08
Sep
08

On Air: Should taxpayers pay the price for bad business decisions?

It’s the largest bail out in US history. Yesterday the US Treasury Secretary Henry Paulson announced that mortgage giants Freddie Mac and Fannie Mae have been taken over by the US government. President Bush said it was because they posed “an unacceptable risk” to the economy.

Between them Freddie Mac and Fannie Mae finance or guarantee nearly half of the outstanding mortgages in the US, and have lost billions of dollars during the US housing crash. Investors hoped this bail-out would prop up the country’s housing market and ultimately help to end the credit crunch.

The rescue could cost up to $200bn, which will be stumped up by the taxpayer.

This isn’t the first case of it’s kind. Earlier this year the British government bailed out the Northern Rock bank by nationalising it.

And other examples. Roskilde in Denmark, IKB in Germany.  Is it right to bail out banks and businesses with a bad business model? Was this a necessary decision to stop a worldwide financial meltdown? Or should companies that make bad decisions be left to face the consequences alone?

Some people argue there is little incentive to improve business practice when big bosses get big payouts.


201 Responses to “On Air: Should taxpayers pay the price for bad business decisions?”


  1. September 8, 2008 at 14:46

    No, they should not. Not only these businesses made bad decisions, they did that because they were greedy and dishonest. All of that because people who could not afford to buy houses and could not afford to put down payment were in the market, real estate investors that inflated the housing prices for mere greediness also was a factor.
    The tax payers who do their homework, understand their contract, do not take risky bad financial decisions do not have and should not pay for the dishonest greedy people. Let them go down and the market will correct itself. It is all happening because it is an election year.!

  2. 2 Bob in Queensland
    September 8, 2008 at 14:51

    Up to a point…but rather than the totally ad hoc solution we’ve seen today there should be a proper regulatory scheme in the first place and a government supervised but industry funded safety-net scheme to prevent bank failures.

  3. 3 steve
    September 8, 2008 at 14:52

    Hiam, though the businesses should have used better judgments, it’s the people who bought more than they can afford that were to blame. It’s just not the businesses that were greedy, but also the many, many homebuyers who bought too much home so they could say “I hav ea better, bigger house than you!” Too much of the economy is tied up in housing to allow catastrophic failures. The only good thing is that perhaps, I’m praying, people will learn a lesson from this, and live within their means. Borrowing money will become harder, people will whine and complain that they can’t get a $500,000 loan only making 50k a year and will allege all sorts of prejudice and bias against the banks, but hey, you can’t afford it, don’t buy it.

    Also, Ford, GM and Chrysler are all going to the government for loan guarantees because they are performing so poorly and have no cash on hand, so need loans to keep afloat. Both Mccain and Obama support these loan guarantees. say if the automakers all fail and close, how many jobs will that cost? How would it affect the economy. sometimes you really need to do this for the greater good. but you pray that the automakers learn a lesson, and stop with the stupid SUVs.

  4. September 8, 2008 at 14:58

    No People who take wrong business decisions that ultimately leads to situations like this should be made to fall on their own swords. Not the tax payers

  5. September 8, 2008 at 14:59

    Absolutely not. Solving this problem using tax payer money and resources is abuse of power. With our current economy, taking on a couple of business with bad models and practices is not very smart. I mean why doesn’t the government take over the oil production instead?

    The housing crisis is kind of like “accidentally” getting pregnant. There is no undoing it. The “action” has already happened, the “reaction” phase is now in motion.

  6. 6 Roy, Washington DC
    September 8, 2008 at 15:02

    Will the government bail me out if I get behind on my credit card payments? I think not. I would have to face the legal repercussions, and that is exactly what should happen here. People who bought more of a house than they can afford shouldn’t get a free pass, and neither should the businesses that acted irresponsibly in extending high value, high risk loans to people who shouldn’t have gotten them in the first place.

    It is unfair (to say the least) to expect taxpayers to foot the bill for the poor decisions of others.

  7. September 8, 2008 at 15:04

    I’m praying, people will learn a lesson from this, and live within their means.

    HA! They’ll just go about working through this until it either:
    A) Passes by and they can continue living pointless, excessive lifestyles, well beyond their means.
    B) Continue to just pile stuff on credit cards claiming ‘times are hard’ with the hope that things will get better later and they’ll be able to pay off those new rims, that plasma screen TV that they ABSOLUTELY needed, and the other consumer goods they just couldn’t live without.

  8. September 8, 2008 at 15:05

    I don’t want to pay for someone elses greedy habits. Unfortunately, it’s not “the people’s” decision.

  9. 9 steve
    September 8, 2008 at 15:06

    @ Roy

    But we always do it. We have to pay taxes to fund prisons, pay for welfare, healthcare etc. The banks were basically forced to open up loan making to risky people because of various accusations made against them, and also of course, because real estate values were artificially high. The values went up a lot due to so much easy money that could be borrowed. The values now are still highly irrational. You live in the DC area, you so you know it’s common to see one bedroom condos for over $400,000. I wouldn’t pay that much for a 4 bedroom house even if the floors were made out of gold. It’s just not based in rationality.

  10. 10 Katharina in Ghent
    September 8, 2008 at 15:07

    The shockwaves if these big banks, together with the big automakers that Steve talks about, crash, would be like a triple tsunami with a couple of hurricane Katrina’s in tow, that’s why the bailout is necessary. What should not happen is a golden handshake for the CEO’s and second in commands who made the decisions and are therefore responsible. The individual homeowners who already lost their property or are about to have already payed the price for their greed, but my fear is that the top 2% in these big companies have contracts that allow them to retire on big islands with all the goodies, while the rest of the world has to clean up their mess.

  11. 11 steve
    September 8, 2008 at 15:10

    @ Brett

    “I don’t want to pay for someone elses greedy habits. Unfortunately, it’s not “the people’s” decision.”

    But is it really much different than regular welfare? I mean, given all the scholarships/grants/loans out there, people on welfare basically choose to be on welfare, living on handouts, when they could go to school, and get a job. We, as taxpayers have always been paying for that.

    If we had socialized healthcare, then we’d be paying for people’s poor decisions regarding health, such as eating crappy food, complications from obesity, consequences of smoking, consequences of drinking…

  12. 12 Robert
    September 8, 2008 at 15:11

    Businesses and shareholders should be punished for bad decisions and the tax payer should be protected from the bad decisions of the corporations. Normally this would be letting companies go under. However, this doesn’t rule out state intervention if the outcome of a business failure is too sever. In the case of Northern Rock it would have impacted 1/5 of all UK mortgages, Fannie May and Freddie Mack 1/2 of the US market. The results of failure would have been unpredictable and potentially dangerous for everybody. Taxpayers here are better protected by state assistance. Neither the management nor shareholders should be compensated though, as a form of punishment should be meted out for the bad decision. When re-privatized all profits from the sale should be returned to the state as that is the body which has taken the risk. There should also be an investigation into the failures and the names of parties responsible made public so that future employers are aware of the empolyees track record.

  13. 13 steve
    September 8, 2008 at 15:12

    @ Brett

    “Continue to just pile stuff on credit cards claiming ‘times are hard’ with the hope that things will get better later and they’ll be able to pay off those new rims, that plasma screen TV that they ABSOLUTELY needed, and the other consumer goods they just couldn’t live without.”

    Buying things you don’t need, with money you don’t have, to impress people you don’t like.

  14. 14 Roy, Washington DC
    September 8, 2008 at 15:14

    @ steve

    The banks weren’t “forced” to do anything, and the customers certainly weren’t either. Yes, prices have been artificially high, but that’s no excuse to go out and buy something one can’t afford. If the prices for what you’re looking at are too high, you either look for something cheaper, or you wait for prices to come down.

  15. September 8, 2008 at 15:15

    Tight regulatory controls should be put in place to ensure incidences like this don’t happen again. These billions could be better spent elsewhere. Also the top executives of these companies should be compelled by what ever means necessary to take a pay cut because when it all goes wrong, they jump the ship with ridiculous severance benefits.

  16. 16 Tom D Ford
    September 8, 2008 at 15:26

    I think it is interesting that the very Conservative Republican Bush/Cheney Administration has nationalized Fannie Mae and Freddie Mac.

    When Chavez of Venezuela nationalizes anything he is loudly condemned as Socialist, but when Bush/Cheney nationalizes Fannie Mae and Freddie Mac they just rename it as “the government took over”.

    It’s to laugh!

  17. September 8, 2008 at 15:31

    I agree with Roy, Washington DC :

    “Will the government bail me out if I get behind on my credit card payments? I think not. I would have to face the legal repercussions, and that is exactly what should happen here.”

    It is too late to prevent a basically corrupt administration bailing out a basically corrupt corporation. But the entire CEO of any company that ends up requiring government assistance because they pose a threat to nation economy should go to prison for as many years as it takes the government to recoup the public money it took to bail them out.
    That might make some of these suits think a bit before diving into the trough.

    The Northern Rock execs should also be counting the bricks.
    Tom Wolfe’s Bonfire of Vanities is an entertaining read on the very unentertaining subject of the mentality of these Lords of the Universe.

    Perhaps the American public should stop paying income tax if it’s just going to be frittered away on inane “wars” and bailing out the Freddie’s and Fannies. It is not a legal requirement in the USA you know! Ask the IRS!

    Malc, Berlin

  18. 18 steve
    September 8, 2008 at 15:31

    @ Tom

    The administration did it to save the economy. Chavez did it to seize something that he wanted control over. I hope you can see the difference. And as soon as FNMA and Freddie Mac become viable again, they will be privitized. Think Chavez is going to do that willingly?

  19. 19 Lauren
    September 8, 2008 at 15:34

    Yes, there were people out there who made bad decisions and bought more than they could afford, but many of these people in foreclosure where mislead into believing that they could afford a $500,000 mortgage. They were told to lie about their income and were given adjustable rate mortgages which caused their $600 mthy payments to jump to upwards of $1800 a mth.

  20. September 8, 2008 at 15:38

    Steve, does you imply that governments are ‘outsourcing’ the economy?
    It’s beginning to look like it.
    Strange though, I was under the impression that there people In Government who’s job it is to Look After the economy!
    It seems not.

    Malc

  21. 21 Anthony
    September 8, 2008 at 15:42

    Yes, let’s bail them out (insert sarcasm here)! That will tell the rest of America its safe and OK to invest in shady and unethical dealings :)!!!

    -Anthony, LA, CA

  22. 22 Shirley
    September 8, 2008 at 15:45

    How does one find out what the impacts would actually be for the average person or for the average homeowner still paying off the mortgage?

  23. September 8, 2008 at 15:48

    No, let all those holding bad paper take the loses. They will wake up in the morning and the markets will have made their adjustments and what will happen is the well to do will end up being adjusted down to the level most citizens of the world find themselves in.

    All will be better than having the unborn kids handed a bill they did not create.

    A world wide slow down will make a more valid economy.

    Congress will have to face the fact that it is them, who cannot do anything, that is the true nature of our economic house of cards that really do need to come down.

    Basically it is the same thing that happened in Mexico and Agentina years ago, and it is the warning order that Marks warned about Capitalizm.

    troop on the Oregon Coast.

