Somebody Explain That Bailout Thingy
lolfighter
Snark, Dire Join Date: 2003-04-20 Member: 15693Members
Snark, Dire Join Date: 2003-04-20 Member: 15693Members
in Discussions
Y'know, those what was it, 800 (short scale) billion dollars? Where'd they go? WHOM did they go to? And why, in the grand scheme of things, was it better to throw good money after bad and pump enormous sums into failed businesses rather than let them bear the consequences of their failure, like everyone else has to?
I don't suspect some nefarious agenda here, but I don't know what exactly happened the past couple of months over in the U.S., and now I'm trying to catch up. So what happened, and why was that bailout better than the alternative? What would've happened WITHOUT it, for instance?
I don't suspect some nefarious agenda here, but I don't know what exactly happened the past couple of months over in the U.S., and now I'm trying to catch up. So what happened, and why was that bailout better than the alternative? What would've happened WITHOUT it, for instance?
Comments
There's a bailout for the auto industries on the table now. They're aren't any specifics, but I would imagine that it will end up being a government "purchase" of "Teh Big Three," and the government will tell those executives that they can only have a $1,000,000 bonus this year instead of a $5,000,000 one. Fiddle sticks.
If we hadn't done this, there would have probably been some immediate hard times, and then the market would correct itself, "Teh Big Three" would have fallen, their assets purchased by other companies who probably have more innovation and drive, and we may have had a new technological revolution.
Thank God we did it! Now, we can have the same level of crappy lifestyle for the next 3 years before we crash really hard!
I'm totally not annoyed about this.
If they fail, you can rest assured that the assets they have (factories, engineers, corporate hq's, even suppliers) won't stay unowned for long. Lots of foreign auto manufacturers would just love to establish a stronger foothold in the US. Everyone involved in making a car will have to retool their factories, but that already needs to happen anyway.
Nah, there's a whole other bailout with <i>new</i> money on the table. The 800 billion is still going to the Fed. Ah you know what they say, a (hundred) billion here, a (hundred) billion there, pretty soon you're talking about real money!
The 800 billion is another story. So many financial institutions are in dire straits because they invested in a "potential" market... speculation if you will. When these bad investments went sour, the lenders tightened their belts.
QFT, but I'm not sure about a whole three years.
The 800 billion is another story. So many financial institutions are in dire straits because they invested in a "potential" market... speculation if you will. When these bad investments went sour, the lenders tightened their belts.<!--QuoteEnd--></div><!--QuoteEEnd-->
The Big Three have been going down hill for years. Remember that they are "Three" because a lot of American car manufacturers merged into these major ones. Foreign cars have been outselling in the US for awhile.
But the reason they're in such a financial mess right now is because of the recession more than their mediocre product.
I wonder though how Toyota and Honda are doing...
The reason for the bail out as far as I can say is that essentially we need to make sure that the banking sector as a whole exists.
The argument was made that with out bailing out the banks was important because the economy relies heavily on those of us who operate in it being able to get money to spend on good and services. Without banks to provide us all cash we end up in a situation wherein businesses are failing because they lack access to money.
This problem is a possible out come of the financial crisis. If you were a reasonably smart person who had their life savings in bank and banks all over just like yours are failing. You go to your bank and you take out a chunk or even all your savings. Everybody else sees you doing this and realizes that "oh my god the bank could fail". they pull their cash and eventually you have a run on the banks. banks are now unable to afford to own your mortgages, to finance business etc because all their liquid assets are out in the hands of people who put it in the first place. The result of course is that the bank in question goes under and the problem gets bigger.
The cost of this as a result of federal bank account insurance gets passed to the American people so that the government is now cash strapped. Additionally businesses all around the country are discovering that they don't have the liquid assets to build new factories or to buy new toys for every one. the result of this is economic slowdown. which results inevitably in the loss of jobs. this leads to people being less able to spend money since the ones with jobs are worried about what if they are next and the ones without jobs are not able to afford it.
Weather or not you believe the above would have happened is moot. this the doom and gloom that precipitated the bailout.
The auto maker bailout, essentially argues that Detroit drives America and that the failure of the big three will be catastrophic to the states as a whole. Not sure I buy it.
I don't think it's fair to say that free markets are not viable, unless you want to make the claim that they're not viable because policy makers are too afraid of economic crashes to let them happen. Boons and busts are part of free market economics. I'd say the bailouts have more to do with mass hysteria and a lot of hyperbole about how bad it's going to be. The newsies have been equating this to the Great Depression for a few months now, because it's sensational to do that.
This is a far, far cry from the Great Depression, and though there are some who have been hard hit by it (my home town has had three major industrial closures - ~200 jobs each), most of the people yelping about how bad it is haven't seen a change in lifestyle at all yet. I almost hope the worst does happen so at least they'll have a legitimate complaint, or better yet, they'll just shut the hell up and knuckle down.
<a href="http://img184.imageshack.us/my.php?image=bailoutba9.jpg" target="_blank"><img src="http://img184.imageshack.us/img184/6112/bailoutba9.th.jpg" border="0" class="linked-image" /></a>
Anyone who would want superior quality products at the expense of someone's job is clearly unpatriotic.
