Open Thread: What's Going On Out There?

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A tent city outside Reno, Nev., June 25. Scott Sady/AP Photo hide caption

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In the midst of the ongoing financial crisis, news has tended to fall into two camps. First, there's the question of what's happening — who's winning, who's losing, and what's going to happen to my 401(k).

The latest is that Congress and federal officials are moving toward a super-bailout of the financial industry. The idea is to stop the piecemeal rescuing of troubled lenders with a new plan, one that would have the government buy up billions in bad loans. By some estimates, the plan could require $1 trillion.

No one yet knows whether that money would come out of taxypayers' pockets, per se. Any bailout is confoundingly complex; these ones haven't even developed fully yet. Regulators and lawmakers are worried that without intervention, the entire financial system could collapse. But the proposed rescue wouldn't necessarily drain the public coffers. In the case of the $85 billion loan to AIG, for example, the public stands some chance of turning a profit off the 11 percent interest rate and its 80 percent stake in the company. The proposed bailout could come with a similar silver lining. We just don't know yet.

Certainly, the news is big — you knew that, right? — and it's scary, because everyone involved is still sorting through the implications (but you knew that, too).

Which brings us to the second question, namely how we all feel about what's going on. The Boston Globe today brings us this headline: "In Hard Times, Nation Sees Surge in Tent Encampments."

And yes, it does appear that more people are being driven to sleeping in the sparse and sodden. Most of us, though, aren't asking where we'll sleep tonight so much as how the Wall Street bankers and regulators are sleeping at all. Some of you want to blame President Bush. Some of you are glad to see the government tackling the crisis "head on," as one commenter wrote. And a lot of you, a lot, want to know whether anyone is looking out for the interests of ordinary people.

"Does our economy or the capitalist 'doctrine' have any room to simply look out for the little guy?" Teresa wrote. "Do the extensive measures to save these companies really seek to save all of us, because I feel very far removed from their connection to my personal economy?"

Your turn's in the comments. Stick with this. It's worth understanding, even if it takes a while.

Comments

 

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Why does SEC Chairman Cox still have a job?

Sent by Nancy | 10:54 AM | 9-19-2008

the fact of the matter is that this is a simple case of trickle-down economics. Very few people can purchase a $120,000 home up front. This requires banks, creditors and insurance, e.g. AIG, LEHMQ, etc. Without this banking infrastructure, no one in America would be able to purchase a new home.
1.for those who are ALREADY in a mortgage and cannot afford it, they will lose their homes
2. For those who are already in a mortgage and CAN afford their home, I am not really sure what would happen.

These are actions intended to benefit ALL Americans. Whether this benefits us all EQUALLY is another issue (which I assume the companies get 10x more benefit than you or I)

Sent by Robert Palson | 11:44 AM | 9-19-2008

This fear is strange because it seems that, by and large, this won't directly affect the "little guy," the person just working at their day job, making a steady income, with a 401(k), with investments in their bank -- for the most part, everything looks fine for these people, from what I can tell.

The bigger question is for two or three generations down the line, but even that's not clear-cut. This "moment of economic weakness" may result in a bigger tax burden for the US citizens at some later point, but that's hardly assured at this later date.

Aside from making our nation a little more socialist, at least for a time, this doesn't seem to be affecting the "little guy" at all. The systems already in place for watching out for them are working, mostly, as intended, and even when they're being changed, there are still safeguards in place that are pretty strong.

Some people who made bad choices lost money for a bit. This isn't coming down on the heads of Soccer Mom Janes and Joe Six-Packs, it's coming down on investors and maybe the receptionists and mail clerks of Lehman Brothers. And maybe on our kids and grandkids.

Sent by Jacob | 11:44 AM | 9-19-2008

This whole situation is absolutely disgusting! The Bush administration and their corporate backers have squeezed the middle and working classes of this country since 2000, and now they get into trouble (due to their own greed) they get bailed out with taxpayer money?
Why not use the money reserved for paying corporate executives who mismanage then walk away with millions?These are the conditions that start rebellions!!

Sent by BSim | 11:52 AM | 9-19-2008

I'm with Teresa. I don't see me in this mix. I don't see me and my family getting a windfall if AIG recovers.

All I can see is big winners turning into big losers and wanting to be protected from the market.

It's like free market capitalism for wage earners and socialism for fat cats.

If we can find this money to bail out the wealthy instead of cleaning them out to pay for the losses, why can't we have full, universal, insurance-free health coverage? At the very least, working families forced into or near bankruptcy by medical bills deserve the same consideration for a bailout. Moreso because they're not in trouble because of their own decisions but because of outside circumstances.

