It's the economy, stupid (or it's about ze money, Lebowski)

Email Print posted by qsoundrich 10/06/2008 03:42:00 AM EST

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This American Life did their follup this weekend to the infamous Giant Pool of Money episode from May

Everyone needs to listen to this.  NPR did Another Frightening Show about the Economy this weekend, which paints a pretty grim picture, but gives me a little hope that Paulson and Co. will sort things out.  Just FYI: this stuff is very complicated and will require your complete attention to comprehend.  You may want to listen to the Giant Pool of Money first to get an idea where the mortgage meltdown problem stemmed from.  This episode is mainly about credit default swaps and the freezing of the commercial paper market over the past week.  I hope that enough people will listen to this and understand that if congress had done nothing last week, it's very possible that we would be looking at a 1931 all over again.  We may still not be out of the woods on that, but at least injecting money into the economy will convince people to start lending money again.
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Poll

Are you STILL against the bailout?
Yes, no bailout it's too bad if nodoby can borrow they should have money in the bank anyways. 75%
No, I see the grave danger involved in this credit market freeze. 25%

Votes: 8
Results | Other Polls
 Display:
It's the economy, stupid (or it's about ze money, Lebowski) | 18 comments (18 topical, 0 hidden)
We need another choice in your poll (none / 0)

The bailout won't solve the problem but will, instead, exacerbate it.  On the other hand, doing nothing, as your second option implies, is equally bad.

Option 3: There's a better solution available.  We want equity in the banks and to own the mortgages.  And if the bankers are real nice, we'll bail them out by making their credit default swaps retroactively illegal.  But they have to be real nice.

by EveningStarNM on 10/06/2008 11:46:57 AM EST

Optional (none / 0)
Option One and Only: Bankruptcy.

Rather than a bailout, step aside and allow insolvent financial institutions to declare bankruptcy.

by Twba on 10/06/2008 12:33:09 PM EST

[ Parent ]
Foolish (none / 0)

The credit market would freeze solid, and the valueless credit default swaps would soak up 15%-20% of our GDP.

Stupid idea.


by EveningStarNM on 10/06/2008 01:41:02 PM EST

[ Parent ]
Does the GDP Include Monetary Instruments? (none / 0)

If it does, then soaking up that part of the GDP won't mean much.

The real products are goods and services, and Credit Default Swaps are neither.

If the issue is having money available to provide credit, then the government should make money available to provide credit.  Paying off these gambling debts is a roundabout way to make sure there is money available to provide credit. We are assuming the banks and investment firms we give all this money to will use it to provide credit, rather than use the money for other gambling bets - like commodity futures or something.

My guess is they will NOT put their bailout profits back into credit, because they were already burned by credit-backed securities.

So what happens when we put all this money into buying mortgage-backed securities, and the value of mortgage-backed securities continues to decline?

by rbruck on 10/06/2008 03:29:43 PM EST

[ Parent ]
Fullish, no room for dessert (none / 0)
The credit market would freeze solid, and the valueless credit default swaps would soak up 15%-20% of our GDP.

And the bailout prevented a credit freeze?

Worthless derivatives would not soak up anything, they would be tossed in the trash. Bankruptcy would wipe them out.

by Twba on 10/11/2008 02:49:15 AM EST

[ Parent ]
And what would happen... (none / 0)
...when $60 trillion of our national wealth disappears from stockholders' accounts and into the bank accounts of the already filthy rich when all of those institutions declare bankruptcy?

Are you really that stupid?

by EveningStarNM on 10/12/2008 01:34:44 PM EST

[ Parent ]
Disappeared (none / 0)
How much wealth disappeared when Wells Fargo bought a bankrupt Wachovia?

Shareholders' equity should be wiped out when their management is incompetent. New owners and management should take over.

Bankruptcy makes the system stronger.

by Twba on 10/13/2008 12:36:36 AM EST

[ Parent ]
So twba now supports the Dems? (none / 0)

twba has been very vocal about his belief that the financial collapse can be pinned on the Dems and minorities.

Many of us were annoyed/insulted by this but it looks like we were hasty.  Turns out, twba thinks the financial collapse is a good thing.  So what we had previously believed were criticisms were actually compliments.

On behalf of Democratic lawmakers and minorities (neither of which I am), thanks twba!

by ProfRich on 10/13/2008 01:08:14 AM EST

[ Parent ]
Links, Please (none / 0)
twba has been very vocal about his belief that the financial collapse can be pinned on the Dems and minorities.

