Me, For Example
You, too, I'm guessing. Both answers to "Who isn't getting a 'bailout' these days?" David Cho, Peter Whoriskey and Neil Irwin write in the WaPo:
The federal government is preparing to take tens of billions of dollars in ownership stakes in an array of companies outside the banking sector, dramatically widening the scope of the Treasury Department's rescue effort beyond the $250 billion set aside for traditional financial firms, government and industry officials said.Treasury officials are finalizing the new program, which could ultimately involve hundreds of billions of the $700 billion rescue package, though the initiative is unlikely to be announced until the end of next week at the earliest.
...Since the announcement of the program to inject capital into banks, a number of industries, including automakers, insurers and specialty lenders for small businesses have approached the Treasury with hat in hand. Some have been turned away because they are not banks and thus not eligible for capital.
The new initiative would make it easier for the Treasury to aid a wider variety of firms if their troubles put the wider financial system at risk, government and industry officials said. These companies would still have to be financial firms that fall under federal regulators.
Several companies, including GMAC, an auto financing company, and CapitalSource, a commercial lender in Bethesda, are seeking ways to restructure themselves as banks or thrifts, which entails submitting to much tighter federal regulation. If other firms follow suit, the trend would vastly expand government oversight into a variety of industries.
I second what a commenter wrote at Reason, where I found the link -- "So now everyone gets a bailout. I just threw up a little in my mouth."
Again, economics not being my area of expertise, I can't say whether treating companies like this is a capitalist society, not a socialist one, and letting them go under, would lead to people on bread lines, but it sure makes me angry to bail all the people out -- and that we're all feeling the repercussions of people who made big financial gambles and are now the equivalent of cufflinked, mansion-dwelling welfare mothers.
It doesn't help that the jobless rate now stands at 6.5% either, does it?
http://news.yahoo.com/s/ap/20081107/ap_on_bi_go_ec_fi/economy
o.O
Flynne at November 7, 2008 7:22 AM
Time to gird your loins. Oh but I thought the bail out was going to save us? Help us Uncle Sam, you're our only hope!
Sio at November 7, 2008 10:29 AM
We are experiencing a recession. A recession is officially a decreasing Gross Domestic Product (GDP) for 6 months (two quarters). GDP is the total of all goods and services produced in the US. Even one quarter of decreasing production is bad. "Why is there a recession" is the same question as "Why are we all producing less, with less employment?"
Many people borrowed against the increasing value of their homes when home prices were going up. They "took money out of their house" in exchange for higher monthly payments. They didn't want to save this money, else they would have let it stay in the value of the house. They wanted to spend it or invest it, buying objects of consumption (meals, autos), or investing in companies (stocks). A great amount was invested in building more houses.
Criminals did much of this borrowing by taking advantage of No Documentation Loans, the most stupid idea in 50 years. It was Fannie Mae, Freddie Mac, and Congress who gave the seal of approval to No Doc Loans by buying up many of them. WSJ articles estimated 1/3rd criminal activity in the housing loan market. The criminals never intended to repay the loans, of course. A lot of the money went to consumption, over many years, convincing businesses to invest in producing consumer goods in increasing amounts.
A lot of money is lost because many loans will not be repaid. The amount lost is about $500-$900 billion (news.bbc.co.uk/1/hi/business/7086909.stm), which is about 3-5% of our $18 trillion economy, with the losses concentrated in banks and financial companies. The extra houses built have oversupplied the market for housing, so houses have dropped in value, causing even larger losses in personal savings.
This has suddenly and greatly changed what and how much people want to consume. People now want (or can afford) fewer houses, cars, and vacations. They want to save more now (or just have less money), even when the government is competing with them by printing money and lowering interest rates. Businesses want to produce and sell, but they don't know how much or what, so they lay off people and wait for price signals to guide them to future production.
The government is making things worse by propping up every failing business having political connections. It looks like GM should fail, so that its resources can be bought by people who are willing to bet on what to do next. Instead, the government wants to give their clueless management more loans, sucking resources away from more productive uses.
The massive bailouts are also misallocating resources. In very special cases, it makes sense to prop up a failing company. The example is not letting the electric company go dark. But, overall, the bailouts are a mistake, and "stimulus packages" are a mistake.
A stimulus package produces a bit of extra demand for consumer items (like TV's). This demand is small compared to total production, and is temporary and artificial. Companies can't tell what to produce after the stimulus is used up, and they can't tell if demand is shifting or is just the stimulus acting.
A stimulus package is only a gift to the public, taken out of the savings and investment of the society, or out of Social Security. It is like losing a job, then going on vacation to cheer up. It interferes with looking for the right work and it uses up savings. Stimulus payments don't stimulate anything, they just fund a little party.
Every month, some companies shrink or fail and others expand or start up. There are local recessions all of the time as demand shifts to better products and companies. A nationwide recession is rare, but it can't be "solved" by spreading money around. This just delays the shift from doing less desired things to doing more desired things.
If the government wants to be kind, it should support limited unemployment payments and let the companies rise and fall according to demand. It should not support the losing companies and starve the future productive winners.
Andrew Garland
EasyOpinions
Andrew Garland at November 7, 2008 6:57 PM
I just wish that the eco/bio/durable/greenies would turn their attention to the economy and recognize that a fiat system based on inflation and interest is unsustainable. The connection with overpopulation, consumption, global warming and economic bubbles are so obvious.
liz at November 8, 2008 4:47 AM
Uh... yeah. Where to begin?
Do you REALLY believe that our economy is based on inflation and interest? Fascinating.
Oh, and since overpopulation and global warming don't exist outside the hive mind of the socialists, I fail to see how they are connected with anything.
brian at November 8, 2008 1:01 PM
What the government is doing is the beginning of widespread nationalization of industry. This tactic has been tried before and has failed, most notably in Britain from the end of WWII until the 80s, when economic stagnation was the order of the day.
I for one am done with this economy. I am getting what retirement money I have left out of the stock market, and parking it somewhere where it'll be harder for those mismanaging this economy to lose any more of it for me.
It is apparent that the idiots in Washington, who just responded to our biggest banking crisis in 80 years by cobbling together a pork-laden bailout (for a completely arbitrary amount of additional debt) over a weekend, and without consulting anyone who knows anything about economics, don't have a clue. Add to that the probability that this coming administration and Congress will be the most anti-business ones in our lifetimes, and I don't see it getting any better any time soon.
cpabroker at November 8, 2008 3:37 PM
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