Sent by HL | 12:12 PM | 9-19-2008

The underlying problem here is the economic policy called the trickle-down theory. Statistics show that the economy does better under Democratic administrations consistently in the last 1/2 century. Under Democratic administrations, the richer get richer, the poor get richer and the middle class grows. Under Republican administrations, the richer get richer, the poor get poorer, and the middle class shrinks. Take a look at "Unequal Democracy," by Larry M. Bartels. Furthermore, it encourages the kinds of abuses that have led to our current mess, as well as the Savings and Loan scandal of the 1980's. It would be a shame if Americans bought the McCain line that the underlying problem here is corruption. It is not. It is the idea that unrestrained capitalism produces so much wealth that what trickles down is enough to make for a prosperous and stable economy.

Sent by Kate O'Malley | 12:12 PM | 9-19-2008

Where was SEC oversight during all of this? It wasn't just one person playing with those funny new mortgages, and it didn't happen over night. Where is all this bail out money coming from? With this bail out in combination with so many US dollars flowing to Iraq, how can anyone expect taxes not to skyrocket?

Sent by Patty Duffy | 12:27 PM | 9-19-2008

THIS IS BS! The Republicans love bailing out business and financing it with NATIONAL DEBT, offsetting the problem to Democrats so that they can say they're not raising taxes. MCCAIN says he'll spend on crisis, war, economy stimulus, and everything else that will get him elected. BUT HOW WILL HE PAY FOR IT?! THERE'S NO POINT TO PAYING TAXES ANYMORE.

Sent by tom | 12:31 PM | 9-19-2008

I'd like to offer another source of info to this discussion. Op-ed from the 9/15/08, page A23, Arthur Laffer and Stephan Moore, WSJ. The article sights census bureau data suggesting that from 1983 to 2005 the lowest quartile saw a 25% increase in their standard of living, measured by after tax real comprehensive household income. Parsing this, 10% rise during Reagan and 11% during Clinton. Of course the article goes on with additional info on taxation and income for all fractional brackets. I respectfully challenge that historically, one party is more financially beneficial than another to the income groups. I'm certain there is a lot more data on this subject and I'll wait for a comprehensive discussion before conceding my challenge.

Sent by robert | 12:44 PM | 9-19-2008

If, at the end of the day, the American taxpayer is going to be funding the AIG bailout, can the government retain principal ownership of the company and extend insurance to all taxpayers? It seems like a natural segueway into a sort of insurance-backed nationalized health care system. It sounds like they are just planning to sell it back a piece at a time, either to the company or to other interests. Is my understanding too simplistic?

Sent by Elizabeth | 12:45 PM | 9-19-2008

You may feel far removed, but it already has affected many "little people" in the form of rising unemployment. Also, if you were planning on retirement in the next year or two, that may not look so feasible. If you're a little person like myself and ready to take the next step in your career, depending on your industry, that may not be happening either.

But ultimately, I think there has to be room in capitalism to look out for the little guy. Capitalism can't work without someone buying these products and services businesses are selling.

Sent by Melissa | 12:47 PM | 9-19-2008

I'm concerned about the long term implications of this "plan" to bail out the banks. Of course the administration has their own agenda. Where is this bail out money ultimately going to come from? My concern is that it's going to come out of the pockets of the taxpayers.

Sent by Carolina Davis | 12:55 PM | 9-19-2008

I'm a strong supporter of Obama and the democratic party, but I think the democrats in Congress have generally not fought to provide adequate protective regulation for the financial sector. But imprudent financial practices, overuse of credit, profligate consumption and energy use, and a get-rich-quick mentality are a part of our entire culture from the bottom to the top. Most of us are not responsible for what's happening on Wall Street, but many do have very high material expectations--big car, big house, spending without planning or saving, etc.--that have fed into the crisis. And our lack of willingness to invest in collective solutions for things we all need such as health care, education and public transport leaves us always having to earn more in order to ensure our own personal security in an increasingly unstable economy. We need to get off the Ferris wheel and come down to earth.

Sent by Carolyn Prescott | 1:03 PM | 9-19-2008

I can only hope this is not another tactic to divert tax payer money to cronies, just like the Iraq war. If at all you wanted to help out, why not help the small guy pay his mortgage? You would have never had this problem in the first place!