  24. 24 steve
    September 8, 2008 at 15:56

    @ Jessica

    How the board members or executives of corporations are compensated is not your concern unless you are a shareholder. It doesn’t impact you, however if you were a shareholder, then that is potential profit that might have been yours as an owner of the corporation.

  25. 25 Lauren
    September 8, 2008 at 15:56

    @ steve

    “But is it really much different than regular welfare? I mean, given all the scholarships/grants/loans out there, people on welfare basically choose to be on welfare living on handouts, when they could go to school, and get a job. We, as taxpayers have always been paying for that.
    If we had socialized healthcare, then we’d be paying for people’s poor decisions regarding health, such as eating crappy food, complications from obesity, consequences of smoking, consequences of drinking…”

    Have you ever talked to someone on welfare or really researched the system? It’s not free handouts- you can only receive welfare for a certain amount of time and it isn’t a lot. You also have to be looking for a job or working less than like 35hrs a week in order to receive assistance, without much regard for how much money you’re making. Trust me, 40 hrs a week at $6.00/hr is not a livable wage.
    Loans require good credit, school costs money, scholarships are competitive and give the rate of un-employment in the US, getting a job isn’t that simple.

    As for the healthcare- would you consider diabetes, cancer, heart attacks, strokes, pneumonia, injuries (i.e. car accidents), giving birth, all consequences of poor decision making regarding health? What about those mental illnesses that you’re always accusing people of having? You can’t treat schizophrenia by eating your fruits and veggies.

  26. 26 steve
    September 8, 2008 at 16:01

    @ Lauren

    There are plenty of people on welfare that do minimal to no work, and the system encourages that. If $6/hr is not a liveable wage, then get an education.

    Student loans don’t require good credit. They don’t require any credit. How many 18 year olds do you know that have good credit? They have no credit whatsoever. That’s why federal student loans are government guaranteed, so that students can actually get them, becuse the government promises to pay them if you don’t wind up paying them. Schools cost money, yes, that’s what the loans are for. I did it, are you suggesting that me paying for loans for school was some impossible task that people who also have no money can’t do? I was very poor when I was in school, in fact, most students are. There’s no excuse for not going to school if it means improving your situation in life.

    The unemployment rate in the US is a lot lower than it is in europe.

  27. 27 Michael Nwah
    September 8, 2008 at 16:05

    “Businesses and shareholders should be punished for bad decisions and the tax payer should be protected from the bad decisions of the corporations. Normally this would be letting companies go under. However, this doesn’t rule out state intervention if the outcome of a business failure is too sever. In the case of Northern Rock it would have impacted 1/5 of all UK mortgages, Fannie May and Freddie Mack 1/2 of the US market. The results of failure would have been unpredictable and potentially dangerous for everybody. Taxpayers here are better protected by state assistance. Neither the management nor shareholders should be compensated though, as a form of punishment should be meted out for the bad decision. When re-privatized all profits from the sale should be returned to the state as that is the body which has taken the risk. There should also be an investigation into the failures and the names of parties responsible made public so that future employers are aware of the empolyees track record.”
    Well said Robert i totally agree with him. Taxpayers should not pay for this its just a shame that they we all will have to suffer and pay for this one way or another.

  28. 28 Jessica in NYC
    September 8, 2008 at 16:06

    This is bad policy. My concern is that people will continue to over spend beyond their means as long as business owners make high risk and bad decisions, because the government will bail them out. A greedy bank should not be taking advantage and lending people who cannot afford outrageous loan, “just because” it makes them huge profits. This bailout is benefiting the CEO, board members and top VPs the most, they will continue to live lavishly despite their catastrophic failures and bad business decisions on tax payers dollars.

    It is an abuse of executive power and our already strained resources, because of a low economy cannot afford it. I would love a million dollar apartment in the upper west side of Manhattan (cost for a “cheap” 1 bed room apartment in NYC), but cannot afford it. Therefore, do not own one.

    To answer the question: Absolutely and positivity NO, No, No.

  29. 29 Anthony
    September 8, 2008 at 16:09

    @ Lauren

    Yes, you only have unemployment for a while, but welfare checks, like when you have kids, last till they are grown-ups. It’s a horrible system (at least in California) that encourages stupid people to create more stupid people so that they can get by. Then those stupid people do the same thing and it’s a never-ending cycle. I say take the kids and throw the parents on the street in situations like that 🙂

    -Anthony, LA, CA

  30. 30 Vijay
    September 8, 2008 at 16:11

    In the UK there has been insurance(Lloyds(“find a mug use a mug”) ,pensions and mortgage misselling and now banking bailouts.
    There is light regulation of markets and light sentencing for white collar crime ,no deterant.
    Taxpayers shouldn’t really pay the price for bad business.

    How is freddie and fannie a bigger story than the EU appeasing Russia,I am watching the news conference the statements ,the language and body language say it all.The Russians are strutting and relaxed and the Europeans are cowed and tense .

  31. September 8, 2008 at 16:16

    The taxpayers should pay for services that benefit them and not to see vast sums of money used to put a crumbling sector on track because of its irregularities.

    Any economic sector should be a motor for growth and not for creating financial crises that affect other sectors. The government’s job is to protect the consumers’ interests and not by allowing companies, enterprises and banks to take actions that can have dire consequences.

    The case of mortgage giants Freddie Mac and Fannie Mae isn’t the only example of falling giant enterprises. There is also the case of Enron scandal : http://en.wikipedia.org/wiki/Enron_scandal , which led to its bankruptcy and the loss of thousands of jobs.

    Enterprises should foresee the consequences of their transactions. Gambling on prognostics and hiding their problems for long just to keep their actions at the stockmarkets high will ultimately lead to their final downfall once there is no means to keep them afloat.

  32. 32 Venessa
    September 8, 2008 at 16:26

    Taxpayers should not be burdened with the cost of the bad decisions of businesses and other people.

  33. 33 Freddie Singini
    September 8, 2008 at 16:30

    MARKET FAILURE!
    the takeover of Fannie Mae & Freddie Mac are just the an admission by the Treasury of a market failure.
    MARKET FAILURE!

    Take over of private enterprise by the state for what ever reason is called Nationalisation. This is what the west, Britain, USA, Denmark and all the so-called civilised world condemned in the East, as stiffling the economy.

    corrective measures should be borne fully by the investors, the market for mortgages sholudbe left to correct itself. the state shouls not burden the USA tax payers with another $200 Billion over the already enormous half a trillion dollars already contracted. surely, they state should discourage such brutal packaging of debt they cannot understand.

    your thought?

  34. 34 Robert
    September 8, 2008 at 16:31

    Roy

    The reason your not bailed out is that if you go under it’s painful for your family but not many other people. If the local store on the corner goes under it affects 20 people directly with lost jobs, and maybe another 500 customers have to go out they’re way to find a new place to shop. Even Enron when it went under although painful there was enough competition in the market to pick up the slack and still supply the end users with services and energy. However the failure of these banks could easily bring about the freezing of a functioning housing market for years. Not just painful but fatal to every bodies pockets. That why they are supported and your not. However, although I believe that it was the right thing to support this institutions, I also strongly believe that the individuals at the top should be named and shamed and receive zero bonuses for this year. Shareholders who should be holding the boards to account should loss out be the complete loss of the shares they have. When re-privatized the maximum returns should be sort for the public purse.

  35. 35 archibald in oregon
    September 8, 2008 at 16:54

    Absolutely not, it is not the taxpayers responsibility to bail out the greedy and the irrational. If people defaulted on their home loans knowing full well that they could not afford them, then it is the responsibility of the PROFESSIONAL lender to make sure that he/or she does not put their company in this position. I agree with TROOP that we need to slow the economy down. This will only belay peoples fears and ramp up the spending all over again. This is quite similar to the current debate over offshore drilling; Do we drill to meet increasing demand or do we force the demand to get itself under control. Children will never learn how to play with others if the parents keep interfering ……….

  36. 36 Jens
    September 8, 2008 at 16:54

    the issue is that BOTH consumers and banks are at fault. banks were giving loans to people that could not afford them under the umbrella of sub-prime mortages. ie they could pay, but ones the ARM ajusted they could not. people thought i was a fool not to go for the 2.5% 3 year ARM, but instead for the 4.25% fixed 15 years. on the other hand people who took these mortages took them out of greed to have a larger house etc, without thinking past the next 3 years. now people like me are bailing their bad descisions out with tax money. one one hand i am seriously miffed off about this on the other hand it makes no sense to have the housing and banking system collaps. so bit into the sour apple and live once agin with the fact that intelligint people are bailing out the stupid. but then waht is new…..

  37. 37 steve
    September 8, 2008 at 16:55

    Just so people know, before this gets too far off, FNMA and Freddie Mac are not banks. They do’t make loans to anyone. What they do is buy loans from banks, so that the banks have more capital to loan out again. Freddie Mac and FNMA weren’t responsible for the poor decisions made by homeowners and the banks. They just bought those loans off the banks.

  38. 38 Jens
    September 8, 2008 at 16:55

    vijay,

    i am still waiting for your details. i had the courtesy and gave mine. so who is hiding?

  39. 39 Michael
    September 8, 2008 at 16:57

    The general public suffers from this whether or not there is a bailout. With a bailout, it is more obvious because the price of the bailout is paid directly by the taxpayers. Without a bailout, the public suffers through a worse and more prolonged economic downturn that effects everyone, not just the wealthy. The bad loans hidden into supposedly safe investments have been purchased by many banks and investment companies to provide the growth that we expect in our bank accounts and retirement funds.

    However, those involved in the issuance (many consumers were duped into taking these loans) and repackaging of these mortgages (many financial sector workers knowingly hid these loans into investment bundles) should somehow be punished. But, because of the anti-regulation stance of past and current administrations, though their actions have been unethical, they have not often been illegal or able to be proved illegal without doubt.

    It is sad that the wealthy have found another way to benefit from the risk when it pays out and not suffer from it when it doesn’t payoff.

    Also, keep in mind that this problem has effects on people in countries other than the USA, but, it seems on all levels , it is primarily cause by people in the USA. So, In the end, the bailout might be the the most equitable decision in that the USA takes responsibility for a worldwide problem it caused, but unfortunately there does not seem to be any way to actually punish those who knowingly participated in causing the problem.

  40. 40 André
    September 8, 2008 at 17:01

    Normally, I would say no to such a bailout but there are exceptions to the rule. I fully understand the motives of both the US and UK governments in providing bailouts for major banks. They are trying to prevent a run on the banks that would create widespread disruption in their banking sectors and possibly a worldwide depression.

    Older people and students who studied the Great Depression of the 1930s will undoubtedly recall the “run on the banks” that started in the US. This occurred when people no longer trusted the banks to keep their money safe and started to withdraw all their funds to avoid major financial losses if the banks collapsed. It was in response to this that the Federal Deposit Insurance Company (FDIC) was created (http://www.fdic.gov/about/history/index.html)).

    Unfortunately, both politicians and the people have forgotten the lessons of the late 1920s (the Roaring Twenties). In that period, it was common for people to purchase stocks using easy to borrow money from the banks. At the time, the stock market was rapidly increasing in value, and stocks were effectively used as collateral for new loans that were used to buy even more stock. The idea then was that the stock market would always go up. The idea until recently was that property prices would increase for the foreseeable future.

