Become a fan of Slashdot on Facebook


Forgot your password?
The Almighty Buck Government United States Politics

$700 Billion Bailout Signed Into Law 857

Many readers reminded us of what no-one can have failed to hear: that the Congress passed and the President signed a $700B bailout bill in an attempt to avert the meltdown of the US economy. The bill allocates $700 billion to the Treasury Department for the purchase of so-called "toxic assets" that have been weighing down Wall Street balance sheets. This isn't particularly a tech story, though tech will be affected as will virtually all parts of the economy, and not just in the US. Among the $110B in so-called pork added to the bill to sway reluctant legislators are extensions of popular tax benefits for business R&D and alternative energy, relief for the growing pool of people subject to the alternative minimum tax, and a provision raising the FDIC's ceiling of guaranteed deposits to $250,000. Some limits were also imposed on executive compensation, though it's unclear whether they will be effective.
This discussion has been archived. No new comments can be posted.

$700 Billion Bailout Signed Into Law

Comments Filter:
  • Friday (Score:5, Interesting)

    by characterZer0 ( 138196 ) on Saturday October 04, 2008 @02:28PM (#25257099)

    Why is it that really bad legislation always seems to pass on a Friday?

    • Re: (Score:3, Interesting)

      by WK2 ( 1072560 )

      According to one of the bosses in "Office Space," they try to fire people on a Friday, so that they have the weekend to cool off, in case they were thinking of coming into work the next day with a machine gun.

      Maybe it's kind of like that? Maybe they pass unpopular bills on a Friday so that angry protesters have the weekend to cool off before coming into Congress with a machine gun?

    • Re:Friday (Score:4, Interesting)

      by owlnation ( 858981 ) on Saturday October 04, 2008 @02:40PM (#25257215)
      I assume you know this, but bad news is always deliberately released on a Friday if possible. The media doesn't work full shifts at the weekends, and most people don't sit down to a nightly news program or newspaper. Most in positions of power in Government / Business know that by Monday morning any bad news will have passed largely unnoticed.

      Which ultimately is a sad reflection on the media and Joe Sixpack, rather than on the Government.
      • Re:Friday (Score:5, Interesting)

        by ShieldW0lf ( 601553 ) on Saturday October 04, 2008 @03:38PM (#25257743) Journal

        It has more to do with the stock market opening on Sunday night in Asia. Everything revolves around Asia now, you just haven't digested the fact. The government printed all that money so they can give it to the Chinese, because it's easier than saying "Give us back half your money, we are selling half the country in exchange for another 10 years of comfort to die in." Printing money and devaluing what exists is less work and has the same effect.

        You people keep wanting to make this an aberration. It's not. It's not a matter of "The system works, but someone didn't follow the system, we just need to sort them out and things will be ok." It's not like that at all. The fact of the matter is, the things that you hold most dear, your most treasured cultural values, they are what have done this to you. It's not the lawbreakers among you that did this to you. It's the laws and the people that follow them.

        That's why people don't want your "Freedom" and "Democracy" in their own nations. It's because they see what you have done to yourselves, and they don't want any part of it.

        I hope it happens quickly. The sooner you all fall to pieces, the sooner we can start clearing your poisonous influence out of our nations.

        • Re:Friday (Score:4, Insightful)

          by Anonymous Coward on Saturday October 04, 2008 @06:40PM (#25259361)

          I agree with you on most of your writing. There are things fundamentally flawed in our western culture. However, I don't agree with the last sentence:

          The sooner you all fall to pieces, the sooner we can start clearing your poisonous influence out of our nations.

          You cannot hold America or Americans responsible for this influence. What the people in Europe choose to do is *their* responsibility, not any American's. People in Europe can refuse to participate, but they don't. Not because any American forces them, but simply because they're tempted by greed in much the same way.

        • Re:Friday (Score:4, Insightful)

          by ObsessiveMathsFreak ( 773371 ) <obsessivemathsfr ... .net minus physi> on Saturday October 04, 2008 @09:30PM (#25260461) Homepage Journal

          That's why people don't want your "Freedom" and "Democracy" in their own nations. It's because they see what you have done to yourselves, and they don't want any part of it.

          That might be the sentiment of some. But the reality is that despite our failures, despite our "decadence" or "immorality", despite the current crisis, people living in free democracies are still much, much better off that people who do not. And I don't just mean better off financially. I mean better off socially, culturally, and yes morally.

