[admin]

I didn't know there was an actual act passed to make it a policy to bail out any large financial institution that needed to be bailed out. Of course the current financial crisis is a direct result of this policy since most banks know that no matter how badly they eff everything up the government will bail them out.

Anyways, here is the wikipedia article I found:

http://en.wikipedia.org/wiki/Too_Big_to_Fail_policy

The only problem today is if the government tries to bail out all the financial institutions affected by the mortgage crisis they are going to need A LOT of money, like trillions of dollars. Which means even more devaluing of our already suffering currency :-[

 

[MickeyC]

The issue here is that sometimes the companies are so big that if they fail the economic ramifications are worse then providing a bail out package.

Take GM, hundereds of thousands of jobs, thousands of parts suppliers, total job losses could be in excess of 2M. That's 2M less people paying tax, 2M less incomes driving the economy and 2M more people on social security.

Sometimes it's the lesser of two evils.

 

[admin]

The issue here is that sometimes the companies are so big that if they fail the economic ramifications are worse then providing a bail out package.

Take GM, hundereds of thousands of jobs, thousands of parts suppliers, total job losses could be in excess of 2M. That's 2M less people paying tax, 2M less incomes driving the economy and 2M more people on social security.

Sometimes it's the lesser of two evils.

GM going under will affect 2M people plus some. The United States currency going under will affect every single American and pretty much the whole world.

And if the currency collapses you aren't going to be out buying a new GM vehicle.

 

[MickeyC]

The currency won't collapse. The last interest rate drop was less than the market expected and the dollar strengthened slightly. It has been as bad as 2.08 to the pound. It's running around 1.98 now. If the FED leaves rates low for six months, allows idiots on SubPrime AR Mortgages to refinance and then lifts rates slowly, the dollar will strengthen. Higher interest rates make US investments more attractive and increase doller investment directly.

Also the UK is starting to realize that the current high value of the pound against the dollar is bad for it's economy. Europe hasn't reacted yet but it will if EADS moves factories and jobs from Europe to the US. europem is insulated somewhat by it's large internal market and by trade with the emerging Russian economy but it will need to move in the next 12-18 months.

Ideal boundries are 1.55-1.70:1 USD/GBP and 1-1.1:1 USD-Euro are where we should be. Right now the weak dollar helps US exports but if suppliers switch pricing to the EURO, raw material prices will screw the economy big time. If the Fed starts raising rates again next summer things should shalke out reasonably. Also a new president who intends to focus on the economy and who has a real plan for Iraq and domestic power will aid market confidence.

Just my :2cents:

 

[variablebinary]

I'm against bailouts. If someone is going under it probably means they did something really stupid.

For example...

Housing market. Why is it tanking? Greed. Home's were priced out of the range of the Average American's wages, so they took risky loans. Result: Nightmare. What does the Federal Gubment do? Introduce all kinds of solutions that will prevent the correction needed to get home cost back in line with the wages of most americans. Home costs are still inflated, people still cant afford a decent house without taking out huge loans, only now loans are harder to get and the people that were dumb enough to buy homes they couldnt afford get a cushion.

Bail outs do not help the free market. It hurts more people than it helps

 

[MickeyC]

Ahhh, so you think 1929 was a good year then.

 

[SigsRule]

I love simplistic views of the world.

Which came first:

Greed of home builders raising prices of homes so people had to take questionable loans

or

Questionable loans became available and the supply-demand market forces caused house prices to rise accordingly.

It all depends on who got greedy first.

 

[MickeyC]

Both drive each other.

 

[variablebinary]

Ahhh, so you think 1929 was a good year then.

You think bailing out companies like GM is going to solve the problems that made GM need a bailout to begin with.

 

[admin]

Source: http://quotes.ino.com/chart/?s=NYBOT_DX&v=dmax

You think the dollar can continue to devalue perpetually without any serious side effects to our economy or standard of living?

 

[MickeyC]

No, bailouts are there to slow the harming effect on an economy. It's not like flicking a switch. If the Fed drops rates one more time and pushes lenders to help idiots with subprimes refinance then in six months they can raise rates to improve the value of the dollar.

Also remember that right now a weal dollar makes US exports cheaper and that is one of the few things keeping this economy moving at all. The plan above must be completed before foreign suppliers start charging for their items, e.g. oil, steel etc, in currency other than the doller. If that change occurs with a weak dollar we're screwed.

Also remember that bailouts aren't simply giving cash away. Bernake doesn't sit there giving a pile of cash to anyone. The FED chares for the money they put into the market and often when investing in broken companies it's in the form of loans and or stock.

When Singapore bailed Credit Suisse out they took $4.4Bn of stock in exchange for the cash. Bailouts aren;t the free lunch the media makes them out to be.