Provide us with some links and quotes to back up that statement, you lying piece of shit.

by Twba on 10/13/2008 02:01:40 AM EST

[ Parent ]
As expected (none / 0)
Provide us with some links and quotes to back up that statement, you lying piece of shit.

ProfRich can't offer any evidence in support of his accusation, because I never wrote any such thing.

by Twba on 10/15/2008 09:35:43 AM EST

[ Parent ]
if you watched 60 minutes last night (none / 0)
You'd realize that we ARE buying the mortgages.  The problem is that they are garbled up into these tranches, so it's easier to hold the securities than it is to go around and buying up individual houses, sometimes we don't even know who owns them.  I have at least some confidence that Hank Paulson is slightly smarter than this dumbass from Lehman that they've got testifying. 

by qsoundrich on 10/06/2008 01:01:24 PM EST

Many of these securities... (none / 0)

... are only loosely tied to mortgages - like Credit Default Swaps.

If we wanted to buy the mortgages, we would deal directly with the homeowners.  Give them a loan and let them pay off the mortgage.

We are not bailing out mortgages, we are helping billionaires pay off their gambling debts.  In doing so, we hope these billionaires will continue to lend us our money back.  With interest.

by rbruck on 10/06/2008 01:18:10 PM EST

[ Parent ]
But it's like Bush said this morning. (none / 0)

It'll take time for the $850 billion, 5% of our GDP, that we're going in debt for today to trickle back down to us.

I don't think it ever will.  It will be eaten up by the inflation that money will cause.

Bush and Paulson and Frank and Dodd and everyone who voted for this disgusting package have sealed our fate.

by EveningStarNM on 10/06/2008 06:01:09 PM EST

[ Parent ]
Reagan's Dirty Little Secret (none / 0)

Is that it DOES NOT EVER trickle down.  Give the money to the rich, and they will just use it in schemes that help them get even MORE of the middle class money.

Give money to the middle class or give money to the poor and they will spend it.  When they spend it, it stimulates the economy and creates jobs.  Trickle-up economics ACTUALLY DOES work.

Give the money to the wealthy, and they will use much of it to purchase worthless gambling chips like Credit Default Swaps.  They are more likely to use it to create jobs in China or India than to create jobs in the US.

The basic premise of trickle-down economics is flawed.  The Republicans are quick to call things like a graduated income tax, "wealth redistribution".  But the fact is, shifting the tax burden to the middle class is the true wealth redistribution.  This isn't just theoretical, the past 28 years have proved it.

by rbruck on 10/06/2008 06:40:12 PM EST

[ Parent ]
it always trickles up (none / 0)
 The entire philosophy of giving money to the rich, so that it will trickle down as they spend the wealth is deeply flawed. Why cannot Govts attend instead to the task of increasing the income levels of the lower class by enforcing minimum wages etc. The country, nay, the world is suffering the ill effects of excessive debt contracted by people to meet their needs with no hope of ever returning the loans. In fact, the idea of substituting loans for income can only work if the income levels keep pace. But, it has been proved clearly that about 70% of the Americans saw a dip in their real income in last 2 decades. Can U accept a situation of merely 1% of population owning 37% of national wealth ? It is hightime we started attending actively to distributional issues.The rules of the game must be rewritten to enable majority of people to participate in the goodtimes-not only in bad times as now.

by letusmeetinheaven on 10/11/2008 03:06:29 AM EST

[ Parent ]
Correction (none / 0)
The entire philosophy of giving money to the rich, so that it will trickle down...

Money is not given to the rich. Tax rates are reduced so that less money is confiscated from high earners.

by Twba on 10/11/2008 03:15:00 AM EST

[ Parent ]
Wrong again, twba (none / 0)

We just gave the cocksucker 700 billion dollars.

And we've been giving defense contractors billions for about six years now.

by ProfRich on 10/12/2008 01:35:16 AM EST

[ Parent ]
Explaining money to children. (none / 0)
The American taxpayer just underwrote $700 billion in subprime mortgages that the government forced banks to loan to poor people so they could purchase "affordable housing". This is the magnitude of the loans that are estimated to default when 5% of the mortgage holders in America mail in the keys.

The situation is very similar to the S&L crises of the 1980s, when the government stepped in and underwrote bad debt at lending institutions. Subsequent sale of distressed properties actually allowed the Feds to turn a profit on the deal.

by KenTX on 10/12/2008 02:00:22 AM EST

[ Parent ]
It's the economy, stupid (or it's about ze money, Lebowski) | 18 comments (18 topical, 0 hidden)
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