
http://news.yahoo.com/s/ap/20080328/ap_on_...d_credit_crisis

Once again- let the banks fail, just pay for the homeowners homes instead, let the banks die. Won't be a crisis if folks ain't losin' thier homes!

And to show how very little the execs have to "pay" for thier decisions-

http://news.yahoo.com/s/nm/20080328/bs_nm/..._6CsKif0V9v24cA

Dude almost got another plum job with JP morgan.

The government is corrupt and government officials take contributions from multinational corporations. Individuals don't have much money compared to corporations so government officials don't care.

Well lets remember that those “corporations” employ 10s of thousands of Americans – and pay big taxes to boot. They get help with “loans’ they need to pay back – usually not handouts – as in welfare.