Who's Really Buying Us a Bailout Now?

I wish the bailout terminology were more accurate for those of us non-economists who are trying to keep things straight. How can it be a "taxpayer bailout" when:

Whether you look backward or forward a couple of years, we are getting tax CUTS not tax hikes.

It would just make more sense if - at least periodically - they reminded us that this bailout is being brought to you by foreign creditors who are buying a trillion or so in new treasury bills.

At some point, it will be us taxpayers who pay back the loans to these creditors like China and at that point, we will owe them a chunk of interest in addition to the 1 - or is it 2 - trillion we've just borrowed over the past couple of months. Will these creditors ever get tired of buying our treasury bonds? Will they ever get surly and start breaking legs if we don't stay on a payback schedule?

McCain on Class Warfare

my favorite part of the 3rd debate:

McCain: "He wants to spread the wealth around... That means class warfare."

It's as if he was pointing and shouting, "Socialist, Socialist!" as though that's guaranteed to mobilize the US electorate against Obama.

Where does a $900+ billion dollar bailout charged to taxpayers score on the "commie-meter" compared to higher taxes on the richest 5% of Americans?

Maybe when the money goes to corporate America, it's not socialism....but every tax dollar that goes to health care and education for regular people, has got Karl Marx on the front of it.

Bailout Schmailout

I spoke to a friend of mine who is an economics professor at Stanford. He said that he crunched some numbers and that the $700 billion dollar bailout would come to a $9,000 bill to every household in the US. He said that the Savings and Loan "bailout" was structured as a loan to the banks and that the loans got repaid eventually with interest so we taxpayers did not end up losing money. He said his expertise is in employer/labor economics but in talking with his colleagues at Stanford, there was consensus that the "bailout" currently on the table was the wrong approach. He said that we have a good system for bankruptcy and we ought to let the banks declare bankruptcy and then work their way through the process. If that doesn't work, then there's time down the line for some kind of bailout.

Can't say I understand it very well. But I was very happy to sign a petition put out by Credo, my phone service, and write emails to Congress with their points - more a reflection of my outrage at the high-rollers than my knowledge of how to orchestrate the financial steps.

"1. If the taxpayers are shouldering the risk, the taxpayers should reap any eventual benefits. We accomplish this by giving the government an equity stake in every company we bail out proportionate to the amount we give them.
2. If we're paying (more than) our fair share, the CEOs and executives should have to, too. All of the fat cats who got us into this mess should relinquish their stock options and salaries until they start showing us, their investors, that they can once again be profitable. Future salaries should be linked to profitability.
3. No more campaign contributions from Wall Street executives and PACs. Taxpayer dollars should be used to get our nation out of a crisis. They cannot be used to fund giant, powerful lobby operations that will be used to strong arm Congress into making bad policy.
4. Better regulations start right now. Wall Street can't expect to take thousands of dollars out of your paycheck without agreeing to increased transparency and more stringent oversight - the kind that might have helped avoid this mess to begin with.
5. Bankruptcy judges get broader leeway to help homeowners. Why should we lose our homes so the CEOs can keep theirs?"

Calculated Risks

It's as predictable as water boiling at 212 degrees. Banks will put their quest for profits above any other concern - even the ability of their debt-holders to keep up with interest payments. Does it sound too moronic for any self respecting MBA? Not if your government will bail you out rather than risk a national economic meltdown.

In 1982, I was an intern on the PBS business series, "Enterprise," produced at WGBH-Boston. I did research and wrote narration for a particular episode about bank loans to Brazil. The producer interviewed very uncomfortable bankers from the likes of Citicorp and Citibank (before their merger) who had collectively made loans totaling many billions of dollars to Brazil (and other countries like Mexico) for enormous mining and hydroelectric projects that couldn't keep up with high interest payments. The banks preferred a few gigantic loans rather than numerous smaller loans that could benefit regions and small scaled local industries. They knew that countries like Brazil were falling way behind on payments, but seemed to be confident that between the Brazilian government and the US government, there would be bailouts when necessary (on the backs of the Brazilian population).

Now we have this latest scheme of banks (since the mid-90's) lending subprime mortgages to people unlikely to be able to keep up with ballooning payments. Apparently many of the banks sold the loans to more risk-taking financial institutions, without any concern about the inevitable foreclosures coming down the pike.

In between we had the massive Savings and Loan meltdown of the late 80's that came about when office construction was really hot and loans were given out to every guy with a hammer and a vertical sketch drawing.

In both of those debacles that federal money system came to the rescue of our economic system (though many S&L's went down).

I was taught in school that socialist systems are fundamentally flawed due to a lack of individual incentive as time goes on. I don't remember hearing that the capitalist system will inevitably lead to economic meltdowns due to reckless profiteering, unless the government saves the day (in a pretty socialist-style move). I guess you'd have to go to school in a place like Cuba to hear that lesson.