          Many people around the world live in simple poverty. But not living in a democracy will typically mean you live in subjugated poverty. Even if you are better off, you still live in subjugation. Ask the women who live in just about any third world or developing undemocratic country. Ask the ethnic or religious minorities. Ask the homosexuals. Ask the academics. Ask the journalists. Ask them if they're willing to risk western "corruption" for freedom and democracy? Better yet, ask yourself, and hope that you are not found wanting.

          You may disagree with many things in western society. Hell, I disagree with quite a few of them myself. But freedom and democracy are not and never have been a negative or poisonous influence on any society that has accepted them. Whatever may have failed the west in the last few months, our basic values have not.

    • It's all just part of the template for putting bad ideas into law.

      Step 1: A bad idea is formed.

      Someone has a bad idea for a bill. This could be a special interest group looking to get Congress to pass some horrible bill to have the government fleece the people for cash to enrich a select few. Sometimes it's the executive branch looking to grab some "emergency" powers by predicting doom and death if Congress doesn't just GIVE unchecked power to fight the terrorists allowed to flourish under their watch, t

      • by cayenne8 ( 626475 ) on Saturday October 04, 2008 @04:08PM (#25258031) Homepage Journal
        I happened to run into one of our state's congressional representatives at dinner last night. I talked with him briefly about the bill.

        He said there were actually a number of alternate measures put forth, that would have solved the problem without the massive bailout price tag to taxpayers, but, that sadly none of them were even considered. Only the big bailout check bill was to be considered.

        I wish I'd have time to get the details on the other proposals, but, no time at that time to talk further.

  • Biggest Con Ever (Score:5, Interesting)

    by bigtallmofo ( 695287 ) * on Saturday October 04, 2008 @02:29PM (#25257103)
    Henry Paulson, the CEO of Goldman Sachs until 2006 and current U.S. Treasury Secretary succeeded in scaring the public and Congress into giving him a $700B blank check to bail out his friends. If you think that money will "trickle down" to you or small business owners, or anyone other than the people it's directly going to, you are mistaken.

    The DOW plummeted to 10,365 on Monday September 29th when the bailout bill failed to pass. Every proponent of the bailout screamed, "I told you so!" Then on Tuesday September 30th, even without the bailout bill the DOW rocketed up to 10,850. Then on Friday October 3rd when the bailout bill passed and was signed into law, the DOW dropped yet again to 10,325 (even lower than Monday when the bailout bill failed).

    This bill will not help the credit markets, the debt markets, the equity markets or anyone reading this comment. It will help Goldman Sachs, Morgan Stanley and the rest of the former investment banks de-leverage from 60:1 leverage down to traditional 12:1 leverage on your dime while the economy goes down the tubes.

    They pulled out all the steps - even threatening martial law: []

    ...and our Congresspeople fell for it.
    • Re: (Score:3, Interesting)

      by hey! ( 33014 )

      Did you even read a summary of the bill, or are you just handing on opinions?

    • by copponex ( 13876 ) on Saturday October 04, 2008 @02:47PM (#25257303) Homepage

      Between 1 and 1.3 trillion dollars has been spent on military projects and war for the last few years, depending on how you look at old debt. The money is not clearly accounted for, against constitutional principles, and it only goes to serve large corporations.

      Where is the public outcry? Where are the Republican talking heads when the budget is being discussed?

      The bailout plan may be awful, but it's by no means the biggest con ever. The biggest con ever has been going on since the end of WWII, and it has cost American money and lives, and in no small number. Any of these transparently partisan personalities are just squawking for advertising dollars and votes, same as always.

      • by klui ( 457783 ) on Saturday October 04, 2008 @07:33PM (#25259739)
        The public outcry is being squashed by the right-winged media. Speaking against the way means you're "unpatriotic" or "soft against terror." Liberal reporters have been scared/pressured by "news" networks like Fox or Limbaugh to keep silent. Look what happened to individuals who planned on demonstrating the RNC. The FBI raided/arrested individuals before they did anything.
    • Re:Biggest Con Ever (Score:5, Informative)

      by illumin8 ( 148082 ) on Saturday October 04, 2008 @03:26PM (#25257627) Journal

      Henry Paulson, the CEO of Goldman Sachs until 2006 and current U.S. Treasury Secretary succeeded in scaring the public and Congress into giving him a $700B blank check to bail out his friends. If you think that money will "trickle down" to you or small business owners, or anyone other than the people it's directly going to, you are mistaken.

      Not only that, this article [] (sorry, NYTimes reg required) details how Henry Paulson, back in 2004, asked the SEC to deregulate Goldman Sachs and other banks to allow them to take on this toxic mortgage debt in the first place.