Maybe the emperor can cover his nakedness with said tarp.
Anyone who would want superior quality products at the expense of someone's job is clearly unpatriotic.<!--QuoteEnd--></div><!--QuoteEEnd-->
New? The United States has been subsidising industries for decades. Every country has been subsidising industries for decades to a greater or lesser extent. Do you think Airbus and Boeing are just two big companies competing? Airbus gets more sugar from the EU that the world gets from Cuba, and Boeing gets cushy tax breaks from the government whenever they feel like it. It would be hard to name any countries that don't subsidise their agriculture at least a little. I could go on. Suffice to say calling our current policies a "new brand of socialism" is far off the mark.
Gee.
"Free-market" is just a slogan now, and it has been for a very long time. Of course, if we ever had free markets, you can rest assured that someone would manipulate them for their benefit, and then claim that the solution was to give them more control over the markets. And here we are again.
Having a free market doesn't actually mean no gov't intervention nor that markets should be "allowed to fail". More specifically They should be allowed to fail, but in order for the market to be its "free-est" they must fail gracefully. Most of the concept of a free market comes from Adam Smith and the so called "invisible hand". Here's the quote from wikipedia: <!--quoteo--><div class='quotetop'>QUOTE</div><div class='quotemain'><!--quotec-->The theory of the Invisible Hand states that if each consumer is allowed to choose freely what to buy and each producer is allowed to choose freely what to sell and how to produce it, the market will settle on a product distribution and prices that are beneficial to all the individual members of a community, and hence to the community as a whole.<!--QuoteEnd--></div><!--QuoteEEnd-->
I believe this is true, but if the market is illiquid(has no money to freely buy things) then the market isn't really "free" is it?
<!--quoteo(post=1696283:date=Dec 17 2008, 07:40 PM:name=juice)--><div class='quotetop'>QUOTE(juice @ Dec 17 2008, 07:40 PM) <a href="index.php?act=findpost&pid=1696283"><{POST_SNAPBACK}></a></div><div class='quotemain'><!--quotec-->When was the last time the market got freer in the U.S.? Sometime in the 19th century, maybe? Ah you mean when Greenspan let everyone be "free" to lend by controlling monetary policy and creating a bubble? Because that's the propaganda now. Free money is not the same as free markets. Maybe when the FED was created to control the banks, and apparently now the entire economy, so people could be free from fear? Or when LTCM was bailed out setting the precedent of "too big to fail", so that financial institutions could be "free" to take on excessive risks and be confident they would be bailed out by the government. Yes, there were many times in the past century that the market got "freer". And the cyclic nature was reinforced.
"Free-market" is just a slogan now, and it has been for a very long time. Of course, if we ever had free markets, you can rest assured that someone would manipulate them for their benefit, and then claim that the solution was to give them more control over the markets. And here we are again.<!--QuoteEnd--></div><!--QuoteEEnd-->
I'm not sure what position you're taking here. I agree if we had free markets in the sense that everyone can do whatever they want(sell snake oil, rape natural resource, set up ponzi schemes) that everything would fail. But I'd also say the American market is fairly free in the economic sense. There are bad regulations and subsidies, but not all of them are.
I believe this is true, but if the market is illiquid(has no money to freely buy things) then the market isn't really "free" is it?
I'm not sure what position you're taking here. I agree if we had free markets in the sense that everyone can do whatever they want(sell snake oil, rape natural resource, set up ponzi schemes) that everything would fail. But I'd also say the American market is fairly free in the economic sense. There are bad regulations and subsidies, but not all of them are.<!--QuoteEnd--></div><!--QuoteEEnd-->
What's a graceful failure on a spreadsheet or graph may translate to hunger or homelessness in reality. In fact, I'm not sure you can reasonably define parameters for a graceful market failure, but that's beside the point: no one said a "market" should fail. Or if they did, I'm sure they didn't mean the market itself. The market is an abstract concept to define a group of traded commodities. You could say that market failure only occurs when all players have left the market. Specific individuals in the market can and do fail, regardless of what a government does to try and stop it, the same as certain individuals will succeed to a higher degree than other individuals. This inevitability is what's at the heart of the issue.
The "free" in free market is supposed to mean that there is no misrepresentation of values and that buyers may use this fact to match themselves with sellers. Artificially propping up an individual in a market and making it seem more (or less) valuable than it really is is what makes up market manipulation, and often it ends up hurting other individuals. The market, however, just doesn't give a damn.
Also, currency doesn't define a free market, it just makes trade easier and more efficient. We couldn't have had as much growth as we've seen without money, but it's not as if commodities lose their free market value with out it. A goat is still probably worth five chickens to someone. And given a market (town square) a farmer can still take five chickens in and find someone to trade with for a goat, unless nobody is willing to trade a goat for his five chickens.
If, however, the sheriff forces someone to trade a goat for those chickens, the market is no longer free.
Indeed, that's pretty much the reason for a bailout since a non-graceful failure would translate into more hunger and homelessness.