    Trillions of dollars in easy money were provided by banks to clients who had no obvious means of repayment. The assumption that the banks could always retain their investment by repossessing the property that the borrowed money was used to purchase. Obviously (surprise, surprise), that is not the case.

    We are facing the very same type of problem as in 1929 for nearly the same reasons. In 1929, the stock market crashed as investors realized that the stock market had been vastly overinflating the value of the businesses that it represented. In 2007, the housing market crashed for because house prices started to retreat – namely because some of the people who should never have been approved for mortgages started to default. When banks began to call in their loans they found that the property values had fallen significantly and, therefore, a lot of the money that they had lent to people could not be recovered. It is these losses that the governments are trying to insure – to persuade you and I to keep our money in a bank, instead of under our mattresses!

    The FDIC provides some protection to the “ordinary citizen” but the amount of debt in the housing market is in the trillions and only time will tell whether FDIC plus emergency government aid can stem the problem.

  41. 41 Jens
    September 8, 2008 at 17:03

    michael,

    the problem caused by greed, and all the other banks world wide bought into the greed factor, so it is not the poeple of the USA who caused it. it’s the world wide greed that caused it.

  42. 42 Dennis @ OCC
    September 8, 2008 at 17:14

    In reality, the taxpayers should not pay the price for bad business decisions…

  43. 43 Pangolin- California
    September 8, 2008 at 17:15

    What’s government for but as a means to secure the wealth of the already wealthy? There but for the grace of a few million dollars of well placed bribes is your business also.

    The US is officially insane. Adding up the McCain-Palin candidacy (D students!!) and the repeated government bailouts of corporations looted by CEO’s who walk away rich you have only one conclusion. If the US were a child you wouldn’t trust him with sharp objects, matches or cleaning supplies.

    If the US is god’s nation then god’s been sniffing glue.

  44. 44 Venessa
    September 8, 2008 at 17:18

    Jens ~ I’m with you. Most people I knew thought I was crazy for taking a 30-year fixed loan. Turns out I wasn’t so dumb after all. I was loaned an amount of money I knew I could afford the payment on that wouldn’t fluxuate. Friends of mine ended up in a world of hurt with a loan they couldn’t refinance for a set period of time.

    As an individual it is your responsibility to understand the terms of your agreements. Of course there were people that were mislead but do the math! If you think you can afford a $500k home on $50k a year salary go back to school.

  45. 45 Tom D Ford
    September 8, 2008 at 17:24

    @ Steve

    “Buying things you don’t need, with money you don’t have, to impress people you don’t like.”

    That’s funny. Good one and right on the mark.

  46. 46 steve
    September 8, 2008 at 17:25

    @ Venessa

    Welcome to the “i must outdo my best friend” society where you need to outdo everyone by getting a bigger house a nicer, and granite countertops.

  47. 47 Anthony
    September 8, 2008 at 17:27

    @ Vanessa

    You are a smart one. I worked at Wamu, and remember taking people over to the loan officers, and hearing things like “The variable rate is sooo low right now, and come one, do you really think the rate will change that much in the next 30 years???”. I remember thinking, and I was only 22 or 23, “ummmmmmm, wow, these people are talking out of their ‘you know what’s’”.

    There was SOOOOO MUCH MONEY in our pipelines though, that NO ONE CARED about the lies, lies, and more lies!!! The loan officers were making out like bandits!!! New cars all around!!!

    -Anthony, LA, CA

  48. 48 Michael
    September 8, 2008 at 17:29

    Jens,

    The cause is multi-dimensional.

    The American culture has been undeniably focused upon individualism and abject consumerism without regard for the long-term consequences. And also seems to aggressively “export” this style throughout the world.

    In the context of the world as a whole, the American culture, as a whole, is the model of greed for the world. I think it is difficult to take a position that the American people as a whole do not bear some responsibility, when few of us use our own personal examples to stand up to it.

    Further, our government, which we elected, is responsible for the lack of regulation of the financial industry, including removal of old regulations. In that sense, we are still responsible as a people, just as we are responsible to pay for wars that our government begins.

    The bad business decisions will never be proved illegal without doubt. Even though they may have been unethical and motivated by malevolent greed, the lack of financial regulation made it easy for them. And we, as a people are ultimately responsible for the actions of our government. If we don’t want this kind of thing to happen, we have to elect a government that will thoughtfully respond to problems like this and make changes that minimize the possibility of repeating it again and again.

  49. 49 Pangolin- California
    September 8, 2008 at 17:31

    So except for the financial sector, automakers, the defense industry, airlines, corporate farms, energy companies, private utilities, pharmaceutical companies, doctors and lawyers all of which have government protections ensuring incomes or monopolies capitalism is about the free trade of goods and services for fair prices which are determined by the market?

    Did I miss somebody that gets a government regulated monopoly, price support or bailout in the US? It can’t be the little people; they’re homeless.

  50. 50 André
    September 8, 2008 at 17:31

    @Pangolin- California:

    The problem is not a political (Republican or Democrat one). Both parties have permitted the development of these stock and housing bubbles as a means to allow the electorate to live temporarily beyond its means. The huge budget and trade deficits are also symptoms of this trend and it has occurred under both Republicans and Democrats.

    The reasons are simple: allowing asset bubbles and running huge deficits allow people to feel wealthier than they really are. This feeling of wealth benefits incumbent politicians and until the bubble bursts, the electorate enjoys the ride too. It is a symptom of the short-term thinking that is damaging all major western economies, especially the US and the UK.

    It will take a tough, realistic administration to let the American people know that they will have to live with a little less house, a little less vehicle and a little less entertainment to save the money necessary for an investment-driven (instead of consumption-driven), economy.

    Both John McCain and Barack Obama understand this – however, it is very difficult to tell people who are hurting that there may need to be more economic pain to remove the underlying causes of economic weakness.

  51. 51 Jonelle -Los Angeles
    September 8, 2008 at 17:37

    The greedy lenders are at fault. Irresponsible buyers are responsible. The group that keeps getting forgotten are the mortgage brokers whose greed knew no bounds. There must be regulation put in place to prevent this travesty from happening again. Unfortunately if the US Government does not place Fannie Mae & Freddie Mac in conservatorship then an already fragile economy may spiral into a full blown depression.

  52. 52 Dinka Aliap, Kampala
    September 8, 2008 at 17:38

    NO.I thinks the reasons why people should pay taxes is to let the government tackles the illegal businesses,to provide revenue to the gvt so that government could improves country infrastructures, to stimulates the economy, health services, security and so on but not to pay taxes for other government wrong doing, so the best things is that the have acknowledges to take the risks by themself.

  53. 53 Jens
    September 8, 2008 at 17:39

    steve,

    i have one of the smaller houses in the neighborhood, but by far the best looking one with a kickass yard. guess what my heating bills are lower as well, plus we heat 80% with wood….heheheh. granit tops are so yesterday, a bit like avocado toilet seats…

  54. 54 Jens
    September 8, 2008 at 17:43

    Michael,

    i refuse to accept blame for something i did not contribute to. ehy should I, i am getting screwed by this because i was sensible. so blame the idiots and the greed and not the american people per se. i know plenty who acted responsible….

  55. 55 Michael
    September 8, 2008 at 17:45

    @ Andre,

    Right on that both Democrat and Republican politicians have been involved in the creation of this problem . . . and that it will “take a tough, realistic administration to let the American people know that they will have to live with a little less”

  56. 56 Tom D Ford
    September 8, 2008 at 17:47

    @ Steve

    Your naivete is adorable.

    “The administration did it to save the economy.”

    For the already wealthy!

    “Chavez did it to seize something that he wanted control over.”

    For the Poor!

  57. 57 steve
    September 8, 2008 at 17:48

    @ Jens

    You should talk to RE agents, and they’ll tell you it’s usually a “nagging wife” getting her husband to buy a larger house than they need, and obviously the RE agents like this, as it’s a bigger commission for them.

    Jens, you are often forced to accept responsibility for things you had nothing to do with. I mean, the US apologizes for actions all the time, and much of those events were way before I was ever born. If there’s ever reparations for slavery, it will be us paying for something we didn’t do. My family didn’t even come to the US until decades after slavery ended, but if there are reparations, our taxes will pay for something we had nothing to do with.

  58. 58 Darrin Auxier
    September 8, 2008 at 17:50

    Fannie and Freddie are not without blame even if they are just buying loans from banks so that the banks can continue to write more loans. I assume that they have the same credit and income information as the bank so that they can determine the risk factor of each particular loan (if not, that is a fundamental design flaw in the program). Had they chosen not to purchase these high-risk loans from banks in the first place, then the banks would have stopped making those types of loans.

    Granting a bailout only puts a bandaid on the problem and does nothing to prevent a recurrence.

    “In theory, theory and practice are the same. In practice, they are not” ( Lawrence Peter Berra )

  59. 59 Jessica in NYC
    September 8, 2008 at 17:52

    @ Tom D Ford

    😀

  60. 60 steve
    September 8, 2008 at 17:53

    @ Darrin

    How could banks not have learned anything from this? They will actually use standards and won’t loan out to anyone with a pulse anymore, because people realize that property values can actually go down! There will be lots of whining and complaining from people rejected for loans.

  61. 61 steve
    September 8, 2008 at 17:56

    @ Tom D Ford

    That’s wrong. The middle class have the most to lose from this, not the wealthy. The rich aren’t affected at all by this unless they owned shares in the banks… This is a bailout of the lower middle class.

  62. 62 Michael
    September 8, 2008 at 17:56

    @ Jens

    I am not blaming you. It is not that you must accept blame . . . I am talking about taking our individual parts in the cultural and societal responsibility that goes along with having a democratically elected government.

    I did not make the bad business decisions either, nor did I sell a bad loan or take a loan beyond my means. I have tried to live a life that is simple and not beyond my means. I have even spoken out against the consumer culture and abject consumption and suffered from that socially. I have tried to thoughtfully take this into account when I cast my votes.

    In the end, I do not feel I am to blame, but I do feel that in our culture, we can not make change possible unless we take responsibility.

  63. 63 Thea Winter - Indianapolis IN, USA
    September 8, 2008 at 17:58

    I think that we pay one-way or another. The economy is so interdependent we all pay for everything. If we do not pay it with tax money we will pay it with higher prices in another area.

  64. 64 Dinka Alpayo Aliap, Kampala
    September 8, 2008 at 18:03

    The BABY WHO ONCE TIME TOUCH THE FIRE NEVER TRY ITS . The TIME THE LADDER FELT THE BABIE THE MORE THE PARENT BECOME TO REPAIR ITS. This one is alarms to every gvts which misuses the publics money to let them reviews their policies so that they can put they taxpayers money into a meaningful uses or faces consequences as such.

  65. 65 Jens
    September 8, 2008 at 18:04

    @ Steve & Michael,

    my point is that many of people refuse to accept blame for their actions and try to roll it of onto society. i refuse to be part of the scapegoat for what they have done wrong. the sam as i am getting tired of europeans ramming down my throat that all americans a fat and stupid and fundamentl religiouse nutjobs. i am neither and i did not vote for this administration, so don’t blame me for it. that is waht i am driving at.

  66. September 8, 2008 at 18:04

    These HUGE card houses that the U.S. has bought is just pushing the problem into the next administration. Bush @ Co have spent everything we have.

