Adam and I are planning to answer another round of listener questions for a podcast today. Send 'em over. We'll do our best.
Yesterday's answers.
Planet Money Blog
How does PEAK OIL Apocalypse fit into our financial collapse? Isn't the dollar tied to oil and cheap energy?
It seems like we've had economic bubbles since the last tech boom. (The Tech Stock Bubble, the home value bubble, etc.) Has the economy always been so bubble based? And what's the next sector vulnerable to this sort of thing.
I've noticed that so far today the markets (at least here in the US) are holding relatively steady - even gaining a bit. What "good news" is this being based on? Is there a silver lining or happy ending somewhere that I'm not aware of?
How are these mergers and acquisitions helping the situation and how will these acquisitions change the landscape in the future? Won't there just be fewer, larger companies that are "too big to fail" or is this a good thing for market stability?
What can the federal gov't actually do to stabilize the financial market in the short term?
What do you think of returning the highest income tax rate to 91% a la the 1950's and 1960's. It seems to me that that would remove the temptation create wildly ruinous investment products like "toxic waste."
Could you expand on your answer to the question by the woman who was considering investing in CD's at Washington Mutual. While the principal amount should be safe if WAMU fails, it's my understanding that the FDIC often decreases CD interest rates since failing banks often offer above market rates as they desperately try raise capital.
My 82-year-old dad used to work for E.F. Hutton as an Account Executive, and he currently receives his pension check from Lehman Brothers. Will he keep getting his pension checks?
I am 32 and have been working in working in non-profit administration for since earning my Bachelor's. I've recently concluded that a Master's Degree is needed to significantly increase my my career opportunities and my earning power. Given the current economic climate, however, I am worried that I will accumulate a significant amount more debt only to find myself in a recession/depression economy with few opportunities in the non-profit sector. Any thoughts?
Please show me when a tax cut has ever increased tax revenue, without a major increase in government spending. I do not know of any such occurrence.
Insuring these failing institutions?
What about potential class action suits by shareholders of Fannie, Freddie, Lehman, Merrill, AIG? My understanding is a lawsuit against the CEO/BOD for losses would be paid by an insurance company which the BOD has for just such a purpose. Is this true? How can an insurance company cover all these potential suits? Will this lead to failure on the part of insurance companies?
Thanks.
Blogger mikesell:
See this for evidence that tax cuts increase revenue. There's plenty of it if you do just a bit of homework.
Since Henry Blodgett was convicted of being a serial liar to tech shareholders, why -
#1 - would I believe anything he says?
#2 - would you pay him for the honor?
Hello,
The econo-naut on the 9/16 show said that AIG failing would be a very bad thing due to some obscure bank insurance that they offer (and can't apparently pay out). This seems like just a back-door way to bail out the banks who got too greedy. Is the money that AIG can't cover related to the mortgage mess (or should I say mortgage pyramid scheme)?
re: whether or not tax cuts increase revenue
I did a "bit" of homework and found "evidence" that tax cuts DON'T increase revenue.
According to FactCheck.org, "A slew of government economists--from the Congressional Budget Office, the Treasury Department, the Joint Committee on Taxation and the White House's Council of Economic Advisers--all disagreed with that theory, saying that tax cuts may spur economic growth but they lead to revenues that are lower than they would have been if the cuts hadn't been enacted." (Source: http://www.factcheck.org/askfactcheck/have_tax_cuts_always_resulted_in_higher.html
Given the crisis with AIG , what is the risk of problems with other insurance companies that the consumer may be invested with?
This is a question. Is there any validity in buying AIG or Lehmans now that they are so low? Do stockholders loss everything when a company goes bankrupt, or can these stock/companies recover. My thought is that if I have, say $1k that I didn't need, would this be a hugh opportunity to purchase what used to be, and may someday again be 50-70k worth of stock. I'm not seeking specific advice, but as a general rule, is it valid to think that a company like Lehmans, for Freddie ext, after a takeover or going bankrupt, will ever recover?
What about the safety of the SIPC?
What if several brokerages go under, would that be a drain on the resources of the SIPC?
How bad would it really be if the government did nothing? Are we all so reliant on banks (both as companies and as individuals) that it would completely destroy the economy? Is anyone benefiting from this crisis?
Would our government money have been better spent helping those that were defaulting on risky subprime morgages than in the aftermath of failing banks?
