One Big Deal
While the details of the government bail out are still to be agreed upon, what is clear is that business as usual on Wall Street has been transformed. This hasn't happened to our financial system in a long time — nearly all experts agree that change of this magnitude hasn't occurred since the Great Depression, or maybe ever.
And it's not just about the estimated $700 billion that is needed to provide some sort of stability for failing financial institutions, or the significant changes to the regulatory system that will surely result. The proposed deal also transfers an incredible amount of power to the Treasury Secretary, without the allowance of judicial review — this is unheard of in financial legislation.
This morning's report from NPR explains why it's so significant.
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The Decline of U.S. Influence?
What does this mean in terms of geopolitics and U.S. power?
Has the U.S. lost all its credibility? The world is angry, that's for sure. So what are the repercussions?
Salaries
Is this bail out saving us or hurting us? I don't know. I think we'll know better in a few weeks but one thing that I think is ridiculous is that there is even a discussion at the White House about limiting salaries of CEO's from banks that not only drove their companies and properties into the ground, but our country. Limiting their salaries? These people should be contributing their salaries to pay off the national debt, instead of adding to it. It seems to me that the US government, rather, me, you and all tax payers, are paying for and rewarding CEO's for their mistakes. It just shouldn't be a discussion, or headline, just a matter of fact that when you cost the US taxpayer 700 billion dollars, your salary gets cut.
$700 Billion Bailout
In my own opinion, the $700 billion dollar bail out ultimately does not solve the problem. This "solution" actually does not solve any of the issues that we need to sort through to fix the American economy. What it actually does is it incentivizes banks and loan companies to make the same 0% down, adjustable rate mortgages that bankrupted the US financial system, only so that our children and grandchildren can suffer the same crisis in the future. Banks and loan companies will continue this ridiculous practice of entering into mortgages that low-middle income families cannot possibly afford since the banks will now know that the Federal government will bail them out.
Let us not forget that our Federal Debt only increases to almost another trillion dollars as well. Furthermore, our currency will be further devalued by printing more money that doesn't exist (ie. Weimar Republic, that went really well when they tried it). Unfortunately, I think the 'right' solution is to suffer the economic collapse that our financial institutions have caused. In 5 years, when the economy has a chance to go through this awful correction, we will be in a much better position with more stable financial institutions.
I know this is an awful conclusion and one no one wants to see, but this is the only responsible option. Federal intervention is not the answer.
Seven Hundred Billion Dollars
After too many years of living paycheck-to-paycheck and mounting credit card debt, I've worked really hard to get out of debt and live within my means. Walking to work in the rain, buying oatmeal in bulk, and freezing discounted meat may not be the most stylish way to spend my late 20s, but I like the idea that at the end of the month, I have a little more in the bank than I did at the beginning.
Of course, none of this makes much difference now that the government has decided to go even further into debt on my behalf.
All over the country, housing values need to drop to get back into line with what people can actually afford in an economy with realistic lending practices. Many more banks need to fail. Reckless Wall Street super-geniuses need to lose their jobs. Presidential candidates need to stimulate the national discussion about what the hell happened while we were all getting rich off our houses. (Vice presidential candidates need to start answering questions directly and coherently.)
Seven hundred billion dollars is not the answer. Doubling down on debt is a terrible idea.
Also, I agree with Phil.
Also, I agree with Phil.
Could the Bail Out Actually Make Money for Tax Payers?
Check out a recent editorial in the Wall Street Journal which predicts that Paulson's bail out may actually make the American tax payer money.
What do you think? Can anyone explain this to me?
Credit Crisis Goes Global
Following Congress' refusal to pass the bail out:
Japan's Nikkei stock average fell 1.26 percent. Britain's FTSE 100 fell 5.30 percent, Germany's DAX index fell 4.23 percent, and France's CAC-40 fell 5.04 percent.
Stock Market Fell 777 points!
The dow lost 777 points immediately following the vote — falling up to 5 percent at one point this afternoon.
Possible Impact on China
According to a Reuters analysis, this financial crisis could soon be felt strongly in export-dependent economies like China's.
The chairman of Morgan Stanley in Asia expects China's growth rate to fall from 10 percent to 8 percent as a result.
It isn't just the stock market that is affected
"Bond markets have also been locked down in the past two weeks," according to an article by the New York Times. The article discusses how cities, states and other local governments have been affected by the bond market problems, as the stock market downturn is "raising the cost of day-to-day operations, threatening longer-term projects and dampening a broad source of jobs and stability at a time when other parts of the economy are weakening."
Check out "The Money Meltdown"
Take a look at a great source recommended by a friend — The Money Meltdown.
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