    Freddy and Frannie had no assets either. Their assets were locked up in imaginary equity. The American dream has gone bust!

  67. 67 James N Seattle, WA
    September 8, 2008 at 18:05

    WOW

    I am clearly taken a back regarding another government bail out of yet another business. It seems strange that this is going against what our president wishes. I recall him indicating that we wouldn’t bailout business or speculators and there would be no help for homeowners. Now, we are bailing out Freddie and Fannie at the expense of the american taxpayers. Well, i think we would have been better served if we just told the banks to renegotiate the terms of the subprime loans. Thanks for a timely topic.

  68. September 8, 2008 at 18:05

    There’s a fine line between government assistance and subsidised failure. I think the US government crossed that line months ago, as it has already extended considerable aid to failing banks–banks that have failed precisely because of their incompetence.

    Fannie Mae and Freddie Mac were too big to fail. That is, I think, incontestable. That does not, however, mean we shouldn’t be questioning the worth of laissez faire policies with respect to financial markets.

    After all, that is the elephant in the room: the failure of under-regulated markets to operate properly during a crisis of its own making.

    Die-hard free-marketeers should take note.

  69. 69 Tom D Ford
    September 8, 2008 at 18:11

    Well crafted and well enforced regulations could have prevented this new Nationalization.

    Well regulated capitalism works fairly well, and non-regulated “Free-Market” capitalism just keeps wildly swinging from Privatized Profits to Socialized costs.

    We need to go back to regulating our markets, back to moderate politics.

    Our decades of descent into Conservatism is just untenable along with unwise.

  70. 70 steve
    September 8, 2008 at 18:11

    I’m a little disturbed by the comments of the caller in California who was in foreclosure recently. He said becuase the value of his home was droping over 2k a month, that he didn’t see the point of paying his mortgage. Would you not send your landlord a rent check becuase you didn’t think the math was right? Would you not pay your car payment because the value of your car is depreciating?

  71. 71 Thea Winter - Indianapolis IN, USA
    September 8, 2008 at 18:13

    Grag and others who are walking away from their homes are part of the issue why we tax payers are paying. I have worked hard to stay in my home working two jobs. I know that the value has gone down but walking away is not the answer.

  72. 73 Dan
    September 8, 2008 at 18:15

    The Fed bailing out Freddie Mac and Fannie Mae is different than bailing out other businesses. They’re not the same as many other American businesses; they’re government sponsored enterprises with internal oversight. Unfortunately they were mismanaged but with such a close relationship with the government, a government bail-out is the only option at this point. Is it not true that Fannie Mae was a government agency until being privatized in 1968? This isn’t like as if the Fed took over Bank of America. Fannie and Freddie are kissing cousins to the Fed.

  73. 74 Mary Beth
    September 8, 2008 at 18:15

    To hear Craig say he could afford his payments, but went into foreclosure because it didn’t make sense to pay on a house losing its value, then to say the government should bail out the mortgage market, makes my blood boil! He doesn’t seem to understand that he and people like him are a primary reason for all this mess! There are many reasons for the mortgage mess, but one significant portion is people like Craig who borrowed irresponsibly to finance an inflated home (which fed the home price inflation, as well). He should be ashamed of himself–pay your bills like the rest of us, Craig.

  74. 75 Pavy
    September 8, 2008 at 18:17

    I don’t see this as a bail-out at all. First of all, the damage that’s done is here to stay – the shareholders are suffering and are not going to get their money back. Secondly, it’s not like we are being asked to write a check to the US government. We pay taxes so that our government can effectively deal with national emergencies and crises as they see fit. This housing market is in a state of emergency, and I would much rather see my taxes be used to help the economy get back on its feet than to see it fund a pointless war.

  75. 76 AJ
    September 8, 2008 at 18:18

    HWy could they not bail out the the people with the loans ….wouldn’t that have saved the Company?

  76. 77 Jessica in NYC
    September 8, 2008 at 18:18

    @ RE the male speaker from CA

    That is shocking. A house valued at close to $800,000 is now valued less than $300,000. I had not considered there were people who allowed their houses to go into foreclosure, rather than keep paying profits to a bank for a house that had lost its value.

  77. 78 Shirley
    September 8, 2008 at 18:18

    49 Pangolin- California September 8, 2008 at 5:31 pm
    So except for the financial sector, automakers, the defense industry, airlines, corporate farms, energy companies, private utilities, pharmaceutical companies, doctors and lawyers all of which have government protections ensuring incomes or monopolies capitalism is about the free trade of goods and services for fair prices which are determined by the market? Did I miss somebody that gets a government regulated monopoly, price support or bailout in the US?

    Perhaps the problem is that the US government acts socialist towards government interests such as military industries and financial corporations, but insists on a capitalist attitude towards the average person. If so, it would be part of the cut-throat culture of death that pervades this country.

  78. 79 Lucie, Prague
    September 8, 2008 at 18:20

    They should not! However, there is not much else to do in emergency cases. Particularly us, in Czech Republic we are very sensitive about government retaking of private assets as it is something what communist government did to us under the label of well-being of the people. On the other hand, I believe there are situations, when it is neccesary, but the conditions must be stated in the constitution albsolutely clearly and it must be only in cases of total emergency. When something like that happens it is a clear sign of an incredible failure of the system and it is highly dangerous as it can be abused. The government should create legal rules under which this does not happen and the companies must behave responsibly.

  79. September 8, 2008 at 18:21

    Those advocating this takeover are the ones at the bottom of this Ponzi Scheme we call the housing market.

    Houses don’t go away. They are a solid and tangible asset. If somebody looses their house The price value drops down until it is affordable by somebody who can.

  80. 81 Jessica in NYC
    September 8, 2008 at 18:22

    @ SEC

    The SEC needs to have oversight for its gross negligence in allowing and not requiring business to accurately report their finances.

    This is ridiculous!

  81. 82 Anthony
    September 8, 2008 at 18:22

    @ Jessica

    It’s not that bad here. We’re looking at a house that was 500K that’s now a little below 300K. The 800K down to 300K is a little exaggerated.

    -Anthony, LA, CA

  82. 83 Shirley Lutzky
    September 8, 2008 at 18:22

    The biggest bail out in U.S. history? And yet the Republicans talk about preventing the “big govt.” that their opponents supposedly are about!?This problem is the Republican creation – and their solution is what? Big Government – hugely bigger than ever before. To add to our trillions of dollars of war debt, and the biggest govt. bureaucracy in history, not to mention the president’s greatly expanded staff. Big Government is obviously the Republican Wayy – not just big government but tremendous, unprecedented government! And meanwhile they threaten America with higher taxes if their opponents are elected – Ha! They speak backwards with a big hypocritical smirk.

  83. 84 steve
    September 8, 2008 at 18:23

    @ Dwight

    Every been to Detroit? I assure you, lots of houses go unbought. The longer they go u nbought, the more they fall apart.

    The housing prices in the DC area are still insane. I cannot contemplate why anyone, anywhere on earth would spend $500,000 on a one bedroom condo.

  84. 85 Kenny In Florida
    September 8, 2008 at 18:24

    The people should not bail bail out corporations for the grotesquely wrong mismanagement of their business. This is subtle proof that our form of capitalism (American) will ultimately be our downfall. How come when I mismanage my finances American taxpayers don’t give me money to help? I guess it would be because it’s my fault. It’s too bad these corporations aren’t held responsible in the same way I would.

  85. 86 steve
    September 8, 2008 at 18:24

    @ Jessica

    I think you mean the SEC.

  86. 87 Alison
    September 8, 2008 at 18:24

    I understand that this is a major crisis that calls for dramatic action. However, it makes me nervous to have the federal government sticking their hands in yet another part of our lives…they’ve screwed up welfare, they’ve screwed up the war on drugs, they’ve screwed up public education… do we really think they can make this better?

  87. September 8, 2008 at 18:25

    I can see many knee-jerk responses from folks pinning the (easy) blame on persons who took out bad loans. Once again, the ‘individual is responsible’ mantra is used at the expense of the wider issue–that the banks failed, and that they need rescue because of this. No one told these banks to (a) play in the sub-prime market, and then to (b) repackage risk and sell it on to financial players elsewhere.

    The onus should have been on BANKS not to offer loans to these sorts of people, as it would ultimately be on them to deal with losses relating to those loans–and as we now know, ultimately the disinterested tax payer.

    The banks were the crack dealers to the customer’s crack heads: the banks are primarily responsible for this mess because they were ridiculously lax in their standards, in getting persons addicted to their products.

  88. 89 Patricia Howard
    September 8, 2008 at 18:27

    The issues in my mind are that: the problem was generated by the financial system in the first place – cheap credit is a way to dispose of high profits squeezed out of people, and a way to generate high profits off of high risk investments that are essentially used to increase consumption when wages aren’t sufficient to support them. Those who regulate business are themselves corporate heads – and those who will pay are the ‘taxpayers’ which means the lower and middle classes, some of whom are also shareholders in these same companies. The wealthy don’t pay – either through taxes, or through their companies going down the drain. Why did this happen in the first place? Why can’t economists foresee this? Because they’re too busy applauding the system that gets us into crisis. How long will this go on? As long as it is big business that dominates decision making, political power, and money.

  89. 90 Lowell
    September 8, 2008 at 18:28

    Again we see government deregulation causing huge bailouts from us taxpayers. We should deal with these people like they do in China: execution.
    I keep 2 articles on my desk: China puts 4 to death for $15M in bank fraud. Ex-Enron CFO will pay $500,000 fine.
    Who doesn’t repeat their criminal activity?

    Deregulation is a conservative method for dealing with everything and giving rich people free passes to steal and ruin the lives of the rest of us.

  90. 91 Anthony
    September 8, 2008 at 18:30

    If I could go to Las Vegas, I would gamble the most I could if I knew someone you’d bail me out if I lost all my money!

    -Anthony, LA, CA

  91. 92 Jens
    September 8, 2008 at 18:31

    steve,

    there are parts in detroit that look real nice……well and then there are parts you could not pay me enough to live in.

  92. 93 Jessica in NYC
    September 8, 2008 at 18:32

    @ Mary Beth

    I was furious to hear him whine about his close to $800,000 (almost 1 million!!) house. I completely agree!!! I am glad to read I am not the only one who interpret Craig (the male speaker from CA). He should be ashamed of himself!

    Unfortunately, Mary, as taxpayers, we are now stuck paying the bills of irresponsible people like Craig.

    @ George W Bush

    Yes, this apparently this did post a risk to our economy for your rich friends and irresponsible wealthy constituents.

  93. 94 John Foster
    September 8, 2008 at 18:32

    What I object to is the notion that “welfare’ to individuals, and the whole idea of ‘socialism’, is considered so bad to conservatives, but that here we have a necessary intervention, that is a good role for government in the economy. IT thus seems to promote an idea of private benefit underwritten by public risk. The ‘free marketers’ should just be honest with themselves that there really is no such thing.

    By the way,earlier this year, Fannie and Freddie were encouraged by the congress to step in more, in order to stabilize the housing market, because private banks were stepping away from morgages because they were loosing so much money.