      We have just been ripped off by the most elaborate con in the history of the world. We let a banker tell us "let us break the rules so we can make more money", then when he did and the bottom fell out, we gave him even more money to keep him from going out of business.

      My only hope is that the voters check for who is voting for this and get rid of them next election.

  • Sweet? (Score:5, Funny)

    by Entropy98 ( 1340659 ) on Saturday October 04, 2008 @02:29PM (#25257107) Homepage

    How big of a check should I expect to get?
      Blackshot []

  • Free market (Score:5, Insightful)

    by Anonymous Coward on Saturday October 04, 2008 @02:31PM (#25257123)

    The major effect of this bill is that it is causing fiscal conservatives to blow gaskets. They can't accept the fact that the free market is what caused this mess.

    It is funny to hear them complain about how people on Wall Street became "greedy." I'm not a financial expert but I think that is part of the design. Everyone on Wall Street works for their own self interest. That is how the invisible hand is supposed to work. But conservatives complaining about the essential 'feature' of the free market is sort of twisted.

    • Re: (Score:3, Insightful)

      by Anonymous Coward
      Wrong. If it was a free market, banks would look at an individual's credit history, income, house location, etc, and approve or deny a loan based on whether it was a financially sound decision. Congress stepped in and told them to loan to people with poor credit history. In a free market, Fannie Mae and Freddy Mac wouldn't have had implicit (now explicit) government backing. Had they been free of government support, they wouldn't have been able to deal with such a large quantity of shit loans.

      I haven'

    • Re:Free market (Score:5, Insightful)

      by ChromaticDragon ( 1034458 ) on Saturday October 04, 2008 @03:15PM (#25257549)

      The invisible hand of free markets probably works as long as everyone does act in their own self-interest AND everyone has the same access to reasonably accurate and complete information.

      If anything, this current crisis should deeply underscore that institutions cannot be trusted to:

      • Be accountable
      • Be transparent
      • Be honest and forthcoming about conflicts of interest
      • Be accurate regarding valuations of assets
      • Be reasonable regarding short-term gains vs. long-term risks

      Of course, if we would let everything and everyone fail outright in a horrific manner, maybe just maybe everyone would learn deep lessons. Nobody would deposit anything in any bank that wasn't bending over backwards to do all of the above.

      • Re: (Score:3, Insightful)

        by kadehje ( 107385 )

        Of course, if we would let everything and everyone fail outright in a horrific manner, maybe just maybe everyone would learn deep lessons.

        Unfortunately the stakes are too big now to allow everything to fall outright. The last time just about everything failed was the 1930s. As badly as the U.S. was hit by the Great Depression, many other countries that relied on trade with the U.S. got hit even worse. Two of those countries were Germany and Italy. Economic turmoil played a large role in allowing Hilter and Mussolini to assume power and wage a war to restore what they considered their rightful role as a world economic and political power.

    • Re:Free market (Score:4, Interesting)

      by hey! ( 33014 ) on Saturday October 04, 2008 @03:15PM (#25257555) Homepage Journal

      Well, fiscal conservatism and liberalism are like any other kind of conservative/liberal dichotomy: simplistic.

      You can be a fiscal conservative because you believe in balanced budgets. You can be a fiscal conservative because you believe in minimum spending. You can be fiscal conservative because you believe in minimizing government involvement in the economy, other than setting the money supply. You can even be a fiscal conservative who doesn't even believe the government should get involved with the money supply (like Ron Paul, who favors a return to the gold standard).

      What's clear here is that most of the people talking about Wall Street being "greedy" don't have believable credentials to any kind of fiscal conservatism. There isn't really a name for them: they're socially conservative, politically authoritarian, and fiscally opportunistic. Mixing them up with "fiscal conservatives" is what makes what they say sound confusing.

      Personally, I don't fit any of these definitions of "fiscal conservatism". I think that the budget should be balanced with respect to current expenses, but that capital items that either have real value (like buildings) or clear potential for increasing future revenues (like education and some road projects) can reasonably be funded by borrowing. I don't believe that accumulating debt in the taxpayer's name and giving him a break on this year's tax payment is a tax cut.

      From my perspective, Wall Street is supposed to be greedy, and Washington is supposed to draw boundaries which limit greedy acts when they become anti-social. That makes me a liberal in many people's eyes, I guess, because I think the government is supposed to safeguard the common good. But there are plenty of paleoconservatives who agree with me on this, but weigh risks and benefits differently than I do.