Sent by Vinny | 2:34 PM | 9-19-2008

Where was SEC oversight during all of this?
Sent by Patty Duffy | 12:27 PM ET | 09-19-2008

I suggest you ask John McCain about that.

SEC Oversight is also called Regulation, as in, "what exactly are you up to? Oh, no no no! You can't do that, that's evil and insane!"

McCain has fought, for his entire political career, for DEregulation, as in "I am not really sure what you're up to over there, but I'm not going to make you tell me because that would take time away from all that money-makin' you got going! Have at!"

Now, suddenly, McCain is deeply offended by the head of the SEC who failed to exercise his Oversight, aka, (say it with me, kids) Regulation! The very thing he's been busily legislating against! I'd say he's passing the buck, but we don't actually have any of those left, now do we?

This situation is the direct result of the Bush administration's financial policies, which McCain has supported all the way. He's scrambling right now because it's patently obvious to anyone paying attention that this mess was CAUSED by Deregulation.

Seriously, people, is this the right man for the job? NOW? I'm thinking... no. So if you don't like Obama, you have my permission to write in our dog, Cooper. At the very least, he knows you don't poop where you eat.

Sent by DB | 2:37 PM | 9-19-2008

The FED, Fractional Reserve banking and getting off the gold standard are the root cause to this nightmare. Thanks a greed JP Morgan and a wippy President Wilson.

Sent by rob | 2:45 PM | 9-19-2008

Congress must insist that we (the taxpayer) get a 20% equity stake in any company that sells illiquid assets to the new RTC-like entity. When that company returns to profitability, taxpayers would be repaid their investment, but could also turn a profit by selling the 20% equity stake. It seems only fair that we benefit from the longer-term success of the balied out company.

Sent by Greg from Walnut Creek | 3:37 PM | 9-19-2008

Why don't they just payoff everybodys mortgage. That would give everybody some equity in this deal.

Sent by Tom | 4:07 PM | 9-19-2008

Capitalism is destructive by nature. Nothing can grow indefinitely. At some point it comes crashing down and will have to be re-invented and capital re-distributed. No industry is safe. I'm now reading that the next great paradigm shift will come from 'green' technology. I'm afraid the 'little guy' is going to have to adapt. Even in my industry I can see a trend towards hiring personnel with more than a baccalaureate degree. The return of manufacturing would need the support of consumers for a 'buy American' campaign, or transportation costs increases that justify local manufacturing, or our standard of living would need to decline to levels below our global competitors. Education and innovation will be our salvation. Sorry, we are going to have to learn more and work harder.

Sent by robert | 4:45 PM | 9-19-2008

I think that we should buy MBS's at a steep discount and make money out of this. It also makes sense for us to limit the guaranteeing of MBS's issued by Fannie & Freddie to 80% of the prinicple. This would encourage diligence on the part of the buyers and guard taxpayers against being the suckers. This could lead to the gov't getting out of the mortgage business. We might want to regualte CDS ( credit default swaps) to be writtne for a max of 80-90% of principle, this would limit banks ability to use the securities for reserves. And limit their ability to disguise leverage and risk. We also need some mechanism that will address the actual mortgages/mortgagees rather than the securitization/illiquidty crisis. This should not be a bailout of borrowers at tax payer's expense. include with these an accross the board eqalization of tax rates for interest-dividends and capital gains (maybe at 20%) as the argument that encouraging the investment and financial part of the economy is an unalloyed public good!

Sent by will morgenroth | 5:02 PM | 9-19-2008

Who actually hold the mortgage paper? Since not all mortgage loans are in insolvency why can't they just add up the non performing mortgae loans (over 90 days in default)from all the banks and come up with a number that the tax payers can bail out. Why should tax payers pay for individual bets like SIV's, CDO's, other mortgage backed securites/derivatives/credit swaps. All this bail out does is pay off all the bets the fat cats on Wall Street especially the one one investment bank that owns the US - Goldman Sachs. Also what about similar bets place on credit card debt, student loans etc?

Sent by Jordan Smith | 5:18 PM | 9-19-2008

I think everyone should get a second chance, if the Gov.can loan billions dollars to companies, then why cant people with bad credit get a second chance .Hell I make good money but cant buy a dam thing on credit All my family wants is a home of there own but no one will give me a second chance

Sent by RICHARD SELF | 5:26 PM | 9-19-2008

Is the Housing Crisis the root cause of the current credit collapse? I seem to remember several articles in the Wall Street Journal, over the past 2 years, stating that excess consumer debt would lead to a credit crisis like we are currently experiencing? Should hundreds of billions be spent on the housing industry, when it is NOT the root cause of the credit crisis.
Bush swallowed a horse to catch a cow, i don't know how he...