  94. 95 Mark
    September 8, 2008 at 18:33

    I prefer to see the U.S Treasury intervention to shore up Fannie Mae and Freddie Mac as a long overdue realization that the goal of affordable home ownership for all or most Americans cannot be achieved without the guarantee of government support. Unlike most other developed nation’s, the U.S. has long labored under an illusion that housing was a purely private good not an essential condition of the public good. The health and welfare of people depends upon access to safe and affordable housing. Markets have proven decidedly inefficient in ensuring that housing meets both of these conditions. This is routinely evidenced by the opposition of housing industry groups to changes in building regulations designed to ensure safety and livability.

  95. 96 Michael
    September 8, 2008 at 18:33

    @ Lowell

    I agree that lack of appropriate regulation is the root of the problem, and that very lack of regulation is what keeps us from being able to charge and convict people for their unethical, though not quite illegal, actions.

    Sure, harsh punishment would be effective, but I would not advocate capital punishment,

  96. 97 Tom D Ford
    September 8, 2008 at 18:34

    @ portlandmike

    “Bush @ Co have spent everything we have.”

    And everything that our children will have and for several generations.

  97. 98 rotoye richard
    September 8, 2008 at 18:35

    the US tax payers pay for the war in IRAQ, the reconstruction of Europe, and recently for the replacement of damaged infrastructures in GEORGIA. they have paid for a lot of things round the world in order to keep all of us going. It will not be a big deal if they pay more for their economy to stabilize.

  98. September 8, 2008 at 18:35

    Why don’t the U.S. financial institutions such as banks have cash on hand and competing for ways to loan it out to house buyers? Why do Fannie and Freddie have to exist in the first place?

    The major problem is that the U.S. consumer is buying stuff made in China, this would be OK if the general population in China received the money and spent it on U.S. products, but the money ends up in the hands of the Chinese govt. which loans it to Freddy and Fanny, among other places. THAT IS THE PROBLEM.

    Bobr

  99. 100 steve
    September 8, 2008 at 18:35

    @ Jessica

    “Yes, this apparently this did post a risk to our economy for your rich friends and irresponsible wealthy constituents.”

    Rich people don’t need loans to buy homes. This is about benefitting the middle class. Sure the rich may own stock in banks, but do do the middle class, and the “rich” need people to take out loans so they can make money off it, and in return, they in the past got a roof over their head and an appreciating asset. Would you prefer that only the tiniest minority of people could actually afford to buy a home?

  100. 101 Pangolin- California
    September 8, 2008 at 18:35

    Oh, waily, waily!!! A homebuyer who purchased an inflated house in an inflated market promoted by bank CEO’s and real-estate magnates isn’t paying his mortgage. Smart man. He should quit paying his property taxes too; they’ll lein the house and he can keep his cash.

    The rule in the US is “hurt your neighbor for your profit.” If this guy can take advantage of a distressed financial institution to his own profit he should jump on it. If the bank doesn’t have the money to enforce their contracts; tough cookies to them.

    Soon enough the government will change the rules to make him miserable so he should make hay while the sun shines and stash that savings in solid assets like coins, that he can deny in bankruptcy court.

  101. 102 Jessica in NYC
    September 8, 2008 at 18:36

    @ Steve

    “I think you mean the SEC”.

    LOL. Yes, I did. Thank you, someone a work was asking me about the FCC and I, apparently, should not multi-task when I am upset at speakers on WHYS. I’ll correct it.

  102. 103 Byron
    September 8, 2008 at 18:36

    I remember, back in the 1980’s that the popular president, Ronald Reagan, convinced the American electorate that a) government is the problem, not the solution and that b) massive deregulation of business and industry would result in major economic expansion with virtually no risk to the American taxpayer.

    Since then, it seems to me, almost every economic sector which was deregulated by Reagan and his conservatives has been involved in at least one major scandal or crises, usually involving negligent, unethical or criminal activity which was formerly regulated. In every case the taxpayer has borne the brunt of these failures.

    I count among these the banking scandal, the savings and loan debacle, the Enron crisis, the mortgage crisis and many others. The American public is still paying for these crises.

    In every case, the very taxpayers who were supposed to benefit from deregulation have wound up paying far more than the administrative and other costs of regulating these industries. Not to mention the dislocation, personal suffering, etc., that these crises have engendered.

    In a democracy, the government is made up of the people and government exists to allow us to do together that which we cannot do as individuals. Until the American public realizes that government is not the enemy and that regulation of wolves keeps the sheep from being eaten, we shall be subjected to (and will no doubt pay for) yet more of these types of crises.

  103. 104 SteveFL
    September 8, 2008 at 18:38

    @Jessica in NYC

    Also would be nice to know how much of that equity the guy from CA pulled out of the home and if, what was it spent on.

  104. 105 Carol in CA
    September 8, 2008 at 18:38

    Ok so.. American taxpayers (meaning the middle class, meaning the very people who’ve been hit by the crisis) are supposed to bail out the corporations who screwed them … and if they don’t the economies of the entire world will fail.

    If that’s the reasoning, then why shouldn’t the whole world chip in and help?

  105. 106 Todd J.
    September 8, 2008 at 18:39

    There is no way we as taxpayers should have to bail them out for their bad business decisions . I own a small business and if I was to make a move that made my business start to fail there would be no one to bail me out and the government would still be waiting there for their cut.
    I dont feel bad for the shareholders in those companies that are losing their money, Im sure they have other investments that will see them through.
    The ones who own and run the business are the ones who should be responsible, not the American taxpayer, its just another example of how American government protects the business.

  106. 107 Colleen
    September 8, 2008 at 18:40

    The US was built on the idea of separation of Church and State in order to prevent corrupt influence from affecting the common good.

    I think its time for a new motto — Separation of Corporate Profit and State….

    The governement has been protecting big business for a very long time. Where is the accountability?? The bail out may be necessary right now to maintain stability, but there should be serious consequences for the executives and politicians who have allowed this to happen.

    The governement needs to start putting individual citizens before the market.

  107. 108 Don in Portland
    September 8, 2008 at 18:41

    My understanding is that there are two reasons this is being done. First, because if they were allowed to fail it may sink other financial institutions world-wide, and second it is to stop the devaluation of assets, which for most people in the US is their house. So all taxpayers are being asked to stop the further devaluation homes for those who have not yet lost their home.

  108. 109 steve
    September 8, 2008 at 18:41

    What needs to be done is that someone needs a sitdown with their kids, and tell them to stop being so materialistic. Sure, the economy depends upon people buying things, but a little rationality is needed. This “i must have better than my friends and neighbors” is driving this living beyond our means society. It’s so matierialism driven, and materialistic people are miserable people, and make everyone around them miserable. Unless that changes, and unless banks start having standards again (and they will face charges of discirimination if they do this) then the mistakes will only repeat, and they will be similar situations, like student loans. People spending $140,000 for a liberal arts degree won’t get repaid while you work at starbucks.

  109. 110 Winston Gillies
    September 8, 2008 at 18:42

    One of the responsibilities of the US government is to protect its citizens from companies who create an unfair monopoly. In this case, the government did the exact opposite and not only allowed, but fostered the in-appropriate behavior of those companies.

    In the case of these companies, taxpayers should not be bailing out poor decisions by the CEOs as well as the SHAREHOLDERS who were part of the decision making process. Both those groups made a lot of money over the past several years on the market that existed. Now it is time for them to take part in the risk of those decisions. Either way, the mortgage companies will not use the money or credit they receive from the government to do anything else but to essentially continue business status quo. The tax payer will again hold the bag, and in some cases, lose their property if they have a loan with those institution.

    Common sense no longer exists when business is conducted with an “At all cost” mentality.

  110. 111 Alison
    September 8, 2008 at 18:42

    It seems as though these companies want to socialize their risks and privatize their profits. It the federal govt (by some miracle) manages to get these companies back on track and profiting again, are they going to let the federal government keep the profits? Or say ‘thanks for eating our losses, we’ll take it back now.’

  111. 112 Colleen
    September 8, 2008 at 18:42

    @ Byron

    nicely put!

  112. 113 André
    September 8, 2008 at 18:43

    A lot of the current problem can be traced to the policies of Alan Greenspan and the Federal Reserve. Banks have been lending more money that they can afford. Essentially, the reserve ratios for the banks have been set too low for at least a decade (http://www.federalreserve.gov/monetarypolicy/reservereq.htm#table2).

    Requiring the banks to hold greater reserves will protect depositors and investors and reduce the chance of such crises occurring again in the future.

  113. 114 Sami Naboulsi
    September 8, 2008 at 18:46

    While I believe that bailing out Fannie and Freddie is necessary in this case, I also believe that in order to insure that this sort of thing doesn’t happen again we need to get at the root cause: private money in U.S. politics. There can be no effective oversight when companies simply buy their way around regulations with campaign contributions.

  114. 115 Jason from Houston, TX
    September 8, 2008 at 18:47

    Regulation is not the answer. A new bureaucratic regulatory body would only serve to artificially stifle economic growth in exchange for inefficient (perhaps even ineffective) protection. Situations like these call for more intelligence and research on the part of the consumers — let the buyer beware! Once that is achieved, the market may well demand new private-sector institutions designed to keep an eye on (or perhaps certify institutions in) the finance industry.

    Everyone responsible for this outrage should have been allowed to fail.

  115. 116 Jessica in NYC
    September 8, 2008 at 18:47

    @ Anthony

    That is even worst, if the speaker exaggeratedly.

    @ Shirley Lutzky

    The GOP is against “big govt”, but that is not include little govt outspending “big govt. Hypocrite is normal everyday standard for GOP officials, it appears.

  116. September 8, 2008 at 18:47

    @ steve:

    The point isn’t that rich people don’t need loans. The point is that excessive regulation affects persons in the upper income brackets much more than it does those in the middle or lower ones.

    The government allowed extreme de-regulation to rule the day (just as it did infamously during Reagan’s administration, and we got the Savings & Loan disaster and a recession in response) and the lax standards underpinning sub-prime loans were the direct response.

    Also, the repackaging of loans into tradeable commodities only benefits high-flying investors who have not been burned by this whole affair. You’re failing to see the wider implications of these, yes, rich-friendly policies.

  117. 118 Chris
    September 8, 2008 at 18:48

    Come on, be realistic and constructive than criticism only. The government helping big and important business by US is not the first time, will not be the last time. During the big depression time of 1930s, President Roosevelt started several saving methods to help the economics and it worked obviously saving US economics at that time.

    Think things more comprehensively. Now, the world economic is big, global, influencing every where. One big market failure can lead to big crisis to other industries and markets, as the customers and companies in the big failure are involved in other industries, lives and markets, remember the “butterfly effect in economics”.

    UK, France, Japan, US, China, now newly Russia government did, does and will do the similar saving things to the economics. The capitalism system has been already different and learned all working methods from socialism system also, if only the methods are helpful and working. Remember, every one of us in nowadays economics, we are not only taxpayer and customer, but also working forces, if other peoples’ work and lived are affected, their purchasing and all the economics will affect us sooner or later.

    Of course, using tax money to save big market by government is a right thing for it is saving our economics including everyone of us. Meanwhile, of course, well operation and good handling of the saving money and steps should be done carefully.