    • Re:Free market (Score:4, Insightful)

      by TheFlamingoKing ( 603674 ) on Saturday October 04, 2008 @03:40PM (#25257765)
      LOL, free markets. In a free market, the government doesn't back the debt liabilities of private corporations, as in the case of Fannie Mae and Freddie Mac. In a free market, the government doesn't pass laws requiring businesses to offer equal amounts of loans to subprime candidates as prime candidates, as in the case of the Community Reinvestment Act. And, in a free market, the government doesn't step in and assist businesses that made bad decisions and took on too much risk. They don't use the money taken from the citizenry (by force!) to assist failed companies. No, I assure you, Anon, there is no free market here.
    • LOL, free market? (Score:4, Insightful)

      by unassimilatible ( 225662 ) on Saturday October 04, 2008 @05:43PM (#25258899) Journal
      They can't accept the fact that the free market is what caused this mess.

      Wait, what? What a stunning display of ignorance of how the whole subprime lending system worked. In a "free market" the government does not intervene. Fannie Mae and Freddie Mac, government sponsored enterprises (AKA, "ATMs"), are no more "free market" than the post office. In this "free market," both FMs artificially inflated both credit and housing markets (just as government student loan programs have done to tuition) by pouring money into the system, and representing to the banks "don't worry, we are backed by Uncle Sam, what could go wrong?". In a "free market", government regulations like mark-to-market [], which caused massive bank paper losses, don't exist. In a "free market," you don't have a CRA [] telling lenders how they have to loan their money. In a "free market" you don't have corrupt senators like Chris Dodd [] and Barney Frank [], who are on important congressional banking oversight committees (which themselves wouldn't exist in a "free market"), leaning on lenders to make subprime loans, and fighting attempts to reign in these out-of-control Government-Sponsored Monstrosities. [].

      Here's what Chuck Schumer said back in 2003, when Republicans wanted more oversight of said Government-Sponsored Monstrosities:

      Senate Banking Committee, Oct. 16, 2003:

      Sen. Charles Schumer (D., N.Y.): And my worry is that we're using the recent safety and soundness concerns, particularly with Freddie, and with a poor regulator, as a straw man to curtail Fannie and Freddie's mission. And I don't think there is any doubt that there are some in the administration who don't believe in Fannie and Freddie altogether, say let the private sector do it. That would be sort of an ideological position.

      Source [].

      So Schumer himself opposed reform on the grounds that the "free market" is the wrong approach. Massive government intervention and regulation was the status quo. But now it is the "free market's" fault? WTF?

      Yeah, sounds like a "free market" alright. Just like public housing is a free market.
  • by Ostracus ( 1354233 ) on Saturday October 04, 2008 @02:32PM (#25257137) Journal

    I seem to remember reading the BBC and noting that countries overseas wanted this bill as much as some in the US.

  • Ridiculous (Score:5, Interesting)

    by InvisblePinkUnicorn ( 1126837 ) on Saturday October 04, 2008 @02:32PM (#25257145)
    First, let's understand what caused this crisis. Then you'll understand why the bailout won't work.

    Economist: Why Bankruptcy is better than bailout []

    The Trillion-Dollar Bank Shakedown That Bodes Ill for Cities [] ( written EIGHT YEARS before this crisis, predicting everything down to the dollar amount)

    Now, check out the $150 Billion in pork-barrel projects that were added by the Senate to the original 100-page bailout that failed in the House, turning it into a 450-page bailout:

    - "Wooden arrows designed for use by children" (Sec 503)
    - Wool Research (Sec. 325)
    - Film and Television Productions (Sec. 502)
    - Litigants in the 1989 Exxon-Valdez oil spill (Sec. 504)
    - Virgin Island and Puerto Rican Rum (Section 308)
    - American Samoa (Sec. 309)
    - Mine Rescue Teams (Sec. 310)
    - Mine Safety Equipment (Sec. 311)
    - Domestic Production Activities in Puerto Rico (Sec. 312)
    - Indian Tribes (Sec. 314, 315)
    - Railroads (Sec. 316)
    - Auto Racing Tracks (317)
    - District of Columbia (Sec. 322)

    This is the bill that senators are screaming about, saying "IT MUST BE PASSED OR DOOMSDAY!" Who believes them? And yet the bill easily breezed through Congress.
    • Re:Ridiculous (Score:5, Interesting)

      by globaljustin ( 574257 ) on Saturday October 04, 2008 @03:05PM (#25257449) Journal

      Good links, here's the deal...

