The financial crisis. Let me show you it

[clayfoot]

This American Life did a marvelous job of explaining the subprime mortgage meltdown, and they're working on a followup to explain the current crisis. I think that followup airs at the end of this week.

Comments

The bailout as an old car

[clayfoot]

Here's one explanation I heard recently

Re: The bailout as an old car

[thekerriproject]

But... but... but... the government buying shares in banks is the anti-thesis of our beloved Capitalism. Government-owned banks? Isn't that Socialism?

Re: The bailout as an old car

[clayfoot]

Yes. Yes, it is. Buying hundreds of billions of dollars of mortgages? Also Socialism. Communism, really, since it's about managing the economy for the common good. Even China seems to think this is less and less of a good idea. It just never seems to work out as well as the government intends.

[thekerriproject]

The house mulls over other bills for years but they think they can push this one through in a weekend.

I read a lot of house members simply voted the sucker down (after being offended by that horrible woman Pelosi for one) and because it didn't address bankruptcy in any detailed way.

I'd call it a first draft. Something will get approved and hopefully we all have enough fuel, heating oil, canned goods in our pantries until they write a bill that can fly.

Hopefully!

[clayfoot]

Hopefully so! I don't mind if the House takes a little while to figure out something better. It wouldn't have passed as is in the Senate either; apparently, the Senate already had some changes in its version.

[t_rex]

Thanks! I understood pieces of the problem, but couldn't quite string all the pieces together.

So, what I want to know is this. Would it be better to let the market correct itself, over time, rather than do this bailout thing to get the economy going again? It would hurt worse, perhaps, but in theory the economy would be stronger than before once it recovered. Seems like a bailout would get things moving again, but the underlying issues would remain in large part.

This isn't a question for you, necessarily, but it would be nice to hear your opinion if you have one. Maybe NPR will explain that part, too.

[clayfoot]

The honest answer even from the experts: Nobody knows. Temporary government measures (like the stimulus package earlier this year) usually don't work. They create a temporary "bump" in the overall trend, and then the economy continues the trend as before. This bailout, as proposed, is so big that it might actually prevent a collapse. Then again, there may be no collapse, package or no package. If we do bailout these big financial firms, then we accept that some private institutions are essentially too big to be allowed to fail, and we enter a new era of American politics and economics. I, too, am looking for expert opinions on what to expect.

[t_rex]

>If we do bailout these big financial firms, then we accept that some private institutions are essentially too big to be allowed to fail

I'm not comfortable with the precedent that would set. If you are "big enough", it doesn't matter what you do, or how lousy your business practices may be. The government will always bail you out.

[clayfoot]

--Even worse: As soon as you attain that status, the government won't even allow you to get close to failure. It will intercede before you're actually in trouble. This is something like how we treat public utility monopolies, now, only it will be for companies that ostensibly have competitors that could do business just as well or better.

[idav5d]

Hey clay, I'd like to show some folks this post, would you consider unlocking it?

[clayfoot]

As you wish.

[idav5d]

thanks!

[cirrusstrafe]

[clayfoot]

Being a wise, careful consumer is always good advice. You have exactly the right idea, if the public can be so persuaded. For individuals, assuming the bailout goes through:

1) Save up to buy your first or next house or car. You'll need a much bigger down payment than before. If you can pay cash for a big purchase, you'll be in an even better position to bargain for a deal. (Incidentally, your savings will also help make your bank safer from high short-term lending rates).

2) If you've got the time and some cash you won't need for awhile, there is (or will be) some very good investment values. They'll just take awhile to bear fruit.

3) Expect higher taxes and reduced services at the federal, state, and local level for years. This bailout won't come cheap.

[clayfoot]

Also: robogriff just got me started on a WoW 10 day trial. Where can I learn more about your WoW work?

[cirrusstrafe]