  118. 119 J. K. Thornton
    September 8, 2008 at 18:50

    No, taxpayers should not pay the price for bad business decisions. Follow the money! Who was making the profits from these bad decisions tho’ they likely knew the house of cards would eventually tumble. The administrators and yes, the stockholders were quite happy while the money was coming in. And as the stockholders were making money , they were wiling to turn a blind eye to the corporate governance. Congress was also complicit. Indeed, there needs to be more stringent regulation.

    The capitalist mantra is the market forces will take care of it, the market is self correcting. So, let the market work!

  119. 120 steve
    September 8, 2008 at 18:50

    Non shareholders have no say in the compensation of the executives of corporations. You saying “they get paid too much” is like me telling you who you should date or marry. If you were a shareholder, then it would matter to you and you have a say. But this is basically like me thinking your house should be painted white, while you want it painted brown. It’s your house, so you decide what color it should be.

  120. 121 Tom D Ford
    September 8, 2008 at 18:52

    We need to go back to well regulated Liberal Capitalism with safety nets for those at the bottom and progressive tax rates for those at the top. That would prevent these “free-market” problems, and prevent the desire for nationalizing things in places like Venezuela.

    Back to the middle.

    Back to stability.

  121. 122 Helen Hill
    September 8, 2008 at 18:54

    the real issue is not being discussed
    This bailout will further devalue the American Dollar, which has been steadily dropping. The government will need to essentially print more money that isn’t there to bail out this Fannie and Freddie travesty; meanwhile the crooks are leaving by the back door with their pockets bulging.
    Any way you look at it, the American people are being fleeced and a Depression is imminent.
    PS: China is one of the largest bond holders. Our debt to China is simply staggering. China owns the US, and if at anytime China wanted to call in that debt, the jig would be up.

  122. 123 John Foster
    September 8, 2008 at 18:56

    To Chris,

    I think that is an important point. And one of the ‘exchanges’ the government made with banks back then was “We will back you, but you have to play by a set of rules’. Also with corporate America in general, Roosevelt made a deal; “The governement will step in and stabilize business, but you have to pay for the service, with taxes and public works projects.”

    Fannie and Freddie, according to Paul Krugman of the NY Times, were not really in the business of Sub -primes anyway. They have been brought down by housing prices dropping. They also have their own accounting scandals, but they were not necessarily the engine of the bad loans.

  123. 124 Lauren
    September 8, 2008 at 18:57

    Well said Alison!

  124. September 8, 2008 at 19:00

    American taxpayers…are supposed to bail out the corporations who screwed them…and if they don’t the economies of the entire world will fail. If that’s the reasoning, then why shouldn’t the whole world chip in and help?

    No, because the US has more to lose. Many US financial instruments, equities, companies and properties are owned by foreigners, and they do so under the premise that US securities are backed up by the full faith and credit of the government. If we removed that protection foreign cash would no longer consider US investments a ‘safe haven’–quite the contrary. You’d have a run of epic proportions…

    @ Jason from Houston, TX:

    Bollocks, Jason. You’re proposing the very circular reasoning that underpins the system as it is. The private sector DOES have institutions designed to keep an eye on the finance industry…and they have catastrophically failed here, and they’ve failed elsewhere. When the ‘regulators’, ‘analysts’ and ‘accountants’ are mutually interested in keeping the system going, you create disincentives to regulate properly.

  125. September 8, 2008 at 19:01

    This is a terrible way to run an economy. Massive bail-outs are decided at the last minute behind closed doors and the people have no say over how their tax money will be spent. Major government reforms are indicated.

  126. 127 Tom D Ford
    September 8, 2008 at 19:04

    @ Byron

    “I remember, back in the 1980’s that the popular president, Ronald Reagan, convinced the American electorate that a) government is the problem, not the solution and that b) massive deregulation of business and industry would result in major economic expansion with virtually no risk to the American taxpayer. …””

    Well written! Hear! Hear!

  127. 128 Jessica in NYC
    September 8, 2008 at 19:05

    @ Steve

    “Rich people don’t need loans to buy homes.”

    Obviously, rich people do not “need” loan, but they do get them. My comment was a sarcastic ref to the press conf re this bail out. The point is I disagree. From what I read about the radio programs today, its destroying more capital that it is increasing. The oversight is not working and gives way for such catastrophic bad risky business decisions, because the government will BAIL them out. This is not helping the middle class, it is helping the top company officers more than anything else.

    “Would you prefer that only the tiniest minority of people could actually afford to buy a home?”

    I’d prefer the top 1% of the US population (the people who have more money than god) who owe 40% of the wealth in this country to have more government regulation on their business risks. “They” are the ones who are “running” companies like Freddie Mac and Fannie Mae and their business measures rely on taking advantage of the bottom 40% of the US population (including middle class) for their failures. It’s never been about helping the middle class, it was about lining the pockets of the rich, who do not need loans as you pointed out.

  128. 129 Winston Gillies - Salt Lake City, UT
    September 8, 2008 at 19:06

    Notice that those with money are happy with the bailout proposition while those without are asked to pay for it. I agree with Jesse! Let’s reform government and get back to the way our country was intended to be governed…by the people. Its time to put real, non-Washington-insiders into office!

  129. 130 steve
    September 8, 2008 at 19:09

    @ Jessica

    Fannie Mae And Freddie Mac don’t “take advantage of the bottom 40% of the population” all they do is buy loans from banks that originated the loans. They exist to free up money for people to borrow so that people can take out loans to buy banks. You make it seem like FNMA is some shady loan officer who makes people sign without reading, knowing th eperson can’t afford the loan on their income, when FNMA and Freddie don’t make any loans! If’ we’re going to criticize these organizations, we should at least get their function correct. FNMA and Fmac do not give out loans. They are not banks. Nobody has ever gotten a loan from either of them. What they do is buy loans from banks.

  130. 131 Lisa in Portland, Oregon
    September 8, 2008 at 19:13

    My understanding of the mortgage crisis is that the US Congress changed rules governing mortgages and thus allowed banks to may riskier mortgages. Aren’t the politicians responsible for this crises?

  131. 132 Corey Green in Ohio, USA
    September 8, 2008 at 19:14

    Where’s my bailout? The way I see it these banks made the mistake and should have to pay the consequences. I work for a small web design company that has been around for a few years now, but our new contracts took a drastic downturn that coincides with the banking failures. Now our outlook has gone from ‘where can we go from here’ to ‘how much longer can we survive.’ Why are my and others’ in similar situations livelihoods somehow worth less, especially when most of us had no hand in creating the current situation?

  132. 133 Greg in WA, USA
    September 8, 2008 at 19:14

    The bailout is a result of years of loose lending policy’s. We have more home ownership now than ever before. People have been able to purchases home with no or little money down for years, This has been getting more and more prevalent in the US and elsewhere. The US economy has been growing in large part from Home Equity Loans. This has allowed the American consumer to keep purchasing more stuff.
    The problem originates with the materialism of the US consumer to keep purchasing more, getting further in to debt, and saving less.

  133. 134 Tom.
    September 8, 2008 at 19:15

    Missing from the discussion is that one of the major reasons for the whole mortgage mess, including Freddy and Fannie, was the refusal of the administration to regulate mortgage lenders. The mortgage industry actively lobbied to avoid regulation so they could continue to make commissions on unrealistic loans that where always destined to default.
    As a taxpayer; if my money is to be used to bail out this industry, then the government needs to demand a quid pro quo of regulation to reign in the unfettered excesses of this industry.

  134. 135 Max
    September 8, 2008 at 19:15

    Max in Singapore texts:
    The cowboy buccaneers presented a fait accompli to the tax payers! What is there to discuss?

  135. 136 Melanie in San Francisco
    September 8, 2008 at 19:16

    Why not both? The US Government must bailout the large mortgage companies because of the ripple effect on the world economy. However, the individuals who profited from their reckless lending practices should be arrested and fined to repay the taxpayers.

  136. 137 steve
    September 8, 2008 at 19:16

    @ Lisa

    Yes, part of this is due to that, there wre lots of allegations of racism on the part of banks, because blacks with poor credit were getting denied loans. The rules changed a bit, but also there was the mistaken assumption that values only go up. Part of the reason values went up was because since people could borrow so much money, they could just offer more money they borrow. Three is no rationality invovled in this at all.

  137. 138 Winston Gillies - Salt Lake City, UT
    September 8, 2008 at 19:16

    @ Steve

    This all shows that Fannie and Freddie do not subscribe to proper business practices and operate the same as those they are purchasing paper from in the first place. It’s a mute point anyway because in the end…it’s only about money! and the speed at which it can be acquired from banks, the government and ultimately the taxpayer!!

  138. 139 Deryck
    September 8, 2008 at 19:17

    Deryck in Trinidad texts:
    No,if a poor man maks a bad decision and loses his house nobody bails them out — so why should taxpayers bear the cost of a company that has made billions? Probably the shareholders should be brought to justice if financial impropiety has taken place.

  139. 140 Ervin
    September 8, 2008 at 19:17

    To suggest that a “corporation cannot be allowed fail” completely ignores the fact that, in a free-market society, some companies prosper while others don’t. If Freddie and Fannie cannot be allowed to fail, then they and their stockholders have an unfair advantage in the marketplace. In that case, they should be re-organized as government agencies, not regular corporations.

    This is a lost opportunity to ween the US consumer from the teat of government-subsidized consumerism.

  140. 141 Kyle
    September 8, 2008 at 19:17

    Kyle texts:
    Capitalism is inherently unstable and in terms of cycles government intervention is essential. The irony is that ’bail-outs” for companies occur yet there is no desire within the USA to reform their own health system.

  141. 142 Hugh
    September 8, 2008 at 19:18

    Of course I don’t like having to bail out these financial giants, but what’s the alternative? What would happen if we DIDN’T bail them out?

  142. 143 John
    September 8, 2008 at 19:18

    John in Ghana texts:
    Do the taxpayers enjoy with the fat cats when things are rosy? NO. Just as they enjoy abnormal bonuses, so should they pay back when things are bearish.

  143. 144 Brad Werren in California USA
    September 8, 2008 at 19:19

    All this begun when the Reagan Administration de-regulated the financial system. Its time to pay the piper.
    Its going to be a tough time for the world economy not only for the present bail outs but all the failed polices of the administration of the last 8 years.

  144. 145 Bloneker
    September 8, 2008 at 19:19

    Bloneker in Ghana texts:
    George Bush has finished the US economy.

  145. 146 Walter. Uganda.
    September 8, 2008 at 19:20

    Fortunately in the west bailouts may be in good faith 2 save institutions. In uganda, bailouts are used for stealing tax payers money.

  146. 147 Jason from Houston, TX
    September 8, 2008 at 19:20

    @ Rene C. Moya

    I appreciate your point. Perhaps I am ignorant of my options in this regard. What are some examples of private-sector entities from which the consumer can receive an independent analysis of the business practices of a financial institution?

    If such businesses do indeed exists, can I convince you that there is a case for criminal fraud charges against those responsible for such collusion in the private sector? If government regulators fail to perform, the only place market participants can turn is the ballot box (not an effective solution). However, when a private entity fails to perform and is suspected to have done what you suggest, criminal charges should apply and serve as a proper deterrent.