      The US has a mixed economy. Our currency is based on a perception of value (no more gold standard). We like for a market to be as unregulated as possible, but for any number of reasons sectors of the economy will have regulations (from health codes, to OSHA, to Sarbanes/Oxley).

      Perception drives our economy just as much as facts and reality. I don't like it, but it's just a flat fact. If people *think* our economy is good, they buy things and make investments. If they *think* it's bad, they don't buy, don't invest, etc... These are the basics, I'm building to a point.

      My point is, if we had a respected President, one who could come on TV and calm everyone down, this 'bailout' would be unnecessary. The market would recover. But because the general public has the *perception* that this is "the worst economic crisis since the depression" then something had to be done.

      I don't like what they did, but I agree they had to do something. I would have liked for it to be better, but it's not.

      Yes, there is obviously problems in the housing market and banking system right now, but (all suffering aside) it's just the market leveling itself out. Housing prices were inflated...they were going to come down. People took on loans they couldn't pay...they were bound to get foreclosed.

      In a perfect world, we could let AIG, etc. fail, give some emergecy economic help to people who lost their homes, and wait for the market to recover, but because of how *perception* plays a part in our economy, this "bailout"...though in theory the wrong move, in practice was needed...almost like a commercial for how good our economy will be...

      I hate that this is how it works (and I know I'm oversimplifying), but it's true.

      • Re: (Score:3, Insightful)

        by RyoShin ( 610051 )

        But because the general public has the *perception* that this is "the worst economic crisis since the depression" then something had to be done.

        I don't disagree with your statements (I recall a phrase like "If it is believed, it will be"), but I don't think that's what happened here.

        A few days ago, as reported by Slashdot [], the White-house had to stymie the flow of e-mail from constituents due to the first bill. I would bet my bank account (all $20 of it) that the majority of those were negative about the b

  • by blackholepcs ( 773728 ) on Saturday October 04, 2008 @02:34PM (#25257163) Journal
    then I won't notice a thing. I am lower middle class, barely making ends meet. I usually get a refund at tax time, but not much. I've never come anywhere NEAR the FDIC cap in my bank account, and even if my bank went under, big deal. I'd be out less than 200 bucks. But the FDIC would cover it, so no loss. The only thing that the government could do to "bail" me out of rough times would be to:
    Lower my income tax
    Regulate fuel prices to a reasonable level
    Give me free health care
    Give me free college just like the African Americans and Latinos and Single Moms and Sudanese and pretty much everyone who isn't a white male/female with no kids
    Other than that, big deal. 700 billion dollars that I basically receive no real benefit from, while people who are already rich just get richer. Yay America.
    • Re: (Score:3, Insightful)

      by ahodgson ( 74077 )

      2/3 of your oil is imported from other countries. How do you imagine the government could regulate your fuel prices to a "reasonable" level?

    • If you live your life the way you post on Slashdot, it's no wonder you don't have anything. How about instead of expecting the government to hand everything to you you get off your ass, study, get good grades, earn a free ride through college (or take some loans), work hard, get a good job, and then buy the shit you want?

      Yeah, it does suck that certain special interests are able to use the government to make themselves richer. And we should definitely be spending our tax dollars helping out those on the b

    • Regulate fuel prices to a reasonable level

      How would increasing fuel prices help you? Unless it forced you to other forms of transport...

  • by erroneus ( 253617 ) on Saturday October 04, 2008 @02:35PM (#25257177) Homepage

    There is also a provision extending IRS powers extending its immunity from a variety of laws.

    Read more here: []

  • by David Gerard ( 12369 ) <slashdot.davidgerard@co@uk> on Saturday October 04, 2008 @02:38PM (#25257195) Homepage

    "We owe it all to the bedrock of our economy: the ordinary hard-working taxpayer []. You resisted the siren call of credit cards, lived within your means to save for a rainy day, never took out an interest-only mortgage, credit score to make Jesus cry. Without taking every penny you saved over the $100,000 guarantee, we'd never have made it. And the best bit is, we know you'll still vote Republican! God bless you all!"

    By the way, your house is still worthless. []

  • Another Option: (Score:5, Interesting)

    by teknopurge ( 199509 ) on Saturday October 04, 2008 @03:04PM (#25257445) Homepage

    I have had the chance to speak with other business owners and some executives of, let's just say, large, corporations. The general feeling is that while action was necessary there was a much better approach:

    - ~500 billion USD given to the Fed
    - Allow the Fed to disperse the money through the discount window with loans at 1% fixed for 18 months then reset to Prime-0.5%
    - All mortgages that are currently in MBS tranches have their rates reset to Prime+1 for 24 months.
    - Have the US AG seek felony charges for lenders that committed fraud.

