Financial Bailout problems

[Dustin James]

Good thread.

The natural check-and-balance to risk aversion and risk taking should be consequence.

If your educated-bet pays off, you get rewarded. If your bad decision tanks, you should be unceremoniously canned. If your indecision and status quo approach averts a major problem, rewarded again. If your indecision causes missed opportunities and market share loss, bye bye, sweetie pie.

Large corporations are made of people. These aren’t large unthinking machines, but rather sums of parts. Those parts are managed and the individuals within those circles of responsibility make decisions.

Okay. Now over the years, a trend has emerged. Consequence for one’s actions has become MIA on a national scale. Starting in the schools of lower education all the way up to post graduate MBAs. From retail stores that have policies not to prosecute shop-lifters, to states that are forbidden to compare social security numbers to determine food stamp fraud. It has become a national past time and assumption, that there is little if no consequence for getting away with it….whatever “itâ€

[Lynn Farris]

Mr. Brown,

I agree. When a business makes a completely bonehead decision and the free market causes it to fail, they either innovate into something new, or they fail. It hurts in a limited way. But there is no need for government intervention.

But that changes when an entire industry fails. Oh sure, some industries are out of date and we don't care if they fail, typewriters, horse drawn carriages, remnants of an older time. But some industries impact other industries. I think we got there in banking and perhaps in autos as well.

You stated:

The biggest problem with this trend, is that it will keep happening until the natural check and balance is restored. When our ancestors failed to find food, or properly shelter, or any number of important decisions, the consequence was often death.

Well, I think we may have seen the death of our quasi capitalist society into a more quasi socialist one - like Europe. I'm not saying whether that is bad or good - but it is a change. I don't think this was as a result of Democrats versus Republicans, but more of a decision brought on by the whole financial industry.

If you believe that we can't let the entire financial market collaspe, then it stands to reason that there has to be intervention. But I contend when that happens, the entire equaltion changes and that company now isn't free to do whatever they want. That change means they now have to answer to their investor which happens to be the citizens, which means, until you pay the loan back - you excercise self discipline.

While we are on this whole question did you see that GM is taking 1 billion of the dollars that we gave them for the bailout to invest in a plant in Brazil? http://www.laht.com/article.asp?CategoryId=12396&ArticleId=320909

According to the president of GM Brazil-Mercosur, Jaime Ardila, the funding will come from the package of financial aid that the manufacturer will receive from the U.S. government and will be used to "complete the renovation of the line of products up to 2012."

This is a perfect example of you point. I as a taxpayer, don't want my tax money going to help GM build a plant or expand a plant in Brazil. My goal as a taxpayer was to help people in the US keep their jobs. But from a CEO point of view, that may make sense. In all fairness, it makes more sense than spending the money on redecorating your office or getting a shiny new jet. But as a taxpayer, I don't like it at all.

[Lynn Farris]

Mr. Brown,

I agree. When a business makes a completely bonehead decision and the free market causes it to fail, they either innovate into something new, or they fail. It hurts in a limited way. But there is no need for government intervention.

But that changes when an entire industry fails. Oh sure, some industries are out of date and we don't care if they fail, typewriters, horse drawn carriages, remnants of an older time. But some industries impact other industries. I think we got there in banking and perhaps in autos as well.

You stated:

The biggest problem with this trend, is that it will keep happening until the natural check and balance is restored. When our ancestors failed to find food, or properly shelter, or any number of important decisions, the consequence was often death.

Well, I think we may have seen the death of our quasi capitalist society into a more quasi socialist one - like Europe. I'm not saying whether that is bad or good - but it is a change. I don't think this was as a result of Democrats versus Republicans, but more of a decision brought on by the whole financial industry.

If you believe that we can't let the entire financial market collaspe, then it stands to reason that there has to be intervention. But I contend when that happens, the entire equaltion changes and that company now isn't free to do whatever they want. That change means they now have to answer to their investor which happens to be the citizens, which means, until you pay the loan back - you excercise self discipline.

While we are on this whole question did you see that GM is taking 1 billion of the dollars that we gave them for the bailout to invest in a plant in Brazil? http://www.laht.com/article.asp?CategoryId=12396&ArticleId=320909

According to the president of GM Brazil-Mercosur, Jaime Ardila, the funding will come from the package of financial aid that the manufacturer will receive from the U.S. government and will be used to "complete the renovation of the line of products up to 2012."

This is a perfect example of you point. I as a taxpayer, don't want my tax money going to help GM build a plant or expand a plant in Brazil. My goal as a taxpayer was to help people in the US keep their jobs. But from a CEO point of view, that may make sense. In all fairness, it makes more sense than spending the money on redecorating your office or getting a shiny new jet. But as a taxpayer, I don't like it at all.