  147. 148 Alkali
    September 8, 2008 at 19:20

    Alkali in Nigeria texts:
    The takeover shows that private ownership is not the answer to economic growth, but transparency. We should have a rethink on IMF-imposed privatisation.

  148. 149 Tom D Ford
    September 8, 2008 at 19:20

    @ Steve

    “Non shareholders have no say in the compensation of the executives of corporations.”

    Depends on how the responsibility is set up. I understand that in Germany corporations are legally responsible to the shareholders and to the workers.

    In the US they are only legally responsible to shareholders and whatever government regulations there are left to ignore or break.

  149. 150 Joschua
    September 8, 2008 at 19:21

    Joschua in Kampala, Uganda texts:
    The global crunch is a testing time and the interventions employed will unfortunately have long-term chaotic effects on jobs, housing, feeding, and business.

  150. 151 Walter
    September 8, 2008 at 19:22

    Walter in Uganda texts:
    Fortunately in the West bailouts may be in good faith to save institutions. In Uganda, bailouts are used for stealing taxpayers’ money.

  151. 152 steve
    September 8, 2008 at 19:22

    @ Tom

    And if the shareholders have a problem with the actions taken, they can either vote or file a derivitive suit. But again, you have to have shares to have a say. Without shares, it’s like me trying to tell you what clothes you should have in your drawers.

  152. 153 Pangolin- California
    September 8, 2008 at 19:26

    Or we could institute some usury laws that dictated all loans were for fixed terms at fixed interest rates not to exceed 20% or 20 years. If a bank issues a loan then they have to service the note and no selling it on. If the loan goes bad it’s the banks problem, not the governments, to collect the collateral.

    Chain the risk to the gambler and the crazed financial industry would settle down right quick.

    Steve- I’m sorry, but the truth is that banks discriminated against black and hispanic and asian people based purely on race. Proven in court numerous times. It would be easy enough to strip loans of names once documentation was verified and force them to base their approval on data. But where would the likes of Sara Palin get loans?

  153. September 8, 2008 at 19:32

    Steve,

    I don’t have to go to Detroit, although I have and have many friends and colleagues from there.

    There are plenty of houses here that are standing empty. That simply means there is too much “supply”, but the demand at the current price is non-existent. For some reason the owners feel it is a better option to sit on the house and the property. What should happen is a vacant house tax should be assed to these places.

    All these houses standing empty means one of two things. There are more houses then people who are willing to buy them, or there are more house then people who are able to buy them. Even though that is true, does that mean that there are no builder in Detroit at all?

    All that taking over these mortgage companies has done is transfer the risk of bad business to the America people.

  154. September 8, 2008 at 19:36

    Some examples? Brokers to start (when dealing with equity and financial products, and are supposed to provide first-line investment information), ‘independent’ analysts (who are rarely independent, as most big-players work for the very sectors they’re keeping an eye on), accountants (who, again, had incentives to ‘re-identify’ re-packaged sub-prime loans as top-quality investment vehicles–which they weren’t), and so on.

    I totally agree, Jason, there is a case fo fraud cases. Sadly for many of the individuals involved, i.e. those who work in corportations such as Anderson that fail because of mismanagement not to do with their own work, those fraud cases cause enormous harm. It’s a pity than a proportion of a company’s workers manage to sink the corporation as a whole by their dirty deeds (e.g. Anderson-to-Enron) at the expense of every other analyst working at the company. If there were more stringent rules regulating acceptable behaviour, we wouldn’t have this mess. De-regulation undoes those checks against abuse…and I’m sorry to say criminal enquiries are far and few between anyway.

    There’s definitely a disconnect between regulations currently in play and the disproportionate damage shoddy inter-market regulation causes on the economy as a whole. The successive failure of de-regulated industries–a policy which was often pushed for ideological and not pragmatic reasons–leaves us with some tough choices we need to make.

    Also, I’m not entirely sure we should be ‘de-regulating’ finance the same way we ‘de-regulate’ the sale of other products. Die-hard free-marketeers want to treat everything (including health care provision, education, etc.) in the same manner that you’d treat toys, clothing and luxury goods. That’s ideology trumping real-world consequences.

  155. 156 steve
    September 8, 2008 at 19:37

    @ Pangolin

    Why would a bank choose not to make a loan to someone who could make the payments? They are in it to make money from interest. They cna’t make money if they can’t make a loan.

  156. September 8, 2008 at 19:37

    Oh, and my latest post was for Jason from Houston, TX. Sorry. 🙂

  157. 158 Jessica in NYC
    September 8, 2008 at 19:46

    @ Steve

    I, personally, know four middle class families who have been trying to sale a home who is depreciating in value and can no longer afford it in a weak economy for two years. This bail out is not doing anything to help them and they are responsible hard working American people who continue to pay their bills as they sink.

    In case your curious on their demographics: middle class, college educated, Caucasian, republicans, live in south and west coast, own modest homes valued between $150,000-200,000 for families of 4-5 people each.

  158. 159 Tom D Ford
    September 8, 2008 at 19:53

    @ Steve

    The public rightfully has a say in publicly owned and regulated stock corporations. We demand certain reporting practices and a certain amount of transparency.

    Now private corporations like Cargill are another thing.

  159. 160 steve
    September 8, 2008 at 19:55

    @ Jessica

    But the bail out will help future homeowners be able to get loans so they can buy a home. It’s better than let the entire financial system collapse. Perhaps those people can take on a tenant, or sell for a loss but at least have money to make the payments with.

  160. 161 Jessica in NYC
    September 8, 2008 at 19:55

    @ Steve

    These four middle class families I mention in my above post are the ones I am thinking and put into prospective when the government makes ridiculous polices to help “ordinary people”. I’d like for the president and congress to start defining “ordinary people” from now on, because apparently it is as subjective as McCain defining rich people as anyone who makes 5 million or more.

    This abuse of power is not putting my tax payer dollars to good use.

  161. 162 Shirley
    September 8, 2008 at 19:58

    109 steve September 8, 2008 at 6:41 pm
    What needs to be done is that someone needs a sitdown with their kids, and tell them to stop being so materialistic.

    Steve, children learn by example. When they see us going after more square footage, more expensive furniture, larger SUVs, and all the best fashion, going into debt in orer to achieve these material ideals, then they will learn to chase those same ideals by using the same debt. We adults need to start learning to budget responsibly. Otherwise, no amount of preaching that we do to our children will mattr. They will just do what they saw us doing and assume that it is ok to talk as if they are trying to live modestly, because they saw us spouting off like nasty hypocrites.

  162. 163 Roberto
    September 8, 2008 at 20:04

    ———Of course the taxpayers will pay for the bailouts. Any of them in 401Ks have already paid a heavy price for general level legalized corporate fraud that happens every day in the US, all over the world really.

    Most every John Q Average stockholder has paid a heavy price for all these Ponzi schemes and carney shell games that pass for much of business these days.

    China and Russia hold a huge blocks of government bonds the US has issued to finance corporate run government. That’s free money to the government, but eventually they will extract their kilos of flesh from every man, women and child in the country to pay it all back.

    Corporations already get HUGE tax rebates. Enron was scheduled to get 900 million the tax year it collapsed for example. Don’t know if they ever did, but that ain’t the point.

    The global economic system has become so vast, so complex, so ultimately untraceable, that all the supercomputers in the world couldn’t quantify it in any way that made sense enough to properly manage. Yet all these smartest guys in the room global captains sailing their new Titanic straight into the iceberg fields telling us not to worry, she’s unsinkable.

    Just sit back and enjoy the cocktails.

  163. 164 Richard in Arkansas (USA)
    September 8, 2008 at 20:13

    For everyone reading this abroad, know that in the U.S., the rich run everything, the media, big business, the government, everything. And they will get exactly what they want. I am so disgusted with my country right now. Us poor folks are getting screwed every which a way. Another huge looming crisis that isn’t getting proper attention is social security and the budget debt. Both are in big trouble. But all we get from Washington is hot air. For about the last 3 years, I’ve been quietly thinking about moving out of the U.S. before all these problems blow up. My thinking now is in high gear. I don’t believe the U.S. can survive another 10 years at the rate we are going. I plan on visiting Canada the last week in October and check things out up there. For the first time in my life, I can honestly say that I’m not proud to be an American. For anybody reading this who is thinking about coming to this country: One word of advice – DON’T!!!

  164. 165 Tom D Ford
    September 8, 2008 at 20:38

    @ Steve
    and
    @ Shirley

    About materialism.

    Both are good ideas, and how do you inoculate the kids from advertising, movies, TV, peer pressure, etc?

    I talked with a father long ago who told me that he was honest with his kids about their family finances; he told them he would buy them their desired toys when the family could afford it and when they couldn’t they would have to wait. They went through good years and bad together and they seemed to do well being honest with each other.

    Seemed pretty simple at the time.

  165. 166 steve
    September 8, 2008 at 20:42

    @ Tom

    Parents would have to “parent” their children rather than allowing the TV and teachers to parent their kids. I wasn’t allowed to watch much TV until I was probably 13 years old. Though my mom is pretty materialistic, my dad isn’t at all, so I saw the damage that materialism can do, and the benefit of not being materialistic. These days you have materialistic parents raising materialistic children.

    You should visit DC one day. Just about everyone has a BMW here, in a pathetic attempt to show off “status”. The worst part is that it works. You always see a female passenger in the front seat of every 3 series. I know guys who bought a BMW for the sole purpose of getting a girlfriend. While it works, you get a golddigger from it. But that’s their decision..

    My parents made me buy toys with my own money,and this was money I had to work for, by mowing lawns and shoveling driveways.

  166. 167 Pangolin- California
    September 8, 2008 at 20:46

    I would have to agree with Richard in Ark. regarding the dim future of the US. A nation that can run two D students for President and Vice President without being shredded by the local media isn’t playing with with all the cards in the deck.

    If you have US denominated assets dump them. It won’t hurt any of us already on the bottom of the pile but it might get the wealthy to wake up. This bailout means that to stay solvent the US government is going to print money at a rate that would make Zimbabwe flinch.

    If I had somewhere to go to I’d dump this hole of a country in a minute. Immigrants with health problems aren’t very welcome anywhere else. Go figure.

  167. 168 Jens
    September 8, 2008 at 20:48

    steve,

    i would buy the BMW because it’s a fun car to drive…..seriously they are by large great cars. having some peroxide blond sitting in it does only distract from the beauty of “das beemer”….

  168. 169 Jessica in NYC
    September 8, 2008 at 20:49

    @ Steve,

    “You make it seem like FNMA is some shady loan officer who makes people sign without reading, knowing the person can’t afford the loan on their income”

    Break down of the Wealth Distribution as of 2006 from the economist Edward N. Wolff at New York University.

    • The top 1% of households (as the upper class) owned 33.4% of all privately held wealth. [In terms of financial wealth, the top 1% of households had an even greater share: 39.7%.]
    • The next 19% (the managerial, professional, and small business stratum) had 51%
    • Leaving only 16% of the wealth for the bottom 80% of the population (middle class, working class, and poor).

    So, when taking into consideration policies the government initiates as yesterday’s $200 billion bailout that benefits the top 20% of the US population more than the bottom 80% of its people I do think Bush as helping financiers that made “shady” business deals.