    The current bill is like trying to get fuel into a car through the tailpipe instead of filling up the gas tank.

  • by camperslo ( 704715 ) on Saturday October 04, 2008 @03:09PM (#25257489)

    If you want to check out all of details directly it's only 724 KB to get the PDF of HR1424, the full bill [].

    You can find an index to most of the tax break provisions starting around page 261.
    Looks like they got the Republican tax agenda in there.

    Some may also like to check out the wikipedia entry for HR1424 [].

  • by King_TJ ( 85913 ) on Saturday October 04, 2008 @03:11PM (#25257501) Journal

    What I find MOST incredible about this whole bailout, is the fact that nationwide polls of the general populace indicated between 70% and 75% were AGAINST the legislation, yet the Senate passed it through with FLYING COLORS, and House of "Representatives" were swayed to voting for it in a matter of only a few days. All it really took was throwing in a few key financial incentives and bonuses to the appropriate special interests, and some empty promises by potential presidents to be.

    The whole time, these "Representatives" were being flooded with demands from the American people NOT to vote for the bailout - but they turned a deaf ear to everyone, and made bold claims like "I may not be re-elected because of this, but I'm confident I did the right thing for America's future anyway." One moron said he changed his vote from NO to YES, simply because "I talked with potential president to be, Obama, and he personally assured me he would enact legislation after his election that's in alignment with what I want to see." (WHAT?!? You were VERBALLY promised some B.S. by a guy who MAY or MAY NOT become president, so that's more important to you than listening to the people who elected you and trusted you to represent their wishes?!)

    When HUGE taxpayer expenditures like this are voted through and signed into law in less than a week, despite 3 out of 4 Americans being strongly against them - it's clear we no longer live in a Democracy at all! This seems like as good a reason for an overthrow of our government as what we dealt with back around 1776! Yet people will not only sit back and accept it, but probably not even vote in protest for a 3rd. party like the Libertarians. (Incidentally, Bob Barr has been speaking out against this bailout the whole time, unlike our Democratic or Republican contenders. The man gets MY vote for that reason alone. At least he's in support of the will of the PEOPLE still!)

    • Re: (Score:3, Insightful)

      by pembo13 ( 770295 )
      Lesser civilized, also known as third-world nations would have taken to the streets for such outright bullshit.
  • No alternative? (Score:5, Insightful)

    by nephridium ( 928664 ) on Saturday October 04, 2008 @03:14PM (#25257537)
    This situation is so absurd. The supporters act as if this thing is so urgent and there is no alternative, but then they take their time by taking off due to a Jewish holiday that not even a lot of Jews celebrate..

    Then they come back and basically vote on the same bill again, but this time a few house members take the bait [] and it passes. Some of the amendments being totally weird and not really having anything to do with "bailing out" Wallstreet, such as subsidizing rum, wool research and wooden arrows for children?!? I'm not making this shit up! []

    Then we have McCain [] sitting in a interview riling against the pork barreling and at the same time taking credit for convincing his Republican buddies to back this "sweetened" bailout plan.

    And the really ironic thing is that we have old-school (i.e. fiscally conservative) Republicans opposing the bill as well as far left dudes like Kucinich []. Not to mention Paulson's conflict of interest [] in this whole mess.
  • by Kupfernigk ( 1190345 ) on Saturday October 04, 2008 @03:27PM (#25257643)
    Funnily enough, the really big economic story this week may not be the $1.1 trillion (including fannie and freddy) bailout. It may be Ireland. The Irish economy is, basically, a banana republic - no real assets other than intangibles. Yet Ireland has guaranteed all bank deposits, with a potential liability in excess of 400 billion (400 billion Euros or $600 billion). Ireland does not have that kind of money, and as people are trying to invest more money in it, the risk of default gets ever greater.

    So what is their strategy to deal with it? They have created a class of company (unlimited liability) which basically has to file almost no public accounts. A similar wheeze was used in Germany some years back in the KG & Co. in which one member of a partnership was a limited company. The object is to get US and other corporations to make their corporate HQs in Ireland, and so hide their profits in this offshore bank scheme. Look it up.

    By getting US corporations to relocate to Ireland they hope to avoid recession in the economy and ensure the bank guarantees will never be called in. But clearly that will reduce the tax income from corporations in the US, and worsen the crisis there.

