http://www.thislife.org/Radio_Episode.aspx?episode=355

It starts from scratch and explains things in a very clear and thorough way. I highly recommend listening.

http://financialservices.house.gov/

1. More taxes will be taken from me to aid private enterprise. It is not the responsibility of this nation’s government to prop up the economy. If it is, I beg you to find the line in the constitution that delegates that responsibility.

2. If these business go under, tough luck. That’s the beauty of a free market. When a business fails and the economy goes under, it fixes itself.

3. The government would be buying businesses with this plan, which means nationalization. I hope we didn’t have a cold war just to become The Soviet Socialist States of America by nationalizing the economy.

“The $700 billion bailout for Wall Street is driven by fear, not fact. This is too much money in too a short a time going to too few people while too many questions remain unanswered. Why aren’t we having hearings on the plan we have just received? Why aren’t we questioning the underlying premise of the need for a bailout with taxpayers’ money? Why have we not considered any alternatives other than to give $700 billion to Wall Street? Why aren’t we asking Wall Street to clean up its own mess? Why aren’t we passing new laws to stop the speculation, which triggered this? Why aren’t we putting up new regulatory structures to protect investors? How do we even value the $700 billion in toxic assets?”

— Rep. Dennis Kucinich

Remember that this scenario has already played itself out before in history. The stock market crash of ’29 was directly connected to over extension of credit.

The Republicans have a much wiser solution that to print more money causing an additional 5% or so inflation. Their proposal was to use big business to front the money for the bank collapse. It would be so much easier with the reserves that big business have, plus they can then directly have a stake in these banks.

Maybe not the best solution, there would still need to be oversight and some sort of ethics injected of course, but much better than me and my wife saving banks that barely give us half a percent on a savings account. But the main point is don’t fix the hole in the bucket with a bigger drill.

I think it should also be said that the last time Bush came out on TV and said that that there was this big of a threat, we went to war.

I wonder though, is this a good thing or bad? on the one hand I think that the majority of Americans don’t want this bill passed. I am one of them. But then my thinking is that I would rather fight through hard times now if they are destined to come rather than let my kids face them later. I see it as a shit load of money that would have to be printed or borrowed because we simply don’t have any money for the government to spend.

Now my fear is that the problem and consequences are not being explained to me correctly. It is possible that this bill is what is needed to keep people confident that we can have a semi-stable economy but it really just seems like a measure that is intended to prolong the problem.

This could be a positive sign though. Congress for the first time since Bushes second term is acting in the interest of the people who are screaming ‘No’ to this bill. No we don’t want to be in this crisis to begin with but no we definitely shouldn’t make it worse by allowing so many assets to be bought by a government that has not been doing well for American people. Can you imagine having to make your mortgage payment to Uncle Sam? Lets see… Miss a payment, go to jail..

I am a bit bitter because I would like to have more about this problem explained. I see it as a failure of the free markets for the government to have to intervene in this way to begin with.

I have a little idea, how about we change the system a tad.. call it a tweak.. lets make it so that banks don’t have to lend to people, like myself, who can’t afford a house. I lack the down payment, I lack solid credit, and honestly if I were to get a house at the current prices I would just end up losing the house. So reject me, and reject the next guy.. ultimately I think that sellers would be screwed over the fact that people can’t get a loan for a million dollar shack and quite possibly the real estate markets might come back down to a little place called reality.

I mean shit, I am renting a house that is valued at over $800k. I would not be able to afford to buy a house that was half that value and what I really find to be hilarious is that the house I grew up in cost my parents $30k and had 2 more bedrooms and a hell of a lot more room in the back yard then where I am staying now. Something is wrong with the estimated “value” on homes. Granted I am comparing Orlando, FL prices from 30 years ago to San Jose, CA prices of today but that is still too large of a gap in my opinion.

Here’s the hardest to swallow, though: We’re operating under the assumption that more is always better (more housing, more cash in the market, more pay, more, more, more) – and I’m not sure that a strategy that depends on spending rather than savings is a good one.