I am most interested in the effects of economic manipulation presented by political pandering to the common citizen. To what extent are capital gains rate reductions and the Clinton real estate capital gains exemptions responsible for our problems. If the temptation of too much investment money has led to the mortgage problem, then why have we needed to keep CG taxes so low? When we reward people handsomely for speculating in second homes, should we be surprised when we get a bubble? Hasn't the constant adjustment of interest rates by the Fed led to the economic equivalent of the pampered child? Instead of numerous band aids, we wind up in intensive care further down the road.
I've been listening to NPR for decades now and I could probably drown in a half inch of economic theory.
Comment:
A couple of things appear clear to me these days.
First, that there is scant difference between the republican and democrats policies and second that the US is no closer to "pure" capitalism than China is or the former USSR was to "pure" communism. It looks like the taxpayer will again be picking up the tab for cleaning up after the overly greedy. Ample corporate and personal market gains are expected but in the end the risks are likely to be socialized.
Question:
Like millions of others, in spite of myself my ear was caught earlier in the current presidential campaign by what Ron Paul had to say on US economic policy in general and in particular the role the FED plays in creating inflation by printing money out of thin air. Though this subject now appears forbidden to the media (including NPR) and remaining candidates, Paul's predictions of dire consequences appear to be born out by current events.
Rather than accept or discard Paul's assertions out of hand, my wife and I set out months ago to research the FED, it's creation and effects on inflation ourselves.
Setting aside questions about who runs the FED and how it came into being, I'll limit my question to the FED's effects on inflation and what it means for the US economy. We wondered if the inflation we've had under the Fed has always been a fact of life.
This brought us to three websites:
http://oregonstate.edu/cla/polisci/faculty-research/sahr/sahr.htm
http://www.westegg.com/inflation/
http://www.inflationdata.com/inflation/default.asp
It seems that $100 in 1800 would buy the same amount as could be had for under $50 in 1900 but it would take $2,461 in 2007 to buy what could be had in 1900 for $100! What accounts for this startling fact and it's effects??
Why is moral hazard used to blame the victims?
Why is the guy induced into a sub-prime loan that is certain to default the one to blame when those with nothing to lose are the ones getting the money.
The mortgage agent's commission, his boss's bonus, the CEO's million dollar bonus, the appraiser's fee, the brokers commission for packaging the loans, the investment bank's price for selling the credit default swap to make the bad paper good, the Wall Street brokers who earn commissions on all the trades, the bank and brokerage CEO's millions in bonuses, and more, all depend on making the loan to the guy who can't possibly afford it. If the moral action is taken, denying the loan, thousands in no risk "profit" is lost, while making the deal incurs zero risk to those making "earning" the "profit."
The home buyer who is in over his head has something at risk, his expectations, his time, his perhaps insufficient investment, his credit rating, so the person making the loan can easily explain to him every reason that he shouldn't get the loan: all the things that he has to lose. And if he were to provide full disclosure, he could tell the borrower that he makes a profit from making a bad loan, and earns nothing from denying a bad loan.
Is my money (savings, checking, CDs, Money market acct) any safer in a credit union than in a bank (like WAMU?)
One question and One Request...
Lax regulation and deregulation are being cited as major problems and partisans are pointing to different regulations, de-regulations (or failed efforts) as evidence of Republican or Democratic blame. Could you go through the various regulations/deregulations (including the apparently attempted efforts to regulate Fannie and Freddie) of relevance? [So far I have seen Glass/Steagel, Community Reinvestment Act, Gramm- something securities modernization, a failed attempt at reigning in Fannie and Freddie].
Also since billions and trillions are meaningless phrases to many of us - could someone rephrase the proposed bailout's magnitude in terms of individual taxpayers' share [similar to how the national debt is sometimes represented].
Thanks
When pundits describe the armageddon that is supposed to follow "doing nothing," they couch it in terms of high interest rates, which will make credit harder to get. Isn't easy credit what got us here in the first place? Shouldn't it be harder for us (both businesses and individuals) to obtain credit? I understand that high interest rates will impact both main street and wall stree. I also understand that high taxes to pay off this bailout will primarily pinch those of us in the increasingly beleaguered middle class. Regardless of the tax plan that is enacted, the wealthy have personal accountants and I have TurboTax. It seems to me that there is no permanent fix to this thing other than doing exactly what will happen if we do nothing - make credit harder to get.
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