    I am only just joking when I suggest that some of the pork should have been invested in invading Ireland. Saddam may not have had WMDs, but Ireland seems to be trying to develop WMEDs (weapons of mass economic destruction). Perhaps Osama Bin Laden hasn't been caught because he's actually been in a Dublin pub, plotting the downfall of the US.

  • by Animats ( 122034 ) on Saturday October 04, 2008 @04:04PM (#25257991) Homepage

    I have real doubts about the bailout "working". The underlying problems with the financial system are more fundamental. We have a sizable chunk of the financial system based on the assumption that real interest rates (after inflation) will remain negative.

    Currently, US dollar inflation is around 5.4%. (9% to 11% if you use classical numbers, [] computed the way inflation was calculated prior to the 1980s.) Normally, the Fed funds rate is just above inflation, LIBOR and the prime rate run around 2% above inflation, and mortgages run about 6% above it. For the past year, the Fed has been flooding the financial system with cheap money, at 2%, in a failing attempt to avoid a recession. LIBOR is 3.88%. So we're currently in a situation where key real interest rates are well below inflation. LIBOR, in real terms, is about -1.5%. This is very unusual historically.

    The problem is that 1) negative real interest rates can't last for long without producing runaway inflation; the money has to come from somewhere, and 2) there are sectors of the financial system that are addicted to those low, low rates. Last week, LIBOR briefly hit 6.88%, businesses were screaming "credit crunch", and AT&T and GE were having difficulties rolling over their commercial paper. (GE Credit borrowed short and lent long, which is a bet on low interest rates.)

    The mortgage portion of the economy is heavily dependent on those low interest rates. A mortgage really should cost a good borrower about 11.5% right now; 6% as the cost of the mortgage, and 5.4% for inflation. The "bailout" is all about keeping those interest rates artificially low. For a while longer.

    Probably not that much longer. Expect a "credit crunch" in 2009 as financial reality reasserts itself.

    There's nothing wrong with a credit crunch. It just means that businesses have to finance more with equity and less with debt. (Because interest on debt is deductible by business borrowers, there's a systemic bias towards financing with debt.) Consumer credit rates, other than for autos, are already at credit-crunch levels. (Stop in at your local "payday loan" outlet and ask them what their APR is.) And besides, we might see worthwhile interest rates on savings accounts.

    What's "normal?" 3% real interest on savings accounts, 6% on loans, and the median house costs 2.5 years median income. That multiplier got up to over 4 in the US nationally, and over 10 in some markets. That was two years ago; now those numbers are lower, but not low enough.

    When bubbles burst, they burst all the way. Tokyo residential real estate dropped over 90% when their bubble burst in 1989, and never went that high again.

    We told you this would happen. You didn't listen. Now suffer the consequences. []

  • by 4D6963 ( 933028 ) on Saturday October 04, 2008 @04:09PM (#25258041)

    At last! Hallelujah! I'm European so this isn't my money that's involved, therefore a bailout is better for me and the world's economy than no bailout, and it doesn't cost me a thing anyways. Sorry you guys have to pay the cost, but look at the good side of things. Thanks to this whole thing happening at the right time it only makes you more likely to get a decent administration this time.

    Seriously, I look at this chart [] as if it was the temperature curve of this election, and if you rely on it then this whole crisis made Obama's estimated odds of being elected skyrocket. All the Diebolds in the world couldn't save the day for John "I was a P.O.W. for 5.5 years" McCain and Sarah "I'll make you keep your foetus even if the father is your uncle" Palin.

  • Zeitgeist: Addendum (Score:3, Informative)

    by Pegasus ( 13291 ) on Saturday October 04, 2008 @04:14PM (#25258087) Homepage
    In related news, Zeitgeist: Addendum [] has been released to the public. Timing seems just perfect.
  • by cinnamon colbert ( 732724 ) on Saturday October 04, 2008 @05:02PM (#25258515) Journal

    One myth about the current financial crises is that it is the fault of ordinary Americans, who imprudently took out loans they could to afford. This is simply not true.
    The current crises is not the fault of ordinary Americans.
    It is true that many Americans took out loans they could not afford. I don't know why people did this - some, with credit cards maxed out on vacations, took out a home loans , and instead of paying off the credit card, took another vacation. Others were optimistic, egged on by the relentless propaganda that home ownership is good. Others were, perhaps , elderly and confused, or lost their jobs, or had medical bills. I don't know how many people acted in different ways, but i do know this: every single solitary mortgage had to be approved. Every single mortgage had to be approved by underwriters and bankers. Now, if someone, asks for a loan they cannot possibly pay, who bears more responsibility: the person asking, or the banker who approves it.
    I further know that many ordinary Americans are suffering as a result of their actions, and of the actions of their neighbors.