I feel like I am gonna get screwed no matter what. Either my tax dollars pay for the mess or they do nothing and I pay by watching 1/3-1/2 of my retirement portfolio evaporate. I think I’d prefer the former as more people will be contributing including some of the geniuses who got subprime mortgages… and a lot of the people who bet on them. Hardly justice but like Mike said, hopefully when things settle the investigations and indictments will happen.

Right now I just want to sleep better and not lie awake wondering if the whole system isn’t caving in on itself.

Oh why didn’t I keep some money in that high interest account in Zurich? Kill me now.

We’ve already saved Fanny and Freddie’s hides, but hopefully the bailout bill(s) will include some better regulations to prevent high-risk investments. Here’s an idea: We won’t bail you out next time!

One of my favorite blogs is Mark Cuban’s and he’s spent a lot of time recently presenting some ideas for possible solutions. Very interesting reading: http://blogmaverick.com/

I agree that something must be done. And I was encouraged on Sunday when it was declared that they had negotiated just that something. Then I spent two-hours reading the bill over at the Sunlight Foundations Public Markup.

It was appallingly vague in part, articulating completely compromised protections and contained whole sections that scream, “I’m open for easy abuse”.

I think this is more a product of the speed of negotiation but there is an additional problem. The dependence of our elected officials on Wall Street’s money for there campaigns and personal matters.

I believe that the “no” were representatives who were responsive to their constituents. Some may have been worried about getting re-elected, but that is the whole point of elections, to hold them accountable. It reminds them who they work for and that they need to be wise in what they do lest we fire them.

The “yes” may have been mostly safe-seats. But that means that they were not wrestling to balance their constituent needs (those who can fire them) against there protfolio and donors needs. Go look at Speaker Pelosi’s stock portfolio [PDF].

Even the representatives that are retiring this time around are compromised. If they want to go into the lobbying business, which is the most lucrative option for former Congressional officials. Handling this matter in a way that Wall Street, a huge lobbyist client base, doesn’t like is a bad career move.

My point is, its not as simple as get a bill and pass it because something must be done. Leveraging our fear of a crisis as we witness these *shocks* to the market is the best way to abuse the public trust. If we are afraid will accept everything that makes the fear go away.

If instead we say no, we will not be afraid, will look this threat in the face and rationally, cautiously and fully informed make a decision—not a snap judgment—then we have a chance.

Right now my reading list is full with material directly related to the financial markets and proposed options. I’m sure your is to some degree as well. But when you have a chance, I highly recommend reading Naomi Klein’s The Shock Doctrine, particularly paying attention to the manner in which free market ideologue’s abused Argentina, Chile and others by taking advantage of crisis to rape their financial system. The solution isn’t in there, but the caution against fear induced rapid decisions is.

1. The ‘No’ votes comprised about two-thirds of the Republican caucus and roughly two-fifths of the Democratic one. Not all those people are in dead-heat races come November, only a few are. To paint this in broad strokes as people fearing to vote for legislation because their constituencies would oust them is correct, but not necessarily short-term. Many of the people who voted ‘Yes’ will be heavily targeted in 2010 as well.

2. A representative is elected to represent the interests of their people, not the other way around. I expect my representative (In this case Jim McDermott, who voted yes) to accurately represent the interests of the WA-7 people, as opposed to arbitrarily deciding he knows what’s best for us (Which he often does). My initial speculation is that he did not. There is broad opposition to the bailout from both Republican and Democratic sides, for very legitimate reasons.

3. What is ‘Smart’ is letting the market self-correct and regain equilibrium, not this government-induced panic mode. We got into this same mess with the Patriot Act in 2002 because people were hasty and panicked, and the vast majority of elected officials actually voted without even reading it. We have a similar case here, and the whole point of deliberate procedure in government is to avoid irrational decisions that sacrifice long-term stability for short-term gains. We have made that mistake before, and I vehemently oppose doing it now.

4. The panic is on Wall Street, not stable banking institutions. John Allison, CEO of BB&T sent this letter to every member of Congress. It’s worth a read.