Sent by Charles Crandall | 5:43 PM | 9-19-2008

Bail out??? Where are the checks and balance to keep this from happening. Who is charged with watching these people? Where is the accountability?
How is it that a CEO can leave companies is such financial straights and leave with multi million dollar severance pay? I heard the "Dan Mudd, the CEO of Fannie Mae, is getting $9.3 million of severance for destroying his company. Richard Syron, the CEO of Freddie Mac, is getting $14.1 million--in part because of a clause he added to his employment contract two months ago, when it was clear the company was headed for disaster as stated by THE BUISNESS SHEET 9/7/08"
Why aren't they having to pay penalties? I pay penalties and taxesevery time I turn around. A sizable portion of each paycheck goes to the federal government and they are putting this very money into the pockets of mega millionaires while I struggle to pay my bills. I was not asked if I wanted to contribute to this cause. This is not democracy, this is greed.
Reports of financial disaster is a constant on the news for years. The savings and loan bail out was not lesson enough. Where is the accountability? What will this bail out do to keep this from ever happening again? Can we afford to put good money after bad.
I admit I am no financial wizard and I cannot begin to understand this overwhelming situation. I count on those with the skill and knowledge to work in our interest. Just like Mr. Mudd and Mr. Syron expect of me at my work.
I, for one, do not want one cent of my tax money in the pockets of Mr. Mudd or Mr. Syron or Martin J. Sullivan of AIG. Before the government gives one dime to AIG Mr. Sullivan should be required to apply his $47 Million severance package to AIG's bail out.
Will my voice be heard in this the great United States of America?

Sent by Nancy Park | 5:57 PM | 9-19-2008

If the government were a business they would have declared bankruptcy long ago. This notion of spending far more than is brought in has been in place for a couple of generations now. The problem has been exasperated by ever increasing expenditures and continued reductions in revenues (tax cuts) - the only possible result if a very large deficient. Unfortunately the American people also adopted this same financial philosophy by buying and spending much more that is prudent. All funded by absurd amounts of borrowing. For many the notion of financial prudence is an alien idea.
Don't be fooled, this financial crisis will impact every facet of society. The mortgage crisis was driven by bank executives who purposefully ignored time-tested underwriting rules to expand the availability of loans to a larger segment of the population. This resulted in many homes being purchased/built that never should have. Many refrigerators, cars, sets of furniture and tuition to private schools were paid for using home equity that should have never existed. All this spending of "unearned money" created artificial demand for vacations, BMWs, and tech goodies that should have never been there in the first place. Much business expansion and whole industries were created to support this seemingly never ending demand. As the source of all this unearned cash has now dried up one can only suspect that demand for non-essential things will be substantially reduced. This can only lead to business contraction in those effected industries. These businesses will have less cash to buy technology, lease buildings and employ people. Maybe it wasn't such a good idea to offer tax incentives to send job overseas after all.
Don't get me wrong, credit and the ability to borrow money has bought good economic growth for our country. Consider for a moment that you own a furniture store. If everyone had to pay you in cash for every purchase your sales would be pretty limited. If you were to allow financially qualified people to make installment payments on their purchases you increase your sales by expanding the pool of those who can afford to buy your furniture. This concept works just fine as long as the store owner doesn't get greedy by providing credit to people who have no ability to repay and shouldn't be buying furniture to begin with.
In hindsight one of the worse things we ever did was "outsource" the responsibility of determining who should get credit to a third-party. Return to the furniture store example for a second. Let's say the owner of the store is the one providing credit for customer purchases. Because he faces the prospect of losing a lot of money if people don't pay him back, he's going to be very careful who he extends credit to. When you relieve him of this responsibility - let the customer pay with a credit card - he no longer cares who he sells to, it's now the credit card issuer's problem if the customer doesn't pay. We did this same thing with banks as not so long ago they retained the loans they wrote on their own books. If they made bad loans their earnings suffered because people didn't pay them back. Banks had a lot of incentive to be very prudent about who got credit. Not too long ago banks found a way to get these loans off their balance sheets by selling them to investors. Originally this seemed to work well because prudent underwriting standards were still in existence. Unfortunately like most things this took on a life of its own. Banks started hiring sales and marketing types who were more interested in selling more loans than prudent underwriting standards. As the banks no longer had skin in the game the floodgates were open to push sales of credit to heights never seen. This is why every red blooded American has a wad of credit cards, a mortgage and line of credit. You know the rest of the story.
The double whammy of outsourced jobs and reduced spending as consumers are forced to spend less will be a drag on our economy for awhile. No one know for how long and anyone who tells you they do know is suspect. As with most things in life the way out of this mess is right there in front of us. We have to have courage and a spirit of sacrifice to get there. However, it will be like dieting (for most the reality is simple-eat less, exercise more) but, few have the will to be successful. The courage I speak of is the need to innovate, create and build things people truly need. There are so many problems that need to be solved and there often big rewards for those who solve them. There are also big sacrifices that need to be made; we can't continue spending without regard to how big a bar tab we're running up. While it's great to cheer our favorite political candidate at a stump speech, perhaps now is not the time to support any kind of spending that plunges us further into debt. It takes courage to say "no that's a nice to have and I'll get one when I have the money." We can't expect of others what we won't do ourselves. Each person is going to have to determine how to best live within his/her means. Perhaps a Sunday afternoon BBQ in the backyard with family is not so bad after all, even if you can to cancel your vacation plans. For most living within our means will translate to reduce consumption of resources which at this point in time cannot be a bad thing.