<!--quoteo(post=1697960:date=Jan 19 2009, 09:42 AM:name=Rob)--><div class='quotetop'>QUOTE(Rob @ Jan 19 2009, 09:42 AM) <a href="index.php?act=findpost&pid=1697960"><{POST_SNAPBACK}></a></div><div class='quotemain'><!--quotec-->In fact, I'm not sure you can reasonably define parameters for a graceful market failure, but that's beside the point: no one said a "market" should fail. Or if they did, I'm sure they didn't mean the market itself. The market is an abstract concept to define a group of traded commodities. You could say that market failure only occurs when all players have left the market. Specific individuals in the market can and do fail, regardless of what a government does to try and stop it, the same as certain individuals will succeed to a higher degree than other individuals. This inevitability is what's at the heart of the issue.<!--QuoteEnd--></div><!--QuoteEEnd-->
The problem with "inevitability" is the path to get there. It took the Dark Ages to get to the Renaissance, but that doesn't mean the Dark Ages had to happen. You're right the "market" didn't fail when you define failing as no body left trading. But I would say we've seen a failure of the market when regulation is loosened too much. Most of the major banking firms engaged in very risky trading and covered it up past a point of no return. The free flow of capital has slowed to a trickle and it's affecting every industry.
<!--quoteo(post=1697960:date=Jan 19 2009, 09:42 AM:name=Rob)--><div class='quotetop'>QUOTE(Rob @ Jan 19 2009, 09:42 AM) <a href="index.php?act=findpost&pid=1697960"><{POST_SNAPBACK}></a></div><div class='quotemain'><!--quotec-->The "free" in free market is supposed to mean that there is no misrepresentation of values and that buyers may use this fact to match themselves with sellers. Artificially propping up an individual in a market and making it seem more (or less) valuable than it really is is what makes up market manipulation, and often it ends up hurting other individuals. The market, however, just doesn't give a damn.
Also, currency doesn't define a free market, it just makes trade easier and more efficient. We couldn't have had as much growth as we've seen without money, but it's not as if commodities lose their free market value with out it. A goat is still probably worth five chickens to someone. And given a market (town square) a farmer can still take five chickens in and find someone to trade with for a goat, unless nobody is willing to trade a goat for his five chickens.
If, however, the sheriff forces someone to trade a goat for those chickens, the market is no longer free.<!--QuoteEnd--></div><!--QuoteEEnd-->
Free is having the largest number of meaningful choices. If a sheriff is forcing a trade then there's only one choice. If the sheriff is offering an incentive to trade those chickens for that goat(instead of say a cow) then he's actually increasing the number of choices available.
Bankruptcy isn’t the end of companies, it is just a way of companies to retool themselves. It maybe their last leg but many companies have come out of it just fine.
Overreaction seems to be the norm these days
If we add in the Citi bailout, the total cost now exceeds $4.6165
trillion dollars. People have a hard time conceptualizing very large
numbers, so let's give this some context. The current Credit Crisis
bailout is now the largest outlay In American history.
Jim Bianco of Bianco Research crunched the inflation adjusted
numbers. The bailout has cost more than all of these big budget
government expenditures –<b> combined</b>:
• Marshall Plan: Cost: $12.7 billion, Inflation Adjusted Cost: $115.3
billion
• Louisiana Purchase: Cost: $15 million, Inflation Adjusted Cost:
$217 billion
• Race to the Moon: Cost: $36.4 billion, Inflation Adjusted Cost:
$237 billion
• S&L Crisis: Cost: $153 billion, Inflation Adjusted Cost: $256
billion
• Korean War: Cost: $54 billion, Inflation Adjusted Cost: $454 billion
• The New Deal: Cost: $32 billion (Est), Inflation Adjusted Cost:
$500 billion (Est)
• Invasion of Iraq: Cost: $551b, Inflation Adjusted Cost: $597 billion
• Vietnam War: Cost: $111 billion, Inflation Adjusted Cost: $698
billion
• NASA: Cost: $416.7 billion, Inflation Adjusted Cost: $851.2 billion
TOTAL: $3.92 trillion
______________________________________________________________________
data courtesy of Bianco Research
That is $686 billion less than the cost of the credit crisis thus far.
The only single American event in history that even comes close to
matching the cost of the credit crisis is World War II: Original
Cost: $288 billion, Inflation Adjusted Cost: $3.6 trillion
The $4.6165 trillion dollars committed so far is about a trillion
dollars ($979 billion dollars) greater than the entire cost of World
War II borne by the United States: $3.6 trillion, adjusted for
inflation (original cost was $288 billion).
Go figure: WWII was a relative bargain.
I estimate that by the time we get through 2010, the final bill may
scale up to as much as $10 trillion dollars…
>
UPDATE: November 25, 23008 10:34am
A few additional details:
-Well regarded Jim Bianco did the number crunching. The easiest
method is to recalculate the numbers using CPI data. There are
other ways to depict this — such as percentage of GDP, or on a per
capita basis, or in terms of costs of common items (eggs, bread, big
macs, etc.).
Bloomberg calculates the total amount the taxpayer is on the hook for
is $7.76 trillion, or $24,000 for every man woman and child in the
country. (Data breakdown is here)
Regardless, no matter you calculate it, we are talking about an
ungodly amount of money.