For those of you who are struggling to understand the complexity of the whole problem, I’ll do my best to simplify it without being too controversial. To understand all this, you have to go in with some basic knowledge:

A. Profit margins in banking and loans are extremely tight compared to other industries. A manager at Wells Fargo is considered to have a solid portfolio if his delinquency rate hovers around 0.5%. If he rises to 0.5 to 1.0%, there’s considered room for improvement. Over 1.0% and he’s put on warning. Exceeding 1.5% and he’s fired. There is that little room for error.

B. Understanding now that between 98.5 and 99.5% of people (on average) pay their houses off, the banks in turn sell these loans to investment firms, 401K’s, pension funds, etc. This has been common practice for hundreds of years now based on practical application and it works, because the investment risk is so low. Investing in housing is far less risky than anything in the stock market, because a company could go belly-up at any time. Property usually always holds it’s value. This delinquency percentage range is generally referred to as ‘A’ loans, indicating quality credit, good debt ratio and other various positive long-term investment factors.

In the late 90s, we underwent a series of banking reforms aimed at opening up the market to allow lower-income and lesser-abled families to be able to purchase homes, now commonly referred to as “Sub-Prime” borrowers. This wasn’t particularly a smart idea (Phil Gramm, then chairman of the Senate Banking Committee, rallied against it), but it held promise for providing additional opportunities to a market segment that otherwise would not have existed.

This in and of itself is not a bad thing, so long as you’re accountable to it. By introducing low-income housing, you therefore increase the risk of people defaulting on their loans and have to handle them accordingly. When Fannie Mae and Freddie Mac began offering this, a number of banks signed on because despite the risk of delinquency (Which was estimated to be between 3 and 6%), the higher volume of loans and higher interest rates would offset the cost. The aforementioned standard investment firms and pension funds were uninterested in this, however, because the ‘B C D’ paper carried significantly more risk than they were willing to accept (Investment firms won’t typically touch anything over 4%). Other groups however, were willing to purchase it all and deal with the higher risk for the higher rate of return. That’s fine too, more power to them. In addition, Congress made a series of promises to back the banks in the event a significant amount of these sub-prime loans failed, so the proposition was essentially risk-free.

That’s where the trouble began. First of all, the market should never have been manually dictated to allow for sub-prime mortgages. People can either afford housing, or they can’t. The policies initially set forth to provide housing solutions served as a catalyst for a market collapse. On top of that, the banks started passing off the B C D paper to secondary investors as the same A paper they’d been buying for years. They flat-out lied about it. When the delinquency rate exceeded the profit margins of the investment firms, they were instantly out of business. With the firms no longer around to take the mortgages and other remaining institutions gun-shy about buying loans (Since the ‘A’ classification is now questionable, at best), the banks were forced to retain them and eat the losses themselves. And there you have it — Through a ten year domino effect, we have an utter collapse in high risk financial markets because of poor management, bad gambles and excessive government influence in the markets.

It’s very simple. A few banks chose not to participate in said program, and stuck with standard quotients for qualified borrowers. Banks like JP Morgan Chase, Bank of America, BB&T, Wells Fargo, etc. It’s only the banks that hedged their bets on the sub-prime market that took the fall, and the high risk Wall Street investors who followed suit. And what’s worse, the Bush Administration and similar elected officials (including both Barack Obama and John McCain) have extensive ties to the people they’re trying to save, and therefore an unacceptable conflict of interest. Not only that, they’re all Wall Street investors. There is not a single expert in actual banking amongst them.

Now go back and read John Allison’s letter to Congress. The context is eye-opening, and the insight astounding.

However, despite that fact that pretty much everyone acknowledges a need to do something about the crisis, I’m a little concerned that this particular bill may not actually be a good bill.

Here is what a list of economists who also have reservations:

http://faculty.chicagogsb.edu/john.cochrane/research/Papers/mortgage_protest.htm

I think that they really need to put a little more thought into the details before they just hand over $700 big ones to the former CEO of Goldman Sachs with no real strings attached.