[Lynn Farris]

Okay, the first thing I read was about Citibank sending their former CEO on a luxury vacation right after getting the bailout money. Huh?

The NY Post called this Sky High Arrogance.

[urlhttp://www.nypost.com/seven/02012009/news/worldnews/citis_sky_high_arrogance_152995.htm[/url]

Then I read my very favorite columnists, Maureen Dowd's column today in the NYT. By the way, she calls them Welfare Queens, do you think she has been reading this thread? She has been on a roll, but this time she is calling for disgorgement.

The president’s disgust at Wall Street looters was good. But we need more. We need disgorgement.

Disgorgement is when courts force wrongdoers to repay ill-gotten gains. And I’m ill at the gains gotten by scummy executives acting all Gordon Gekko while they’re getting bailed out by us.

She goes on to quote Senator Grassley.

[quote]Senator Chuck Grassley urged the administration to snatch back the bonuses. “They ought to give ’em back or we should go get ’em,â€

[Lynn Farris]

It just keeps getting worse and worse. Both Maureen Dowd and Frank Rich had compelling arguments in the NYT today. Both indicated that Obama needs to play hard ball with the Financial people. And that seems unlikely given that both Summers and Geithner are from that ilk.

The car companies were forced to renegotiate the contracts with the union guys who make a pitance compared to what these people did that caused the collaspe of the financial system. These people responsible for the failure that now believe they deserve bonus money from the citizens whose 401Ks they have destroyed. Unbelievable.

The head of Citigroup is redecorating his office at a cost of 10 million. Bonuses are given at AIG. AIG is funnelling their bailout money to other banks including foreign banks.

Newt Gingrich is now saying that the banks should be broken up. I think they should be federally managed.

[Will Brown]

First, a bunch of hysterical people are demanding that the government (THE GOVERNMENT, for goodness's sake, that is such a model of skilled management) take control of the complete banking industry because a relatively few people have made messes of the sub par loans the government insisted had to be made. There are many banks out there that are run responsibly, including those that have my money, and painting them with the same brush as the rogue bankers is simply not right. Leave my bank alone; I am happy with it.

There was a severe financial crisis at the beginning of the last century. The government did not become involved, and it was resolved within a couple of months. There was another crisis in 1929; the government became actively involved, and the crisis dragged on until the second world war. Now we have another crisis, and the government promises to become even more involved; prospects for any resolution appear to be dismal.

Let's look at what our leaders are doing. Some banks are holding paper that isn't worth much. How did they get it? They either made unwise loans themselves, or they bought paper from other banks that had made unwise loans, without doing much, if anything, to check out the quality of that paper. Rather than letting these banks die the death they deserve, our leaders are buying up their worthless paper, and letting the same bankers continue their wanton ways. In fact, the FHA is continuing its policy of making loans to anyone who can vote, which puts pressure on banks to match those standards. Does that make sense to anyone? A better solution would be to let those banks fail, and let those bankers lose their jobs. Other bankers would note that, and be more careful to run their banks in a responsible manner. The only losers would be the failed bankers, and the politicians who are used to getting contributions from those failed bankers.

And the bulk of the bail out money going to the non-banking industries is going not because we need the products they make, but because there are a lot of votes and the politicians know that down-sized workers are likely to vote for a change.

And for the young people who have never had to deal with inflation, the Federal Reverse is now acting to bring it back for your edification.

But, since we have a crisis, I would like to state that my garden is ready to be turned over, shovel-ready as they say, and I would like to hire someone (my wife, perhaps, or my alter ego) to do the rototilling for 12 million dollars. Could someone tell the President about this so he can send me a check?

[ryan costa]

our Greatest Depression was the Long Depression. it began in 1873 after British Agents bribed Congress to put us back on a Gold Standard.

There were no movies or radio shows to talk about it, and a much greater portion of the population lived on farms or ranches, so it wasn't quite as disasterous...most people didn't have as far to fall. Previous sharp recessions were mitigated by low standards of living, cheap land, and the ease of losing records and information.

Our present problems are a result of having let banks merge into entities much too large and with much too great of focused influence on government policy. They influenced government policy to give themselves a feeding frenzy. no matter how much spin says this is liberal government fault. Whatever the inefficiencies of Government, the Big Banks and wall street superstars have proven more disastrous. The only significant pressure they were under to shuffle up mortgage backed securities, derivatives, credit default swaps, etc, was there own. The lenders were not hesitant to flood every media outlet with offers of loans with minimal qualifications or likelihood of being paid back.