I’ve heard the argument that if the govt. allowed banks and companies to fail, there would be DISATROUS RESULTS. What exactly would happen and why? Why would it be bad? Is it so bad to let the “disaster” hit then use this bailout money to pick up the pieces and rebuild?
It was floating around that if they did not step in the first time on the accelerated deterioration of the markets in late fall that every market around the world would have fallen in line and we would have had a world wide global collapse in markets. Not entirely sure how much credit it holds, but it’s believable and it certainly would have cost quite a bit.
We’re pouring a ton of money into what “might” happen. At least the problem would be right in front of us and real. Then we can work on a real solution to a real problem.
You really think a lot of what was being said would happen is a “might” not a “will?” Even with the feds making a lot of plays to keep these banks floating many have failed already. If they did nothing how many would be gone at this point? Financial problems just like interest compound.
I’m not saying it would or it wouldn’t. But until something happens, it’s not real. Besides, the 2 Trillion (or whatever the amount is now) could be used to help the unemployed and surviving businesses to get back on their feet. Once again, I’m not hearing any details of what PRECISELY will happen and the resulting consequenses.
That’s the same play book that the feds played with the levees in New Orleans. Many years before Katrina people produced reports saying the levees would not hold if put up against a category 4 or 5 hurricane, low and behold along comes Katrina to prove that point. Realistically they could have been fixed for a figure in the 10-100s of millions. What did that disaster ultimately cost due to waiting until it was “real?” $81.2 billion and 1836 lives was the total cost. Studies were done in 1986 and many after that saying that this could happen. Waiting out that disaster didn’t seem like it was a great idea either.
Exactly my point. The studies were done and they showed exactly what would happen, how and why. I saw a documentary about it on the weather channel a year before it happened. I’m not hearing any details of just what this disaster will bring. All I’m hearing is that if we let the banks fail it would be a disaster. No other details of what will happen? Why will it happen? How will it happen? What are the consequences of the results? I’m still waiting for that answer… Anyone? Anyone? Bueller? Bueller? Bueller?
If the giants are allowed to fail, which seems almost inevitable now anyhow, the small businesses will not thrive. People need money to operate.
The cost of NOT allowing the banks to fail is that the depression that we are entering will be far worse than it would have been. Pumping TRILLIONS of additional dollars into this mess just means that the total debt we have to work off will be that much greater. I think if we had let the banks; AIG, etc fail last fall, we would already be at the bottom.
Mike
I don’t know enough about economics and what effect it would have had one way or another to say whether they should have been bailed out or not, but it sends a terrible message in terms of fairness. There are a lot of (much) smaller companies that are projected to go out of business this year (probably through no fault of their own in many cases) while the government keeps pouring money into white elephants like Citi and AIG.
We’d be at a bottom alright…one we might not pull ourselves up out of. I think everyone is getting hung up on the obvious; why don’t we let them fail if they’re going to fail anyways. The trillions of dollars is acting as a speed bump to decelerate the fall. I’d rather fall off a porch than fall off a 3 story roof. We want to be able to pick ourselves up and dust ourselves off after the fall, not be taken to the morgue.
We can’t recover until we hit the bottom. I get the uneasy feeling that we’re doing the equivalent to buying a stock all the way down. Not every bank is in trouble. If a bank fails, doesn’t it get acquired, liquidated, whatever, by other stronger banks? If the govt. has a $2 trillion dollar “bazooka”. Why not use that money to recover after the dust settles. I think we need to understand that people WILL LOSE JOBS, businesses WILL FAIL, banks WILL FAIL, retirement accounts WILL LOSE MONEY, etc… This will all happen regardless of how much money is thrown at it. The recovery package will do VERY LITTLE in the immediate (6 mos.) term except help the people who are unemployed and without health insurance. People are being told to spend. But they can’t do that because they can only spend if they have credit (which is frozen). Any cash they do have they’re holding onto it tight. Here’s what I would have liked to see done by govt.
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Set up a program that allows home purchases AND refinancing to have rates at 3% 4% fixed for up to 40 yrs. across the board. It could work with the banks to subsidize these loan programs. I’m sure there are man regional banks that would like to lend. When someone buys a home, they also buy things that decorate and care for the home. If you let someone refinance, they could have more money in their pockets. That would give them more confidence to spend money into the economy. Housing creates so much for an economy with its goods and services demand. THAT will add jobs to retail, construction, etc…
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Have huge tax incentives for businesses so they can start up/ grow. I’m not smart enough to know how much “huge” would need to be , but there are many people that are. Govt. has to be business friendly and stop this “spread the wealth” :bs These policies would have to be aimed at businesses that create real jobs that aren’t shipped overseas. The key is they actually ADD jobs.
There are some things in the stimulus package like infrastructer. But not enough to make a useful dent. I’m hoping for the best.
Phlemboy, I agree with your first point in theory… at least the taxpayers money would be benefiting the taxpayer directly or should I say their grandchildrens money will be benefiting them.
Problem is, the government is working in the opposite direction. Fannie/Freddie are now charging fees ranging from 3/4 points to 3.5 points for a refi OR new purchase based on credit. This is above and beyong regular closing costs. The new subrime is anything under 700, with the amount of foreclosures, economic situation, etc. puts basically most of the country in that category. So on top of the TRILLIONS our children will now be expected to pay back, they are now also getting their piece of skin from the current generation in the form of fees, all while they are being “bailed out”…
http://www.washingtonpost.com/wp-dyn/content/article/2009/02/12/AR2009021204259.html?nav=hcmodule
Business small and large go out of business, and the markets absorb them. They should be allowed to rise as high as they can or fall the same. What we are seeing with all the government “involvement” is the exact reason WHY there shouldn’t be any bailouts. Once you bailout on industry, what’s the reason you don’t do the same for all. All on ours, and our children’s children’s dime. People in government suddenly being touted as having the knowledge and experience to be able to handle MULTIPLE marktets - housing, financing, banking, auto, etc… where the people who are in these industry’s have failed to do so.