    Another myth about the current crisis is that rather then resulting from too little govt regulation, ti was the result of liberals messing with the free market, by forcing banks, with a law known as CRA, to make loans to poor or minority applicants. This question has been studied again and again by the Federal Reserve; suffice it to say, CRA loans were not the problem.

    However, the question of who or why these loans were made is a red herring; it was not the approval of imprudent loans that has made the current crisis so severe. All the bankers who approved these loans are not actually the main culprits.

    The people who bear direct responsibility for the current crises are people like Paulson; as CEO of Goldman Sachs, he and people like him are directly responsible for the current problems; that he is sending our tax dollars to his buddies to fix the problem is only icing on the cake of gall. Not only are people like pauslon responsible for our current problems, they acted from the basest of motives - greed. It was the desire on the part of people like Henry Paulson for larger paychecks that led to reckless behavior on the part of wall street; this reckless behavior generated large profits, justifying large salary's, but this same reckless behavior has gotten us to where we are today.

    Another myth about the financial crisis is that it is incredibly complicate. While the technical details of loans may be complicated, the behavior and actions that led to this state are not at all complicated, and are similar to what we do every day.

    As an example, this week, the wall street journal examined why AIG, one of the largest and most respected financial institutions in the world, suddenly collapsed. Turns out, they had a unit in london writing insurance; while it sounds complicated its just insurance - someone pays you some money, the premium, and you promise to pay back a lot more if they have a problem. And what did AIG do with the huge premiums they recieved ? they did not put any money aside for a reserve.
    LET me repeat that: they spent all the money on salarys. So when the mortgage market went south, all of sudden people said, hey, AIG owes, in theory, a gazillion dollars of insurance, and they don't have any money set aside to pay it.
    When people heard this, you had the famed loss of confidence, and AIG went bankrupt.

  • by grandpa-geek ( 981017 ) on Saturday October 04, 2008 @09:35PM (#25260487)

    There was an article in last Sunday's Washington Post that described one house on the market after a foreclosure. The article was very instructive about what was really going on. The entire financial mess is a result of the gambling casino mentality of the derivatives market moving over into housing and mortgages. The mentality of the derivatives market was allowed to exist and continue as a result of financial market deregulation.

    Many financial experts, most notably Warren Buffett, the Sage of Omaha, have for years warned that there are derivatives nobody understands and that they will cause trouble. Based on the article, it is clear that we now have mortgages nobody understands and derivatives on those mortgages that nobody understands, either. Derivatives in the form of "portfolio insurance" caused the stock market crash of 1987. Since then there have been several occasions (such as Long Term Capital Management) in which derivatives threatened to collapse the world financial system. Well, they've done it again.

    The article []
    describes how the homeowner was solicited to refinance her home and took the bait. The interest rate was a teaser. Over a year into the
    mortgage she discovered that it was a "negative amortization loan" where the principal increases every month. The transaction probably came nowhere near compliance with Truth in Lending laws. It is shocking that such a piece of financial garbage exists. However, Wall Street wanted mortgages to feed the highly profitable derivatives market and there was a lot of pressure to produce the mortgages, no matter how.

    The article doesn't cover what happened next, but the mortgage was likely bundled into a collateralized mortgage obligation that likely had
    credit default swaps written on it. Here are some relevant Wikipedia links: [] [] [] []

    It turns out that many of the derivatives are really side bets on prices of financial securities, and that the total outstanding value of the derivatives often exceeds by huge factors the total outstanding value of the securities. Furthermore, the derivatives are highly leveraged.

    According to a recent program on NPR's This American Life there are about 4 Trillion in bonds and about 60 Trillion in derivatives betting on whether the bonds will pay off.

    In the absence of strict regulation, the "free market" becomes the Fraud Market. This mess can be laid squarely at the feet of financial deregulation and Fraud Market Conservatism. Adam Smith's "unseen hand" doesn't work. The financial markets are much more in keeping with Charles MacKay's book "Extraordinary Popular Delusions and the Madness of Crowds". This has been proven over and over, and is now being proven once again.

    One part of the eventual cleanup will need to be a shutdown of the derivatives casino. Some of these financial instruments are valuable to
    producers and users of real commodities, but most of them need to be eliminated. Whatever remain need to be understandable and should not be
    side bets. Eventually, the tails will stop wagging the dogs.

No problem is so large it can't be fit in somewhere.