Sent by Yoda | 1:36 AM | 9-20-2008

This bailout sounds like "trickle down" on steroids. It seems the govt. proposes to give good money for bad debt thus clearing the books of the current holders and people they owe money to so that they can continueing their poor buisiness practices and maybe use the the money to solve the cash flow problems of both. Both buisnesses can then continue doing buisiness which in turn will allow them to pay salaries, creditors etc which will redistribute A SMALL PORTION of the bailout money back to the govt/taxpayer. All this to avoid an economic contraction. What does govt. think will happen to the economy when its entire tax base is hit up for a trillion dollars to finance the scheme?

A better solution for fixing cash flow problems of innocent buisnesses in the supply chain is the bankrupcy code which allows buisnesses with long term prospects to relieve their current cash flow problems if they can convince their creditors and a bankrupcy judge that they are not idiots who just sold a plasma TV to a recently homeless man who just bought a condo with a toxic loan.
This method also allows the direct, but partial, compensation of creditors from the assets of the debtor companies who can't continue doing buisiness. (without creating a reloution trust type agency to administer it).

Sent by Bill applegate | 8:36 AM | 9-21-2008

If the reason for the need to assist/ make liquid or "bail out" our nations financial institutions is in whole or large part due to suspect housing market loans;then I suggest that instead of loaning money to the financial institutions who put us in this mess,we instead pay off everyone's home loan(principle only as total payment to lender.)
If we loan or give money to the financial institutions the same people who are "loaning" the money (John Q. Public) will be forced to pay back loans they already can not afford (plus intrest) on top of being out their 700,000,000,000.
on the other hand when you pay off all of their loans they will have all kinds of extra money to spend (that "otta" stimulate the economy)thus as a result the financial people will once again be solvent.
I know that "The Banks" want the inerest they bargained for butit seems far better to at least get back their original investment with whatever intrest they might haave already earned that to bankrupt the country for the gain of the very few.
Doing this would also make the taxpayers feel as though they got something out of the deal; and it would not cost a penny more than what is currently being proposed.
People not currently owing on a home may feel slighted, however you may compensate them by not requiring them to pay taxes on next years income.
Dear Mr. Taxpayer, if you give me 700,000,000,000 I will be able to continue to collect your mortgage payment Intrest included from you.
I know that many other factors are involved in the loan market systemthan just housing. But that is the one they keep complaining about.
These guy's mad their bed and if they have to eat a little interest to make everything all right then so be it.
Many other ideas,concepts,formula,principles and practices will be factored into a policy like this; but I believe this in whole what need be done.
To all who read this Please forward up line as soon as possible Feel free to or add input as it passes over your desk. (By the way my home is paid for)

Sent by Michael Gravitt | 1:48 PM | 9-27-2008

The U. S. Census of 2005 showed there to be almost three hundred and two million people here. Let's say we have continued to propagate, and the current population is now around three hundred and fifty-million people living in the United States. That would be every man, woman and child. I don't know how you'd count the trans-genders, but let's just say they're in there somewhere. If you divide seven hundred billion by three hundred and fifty-million, you get, what? ... $2,000.00 each of us? Screw Wall Street. Gimmie my money!

Sent by Pat Jones | 3:52 PM | 9-28-2008