Now, the same government who cannot manage their own affairs, and who themselves are insolvent and are running their own PONZI scheme, are now going to be in charge of handling the affairs of multiple companies in multiple industry’s??? :banghead :banghead
Please explain how this makes even remote sense… :bs
Well the govt. has the power/money to subsidize these mortgages in order to get the ball rolling. They can work with lenders to ensure loan terms of 3-4% for up to 40 yrs. for everyone across the board regardless of credit. My only stipulation would be that the new loan actually makes the home affordable. Some people are so underwater that nothing would help. But I believe that there are many people (regardless of credit) would like to buy/ refinance. When it comes to saving the banks, I can’t see why the Fed just can’t do a forebearance for the bad assets. Basically similar to what they did for the S&L’s in 1987. Then the banks won’t have to worry about their capital requirements. That will cost $0. That’s a better # than the billions they’re getting. Maybe I’m being too simplistic, but this whole bailout just smells like a big scam to me. I don’t believe the govt./ taxpayers will be paid back.
People shouldn’t be getting 40 yr mortgages. I know these were and probably are still offered. If you’re looking to spread your mortgage out over 40 yrs, you are buying way more home than you can afford because the monthly payment savings is negligible.
Take $210K (about the national average for home prices) at 6% for instance:
For 30 yrs - payment is $1259.06
For 40 yrs - payment is $1155.45
For that whopping $103.61 in savings each month, you’ll end up paying $101,354.40 over the life of the loan.
It’s the same thing as strething an auto loan out to 84 months. Not worth it.
I think we’re being spent into oblivion and they’re just going to keep doing it thinking it will change things. Yesterday was actually the first day that I began to fear my paycheck may be in jeopardy. There was a time in '98 when military paychecks were delayed for a few days. If this spending isn’t brought under control, that will seem like nothing.
Interest is still paid on the front end of the loan though, and as long as they have collateral/ equity to put into their home, the bank should be OK if the loan doesn’t go 40 years.
Justin, I’m not talking about taking the 40 yr. mortgage all the way to the end. What I’m talking about is making the monthly pmts. affordable for people with temporary income reductions. That would helpreduce foreclosures and the resulting, declining surrounding home values. The average person actually refinances or sells about every 7 - 8 yrs. I agree that if you need a 4% 40 yr. loan in order to buy a home, it’s too expensive for you. But this money will be spent regardless. Much of that money will not create a lot of jobs in the short term. I think a large focus needs to be in housing. An increase in housing will lead to an increase in jobs. It would help reverse the cycle. This is less about housing and more about jobs. But you need housing to create jobs. I’ve talked to many regional lenders and they’re telling me they’re lending with no issues. They don’t have the toxic asset exposure to that the big banks do. Many have told me that local regional banks nationwide are in a similar situation. I believe the lending is available for qualified buyers. I also believe there are people waiting on the sidelines until the interest rates go lower and the housing values stop dropping.
I see your point. You’re talking about a loan somewhat resembling what we’ve been getting for our commercial loans - a fixed rate for a certain term, but amortized over a longer time to make the payments more affordable. Consumer confidence has to come back. People are scared. Look at what’s happened to the national savings rate recently. Reports I saw not long ago had it at a negative .8% or so. I saw something yesterday that said it was now at 5%.
We’ve found lending, but it was difficult and only from a couple banks. I actually had a bank willing to fully finance the purchase of a rental property, but then the owner decided he thought he could get full asking price (this was for a property on the market for well over a year).
Most of the local banks here claim to be strong and only have one foreclosure, if any at all. Many of the foreclosures I’m seeing around town are from bigger corporate banks.
Saw a quick news clip about upside-down mortgages. Showed a house that was bought for $700k, said they still owed $540k. I’m thinking, “Ok, that sounds great they have some nice equity now.” Then the other shoe drops, they say the current value of the house is $350k. OUCH! Now that hurts. Really sucks, seeing that I know they didn’t pay down $160k in the last couple years it sounds like they did everything right and didn’t buy no money down, even had a sizable down payment. Still got raped bad. Of course they didn’t really do EVERYTHING right as they still bought in an out of control market with no regard for the possible (probable)( correction that would come. Of course if you need a house, you need a house…everyone needs to live somewhere and you can’t always wait around for a price drop whether you know it is definitely coming or not. I think it was in California or Nevada. There were a lot of states shown where 30-50% of the mortages were underwater.
The one thing they did wrong was they either bought or leveraged the house at a time when the home values were very overpriced. Those high prices were not the norm, but everyone thought they were. They took on debt through purchases, refi’s and HELOC’s using these values as a guide. It’s less of an issue if you can afford to keep the home comfortably. The problems arise when there’s a change in the financial situation and they can no longer afford it. Now they’re forced to sell when the home values correct. RE is very local, regions that didn’t skyrocket out of control have tended to remain stable. It’s up to future and present homowners to recognize their local market and plan accordingly. I for one am glad that I used 50% of my household income as a guide for buying my first home. It served me well.