Government Bailouts.

[Malacasta]

I don't have any economic education, so at some level I have to accept what op-eds and other articles are saying about this 700 billion dollars. It's all a bit beyond me and some people are saying panic panic, and others are saying, no don't panic yet, panic soon. Anyways, I don't really feel very much panic, 700 billion is a bit too much to imagine for me.

So, I was trawling through some thread and found a link to this primer about everything that's going on. I found it readable (even if I still don't understand it all) so I'm interested to know what other people who might understand the situation better think of it.

http://news.goldseek.com/GoldSeek/1221672153.php

[Malacasta]

Hrm, it's funny how someone spruiking their services at the end of an article can make you feel dirty and skeptical bout everything he wrote.

Anyways, yeah, this guy is pushing for some course he runs on how to make money out of this collapse. Maybe he's right, and I will have just helped make everyone who reads this post into billionaires, but assuming that's not the case, I still do think what he wrote in the link was interesting.

[Ilusan]

I wrote out this long-ass post to summarize this article in more familiar terms then realized this guy really didn't say anything worth saying about the actual effects a $700 billion bailout would have or if it would work at all so the whole post was kind of superfluous to your question.

My advice: Stay away from op-eds. Editorialists are going to be pushing their own agenda right now and flinging nothing but "I told you so's." That article was a decent primer into the HOW's and WHY's that things are the way they are but it offers nothing substantial into the effects of the actual bail-out. President Bush is scheduled to address the nation tonight for a 15 minute speech on what the bailout and the situation means. Since it's his bill, Id take what he has to say with a grain of salt, also, as always.

This is one of those circumstances, unfortunately, that if you don't know anything about finance then its best to stay away unless you actually start studying finance in which case more power to you :-) People are full of assumptions. But that's all they really have and others, as we've learned, are easily and sometimes wrongfully swayed by them.

[Ilusan]

One more thing, if this turns partisan I think I'll fly to washington, de-evolve, and begin slinging my own shit everywhere in the capitol building.

[Savaric]

Originally posted by Ilusan
... about the actual effects a $700 billion bailout would have or if it would work at all so the whole post was kind of superfluous to your question.

It's another ass fuck for Americans. 700 billion dollars -- absolutely incredible. That is 700,000,000,000$$. No way, these companies need to go down the tubes. Whole thing infuriates me.

[Halyanne]

I don't understand how they got there in the first place. I am certainly no economics expert. From what I have read, I understand it to be that mortgage companies decided to give loans out to people who really couldn't afford it. They could afford it at 0% interest. Though after a few years or something like that, the interest rate would increase. But peoples income didn't increase enough to cover the interest rate increase. I would like to know how they could do that. Chances are if you can't pay for something now, you aren't going to be able to pay it later.

I would also like to know where they are getting the 700 BILLION dollars. How they expect to get that back. I would also be interested to see how much profit these companies they are bailing out made over say the last 5 years.

[Halyanne]

Oh and another thing... 700 BILLION dollars, Just exactly how many people are living in the United States? Quick google search says:

Population: 303,824,640 (July 2008 est.)

If they are worried so much about peoples retirement and so on. I believe that 700 BILLION can go to the people directly. Since that number is more than double the amount of people in the US. Anyone care for a Billion dollars?

[Gromgor]

Originally posted by Halyanne
Since that number is more than double the amount of people in the US. Anyone care for a Billion dollars?

That number is more than 2,300 times the number of people in the US. $700B is like them handing out to every single person a check for $2,303.96

[Ilusan]

Originally posted by Halyanne
From what I have read, I understand it to be that mortgage companies decided to give loans out to people who really couldn't afford it.

That's pretty much it. ARM's and other balloon type mortgages look very attractive because of low interest rates. These, in concept, were established mainly for those people who "flip" homes though. These people take a nice low interest rate, buy, go in and fix up, then sell for a profit. Since all you pay is interest on the loan (mainly) the first few years the banks win, the flipper wins, and the loan gets paid off by the sale in a year or two as long as the flipper knows what s/he is doing. But, mortgage companies found they could sell these loans to just about any Joe Schmo thinking that Joe Shmo knew more about his finances and the risks involved than they did.

In order to compete, rates lower, more loans are written, and risks for the loans are sold to and insured by other companies repeatedly up the food-chain so in effect the sector has all its eggs in one basket. This is important to note beccause any profit is all on paper due to the 3-30 year lifespan of these loans, but losses if they're incurred are real. That hasn't been a problem before, but in hindsight when other certain risk-factors like unemployment, inflation, etc, aren't taken into account you get what we have now. As the bad loans default it trickles uphill all the way to the top. Wall Street is effected because the banks hold ALL their money. If the money isn't coming in from the bad loans the loss hits and the profits aren't realized. The money to pay for the loss has to come from somewhere but if there's nowhere to snatch it from...we get $700 billion bailouts. Otherwise, the entire bank system crumbles, Wall Street with it. That wouldn't be pretty. but neither is the alternative.

That's an over-simplified explanation. But i think its important to have some sort of knowledge on the How's and Why's if only to keep from making the same mistake ourselves down the road. Hope that helps some. There's a ton of info out there on this sort of thing if you want more :-) If you want to get into an ethical discussion of the bailout we can rant and rave here for hours! Its rather disgusting even if it is necessary.

[Halyanne]

Thanks. I just feel that these companies should have done way more to make sure this didn't happen.