So how are we paying for this?

[DCJenn]

OK- I get why it was critical to support Freddie and Fannie. And although the Bear Sterns bailout was annoying (and on a weekend...while the markets were closed)- now the news reports are saying that the Gov't may bail out AIG, too?

At what point do we let the market prevail?

and how on God's Green Earth are they planning on paying for all of this? We're already running the most ginormous deficit in the universe! We're borrowing money hand over fist, the wars in Iraq and Afghanistan are billions of dollars a month. Social Security is approaching bankruptcy, our health care costs are skyrocketing.

How can you operate like this?

I'm very interested to see how the candidates approach this. I am very much looking forward to the details.

I really don't want my tax dollars wasted- don't you wish you could allocate where they go? I'd be all over that option. I'd go for environmental research, infrastructure rebuilding and medicaid/medicare reimbursements.

Jenn

[SuzySunshine]

Re: So how are we paying for this?

So I was listening to a financial person yesterday and she was asked which presidential candidate's plan was best for what is going on with this financial mess and she said it didn't matter.

She used Clinton as an example, he promised tax cuts but once he actually got there we were in so much debt he couldn't cut taxes, at least not at first.

Helpful on deciding isn't it?

[Sheherezade]

Re: So how are we paying for this?

From what I understand, AIG needs to be bailed out for much the same reason Fannie and Freddie did. They have insured so many of these stupid investments and now can't back up that promise. They have their finger in too many pies and if they fail it will have a global effect. I also HATE the bailouts. I think this should have been regulated to start with.....free market doesn't work for me. If we do have such a strong belief in the free market, then we should let them fail, right?

I read a book called "The Coming Global Credit Crisis" recently. It was impossible for me to grasp and very dry, but everything that the author predicted is playing out now....including insurance failures. If we don't bail out, I guess that's worse for the economy. If we do, it is still bad. Either way....suck.

[alison]

Re: So how are we paying for this?

I'm watching my bank very closely this week. It's one of the ones they think might go under... Argh! I love my bank.

I went to Bank of America today to ask about checking accounts. I was flipping through a brochure and then went to a teller. I asked about accounts, and she said "you've got our brochure in your hand, why don't you look through it first?" This would make Flynn's "friend happy." I responded: "I guess you don't want my business," and left.

Yeah, so I think I may be more comfortable pulling out all our money and stuffing it into a mattress at this point.

[Rapunzel]

Re: So how are we paying for this?

I'm hoping that this is the point where McCain turns to Romney and lets him (as the future Secretary of the Treasury, for example) explain the plan for the economy. Because, quite frankly neither he (McCain) nor Obama could find their way out of this mess without serious help.

[Sheherezade]

Re: So how are we paying for this?

Agreed. Help will be needed.....but from whom??? Actually, it is alternately amusing and disturbing to listen to economic "experts" talk about this situation using phrases like "we are in uncharted territory" and "it's unclear what will happen with these actions; we'll just have to wait and see". I'm underwhelmed.

My take away message from the book I mentioned previously was ......these people are NUTS! Honestly, I'd never run my own investments the way these investment schemes were run. I'm not a gambler....but honestly, I can't even imagine a gambler would do this. It seems to me that we've ended up in a system in which responsibility for a loan or investment was transferred to a series of new investors quickly (mortgage backed securities) and a system in which insurance for risky investments made them seem less risky. :huh: A local mortgage investment guy I know here explained it to me as turning bad mortgage loans in to high yield/high risk investment opportunities for clients - because the adjustable rate/interest only things would EVENTUALLY offer 14% plus interest (or pay out if you were the purchaser). Of course, anyone taking these loans never intented to pay out that 14% plus interest; they'd sell or refi before it reached that point. So....the potential profit never actually existed anywhere but in fantasy land. Now, these people are stuck, houses are in foreclosure or unsellable and the government is on the hook for that imaginary 14% that John Q. Mortgage-holder promised to pay eventually thinking that time would never arrive. How this made sense to anyone is beyond me.

If anyone out there understands the "logic" behind these products (beyond being cool moneymakers....), I'd love a layman's description.

[ladymoreta]

Re: So how are we paying for this?

I don't understand all of it, but this article is pretty good: 5 Questions: Why AIG matters to you. From that, it doesn't sound like there's a good reason to bail them out. If the AIG holding company does fail, the insurance company can still operate for awhile. If it fails, the states can take over claims payments, and insureds will still get their payments if they have a loss. I think it's better to let that happen. I don't like the idea of every failing giant company getting government handouts just because they're big.

Alison, I wouldn't worry about switching your money just yet, if you only have regular checking/savings, and if your bank is FDIC insured (and pretty much every bank is). You can check out the FDIC website to make sure that all your money is protected. Still, it never hurts to keep some cash on hand.

I've used Bank of America for the past four years, and they're not too bad. Kind of like the Wal-Mart of banks. Not personal or super-friendly, but I like having ATMs all over the place.

Re: So how are we paying for this?

I just realized that AIG carries one of MILs insurance policies. Wonder what will happen to that. I'm guessing it will be sold and picked up by another company or something.

Angie, I'm going to see if I can find the audio clip of a story I heard on the radio explaining some of this. I can't get it right but it has to do with re-insurance (which I think is ok and does have some regulation...I think) and the credit default swapping market, which caused a lot of this mess (and was trading the re-insurance).

I probably botched that up but it is part of the explanation. There was also an *excellent* interview on Fresh Air w/ Terri Gross a while back. I'll see if I can find that too.

I think the mess caused by the credit swapping is justification for regulation, especially in there are going to be government bailouts.

eta: this is the story on The World:
http://www.theworld.org/audio/0916081.mp3

Now I'll go look for the Fresh Air story. Pretty sure this is it:
http://www.npr.org/templates/story/stor ... d=89338743

[SuzySunshine]

Re: So how are we paying for this?

I'm still undecided on all of these bailouts - why are we bailing out institutions who paid their CEO's 20+ million dollars last year? :huh:

And there is absolutely NO reason we should be bailing out individuals that bought mortgages that were WAY over their heads. When we moved here for residency our realtor and our mortgage broker both tried to convince us we could afford twice the house we ended up with. WTF?!?! People that were told that and took it need to have their heads examined and the mortgage brokers that talked them into it need to have their licenses revoked.

Re: So how are we paying for this?

I heard that Detroit car makers are nosing around for a bailout.

I don't think people should be bailed out on their mortgage but where does the gov't bailout money go since it covers the losses on bad mortgages?

Re: So how are we paying for this?

I'll go look for the link in a bit here. I think that the same guy was on Fresh Air again yesterday. It is a long interview but I want another shot at listening to it without interruptions. He said something along the lines of -- we have been privitizing profits and socializing payouts. I don't think he is suggestion socializing the profits but that there needs to be some regulation before these big bail-out messes.

Given how big AIG is and how involved it is in financial markets, I think it really could have been a mess if it failed. Still, I wish there was some way to hold the top executives responsible and make them pay some sort of fines. What a mess.

Re: So how are we paying for this?

I'm going to have to listen to that story again and see what he said about AIG. I'm sure they were hurt by the credit-swapping that other firms were doing. I'm pretty sure those had insufficient capital (but I'm not sure if AIG was directly involved). If they were doing the credit swaps then there are no regulatory capital minimums for those.

Most recent interview w/ Michael Greenberger:
http://www.npr.org/templates/story/stor ... d=94686428

It is 38 minutes.

[Sheherezade]

Re: So how are we paying for this?

My take on the AIG business was that they were "mislead" (in quotes because I'm not sure I buy that they didn't know better) because the securities they were insuring were bundled and then rated as AAA by....who? Or was that through them? :huh: It is so confusing. At some step along the way, the bad mortgage risk was made to seem less risky because of the bond rating. That's the point that seems flawed - even illegal. Still, from my very limited understanding this rating was based on a strict and outdated rule of how these types of investments are rated. It was based on data from the OLD mortgage and housing market, not this new improved monster we've created in the last ten years.

I loved the This American Life show, Lily. I'm going to listen to that interview you just put up later Nellie.

Re: So how are we paying for this?

I think I heard part of the TAL story. Was that this last weekend or the week before? I'm hoping to finish the Fresh Air segment tonight and maybe TAL if I am lucky!

Even with regulation (if that comes later) there is still an underlying ethical issue. Greed completely overrode any common sense.

I was talking to someone about this today who said it reminded him a bit of the S&L crisis a while back -- unsettling times but the economy got back on track. I don't think things will get much better until the uncertainty of the election is over. I can't believe it is only 7 weeks away!