  169. 170 steve
    September 8, 2008 at 20:52

    @ Jessica

    That’s still not what FNMA and Freddie Mac does though. You’re attributing to them the actions of the banks. Your anger is a bit misdirected.

  170. 171 Jason from Houston, TX
    September 8, 2008 at 21:04

    @ Rene C. Moya

    If I understand you properly, you believe (as do I) that there are no private-sector businesses that can provide the consumer with an independent analysis of the business practices of financial institutions. Brokers stand to profit from disinformation, professional financial analysts are (as you say) not independent more often than not, and accountants work for the financial institutions themselves rather than the consumer.

    The reason private, independent analysis entities do not exist is because sufficient demand for them has yet to surface. For that to happen, consumers must become more educated as to their financial transactions and the institutions with which they do business.

    I also understand you to believe that criminal litigation is not preferred to government regulation because criminal litigation leads to collapsed businesses whose employees will suffer unjustifiably. While collapsed businesses are indeed unfortunate, the purpose of a free market based on the rule of law is not to assure that bad things don’t happen to good people. The purpose of a free market based on the rule of law is to provide an environment that encourages economic growth and discourages breaking the law. All of this depends (heavily) upon sufficiently educated market participants.

    There must come a time when consumers become responsible adults, capable of making well-though-out decisions. Only children should be expected to cry to their mom when they have screwed-up; the U.S. government should never play the role of ‘mom’.

    I believe this same line of reasoning applies to the other topics you mentioned (ie health care), but as they are not germane to the topic at hand I must refrain from addressing them. I would like this to actually get posted to the blog.

  171. 172 Tom D Ford
    September 8, 2008 at 21:19

    @ Steve

    “I know guys who bought a BMW for the sole purpose of getting a girlfriend. While it works, you get a golddigger from it. But that’s their decision..”

    We have that kind of materialism here too, And the “armcandy” women.

    “My parents made me buy toys with my own money,and this was money I had to work for, by mowing lawns and shoveling driveways.”

    I picked berries every summer and that money bought my school clothes for the year. I mowed lawns and raked leaves too. But my folks were generous with Christmas and birthday toys too.

    Materialism is ultimately unsustainable, I am not at all into it and I would like to think that I won’t have to pay the price when the curtain falls on those who are materialistic but I’d bet that we’ll all be taken down.

  172. 173 Jonathan
    September 8, 2008 at 21:25

    The worst part of something like this is watching people learn exactly the wrong lesson(s) from it. I had to laugh when the guy on the radio said “This proves capitalism is dead!” Folks, this was not a failure of capitalism but of government. Fannie and Freddie (F&F) were creatures of government. They were moved “off budget” to make the budget numbers look better. They evolved into monsters– somewhere between government departments and private businesses, with, predictably, the worst features of both.

    If a private corporation had cooked the books the way F&F did, its executives would be in prison. Enron was kid stuff compared to this. They’ve been the stuff of gallows humor for as long as I can remember; everyone who bothered to know, knew that they were zombies, the walking dead.

    Think what you like about this “bailout” or the Bear Stearns “bailout” a few months ago (which wasn’t a bailout but a shotgun marriage), but know the facts: This was not a gift from taxpayers to the owners of F&F. The owners of F&F, like Bear, lost virtually everything. And please, please don’t imagine this to be a failure of capitalism. Only government can screw up this badly.

  173. September 8, 2008 at 21:28

    @ Jason from Houston, TX:

    The reason private, independent analysis entities do not exist is because sufficient demand for them has yet to surface. For that to happen, consumers must become more educated as to their financial transactions and the institutions with which they do business.

    Jason, that just isn’t true. The market for such analysis already exists, and is quite large–only it is targeted primarily at institutional investors. And those fail. They fail primarily because current regulation provides for some external, private-based assessment of equities and financial instruments–but without building walls around those analysts and those whom they advise. It’s a failure of the market itself, and not the non-existence of one; and it is a market which would benefit from wider government ‘distortion’.

    Also, I don’t know what practical solutions you’re proposing by saying that consumers should be more ‘educated’ as to their investments. Who does that educating? Those very same brokerage firms, institutional investors, analysts and accountants? That is a rather rich prescription for the problem. On top of it, we’re ignoring a guiding principle in the free market bible: that the transparent flow of information is necessary to the proper operation of markets. As it stands we don’t have anything approximating an appropriate transmission system; and you’ve not proposed anything that would fix that.

    On criminal legislation: the problem there is multi-form. On the one hand proper regulation–that was strict, and kept abreast of financial and technological innovations–would work to prevent the problems before they led to a collapse. On the other US laws having to do with corporate responsibility are messy and theoretically shoddy. We uncomfortably navigate a dual-track between treating corporations as legal-persons, whilst not quite addressing the inherent flaws in treating them as persons period. That is a discussion for another day–and believe me, it’s one that itself deserves discussion–but here we should be concentrating minds on the degree to which we can work to prevent these crises.

    Lastly, ‘responsible’ citizenry is all well and good–but then again that’s saying much for a philosophy based on the ‘sound’ reasoning of market participants. Without that sound reasoning the market breaks down.

    The problem with free-market fundamentalists is that they want to have it both ways–by blaming individuals for failing to be sound, reasonable participants, whilst slating those who criticise the market for its inherent risks. Put another way, orthodox economists have failed monumentally to account for the actual behaviour of market participants. That yawning gap between theory and practice is one free-marketeers aren’t willing to accept.

    But of course fundamentalism of all sorts is almost always marked by a discomfort with the facts…

  174. September 8, 2008 at 21:35

    @ Jonathan:

    No, Jonathan, it more a mix of the failure of proper US government regulation, and the wilful use of facts and numbers. The latter is the fault of the market, which has many incentives to flout the system–as I’ve argued above, and which proves the dangers of absolute, laissez-faire economics. The former is the failure of government policy, but also the ideology that underpinned it. And need you be reminded that it was a Republican, pro-free marketeer who pushed for those ‘reforms’ of Fannie Mae and Freddie Mac?

    Both have failed, both the market players and the government.

    That is not a failure of capitalism, I agree: it is a failure to do with an ideological distortion of capitalism’s strengths and weaknesses, the latter mitigated by government action. But how can that action work when our administrations are wedded to undermining the system itself?

  175. 176 M.Carter
    September 8, 2008 at 21:44

    The human ethics system has been destroyed by money.

    The original purpose of money was to replace the barter system of trading an object for an object.

    Money was not meant to be a commodity itself. The intrinsic value of money is the object it is printed on, a piece of paper.

    A fish or a pair of shoes has a value even when there is no money. Money, by itself, without something of value to trade for it …has no value.

    Money is a system (a belief system) not an object with intrinsic value.

  176. 177 Jonathan
    September 8, 2008 at 21:54

    @jessica~

    You’re just mistaken to say that this was a “$200 billion bailout that benefits the top 20% of the US population more than the bottom 80%.”

    First, you cite wealth distribution as if it showed anything about this transaction, but it doesn’t. Why would you think it did? Since it’s the stockholders of F&F who have been wiped out, and since people who invest are generally wealthier than people who don’t, this is much more of a loss to those big, bad rich people than to the noble workers.

    Second, rich people pay much,much more taxes than poor people. I don’t have the figures at hand, but the tax burden is almost as lopsided as the wealth distribution. People who don’t earn much money don’t pay any federal income tax at all, and the poorest actually get a “refund” — a reverse tax. So, again, the price is paid more by the people at the top.

    Third, it’s extremely unlikely that this will end up costing $200 billion.

    Fourth, mortgages are more useful to the middle class and the poor than the rich, for obvious reasons. More people are homeowners in the US (as a percentage of population) than in any other country.

    Fifth, the wealthy would survive a global economic meltdown very much more comfortably than the middle class or the poor.

  177. 178 Jonathan
    September 8, 2008 at 22:00

    M.Carter–

    You’re right that money would have no value if there were nothing to trade for it. But surely that isn’t the situation of any developed country or anywhere at all, except a place like Zimbabwe where the money was debased by the corrupt government so that it cost a billion dollars to buy a loaf of bread, if you couldf find one.

    In most of the world, there’s a whole lot of stuff for sale.

  178. 179 Tom D Ford
    September 8, 2008 at 22:00

    @ Jonathan

    “If a private corporation had cooked the books the way F&F did, its executives would be in prison”

    Privately owned corporations are under no requirements to cook or not cook their books, they don’t report to the public.

    Perhaps you meant public stock Corporations?

  179. 180 Richard in Arkansas
    September 8, 2008 at 22:13

    This is all coming down the pike due to the U.S. republican parties deregulation of everything. They tried to deregulate the electricity market a few years ago and that led to Enron-the common man got screwed and the rich got bailed out. They tried to deregulate the airlines a few years ago and that led to another bailout. Now this in the financial sector. When will the U.S. learn. Regulations are in place to keep greed in check. Without them, unfortunately, evil human nature takes hold and all people see are dollar signs. I wonder sometimes, in quiet moments, what our country has come to. I actually believe that some of these rich republicans would dump their own mothers out of wheelchairs at a nursing home if they thought it would put an extra dollar in their pocket. God’s judgement on US as a nation is coming, and it may be sooner than you think. People reading this adroad, be glad. You aren’t in this rotten country. While everywhere has problems, our problems are getting to the point of being un-solvable. Pledge alligence to this country??? I don’t think so. Why would I pledge alligence to something so morally bankrupt as the United States of America??? It makes no sense whatsoever to me.

  180. September 8, 2008 at 22:21

    Based on the republican motto of less government intervention, this is a bad idea. It is called nationalization which is bad for a market economy. The countries who do that are often labelled “banana republic”.

  181. 182 Jonathan
    September 8, 2008 at 22:23

    @Rene

    I came late to the party today and haven’t read your posts before the 9:25 one. Your points would be good points if these were private companies, but, again, they are not. I don’t know what “reforms” you speak of, but F&F have been zombies for many years, during administrations and (more relevant) congresses of both parties. I’ll assume you didn’t know the nature of F&F until today, but you just read my comment describing these companies inn some detail.

    I just explained that these were not private companies, not creatures of the market, and not anything remotely like laissez-faire anything. They were/are creations of government.

    Since you didn’t know the facts before, and you don’t believe me when I explain them now, and you haven’t done the research to find out for yourself, I’m not sure how much of a conversation we can have. Differences of opinion can be interesting, only if they’re based on fact. Especially in the google age, when it’s so easy to find out the truth. You talk about “willful use of facts and numbers” like it’s a bad thing; in fact it’s sort of essential to understanding stuff like this.

  182. September 8, 2008 at 22:38

    @ Jonathan:

    Um, Jonathan, I knew enough to mock F&F by calling their half-private, half-public nature bollocks. That’s why I put ‘reforms’ in brackets–I was referring precisely to the moves in 1968, under the NIXON administration, to remove those debts from the public books. So, pardon me? I guess a bit of ignorant condescension goes a long way, eh? 😉

    Also, you’re cherry-picking, my friend: those comments were on the more in-depth criticisms I was laying against the shoddy US regulatory environment. Seeing as how you’re out of your depth here, and distorting my words, who’s actually having the factual discussion?

    The points against laissez-faire regulation were originally made in response to those who wanted untrammelled, free-wheeling markets elsewhere. That had nothing to do with my comments on F&F.

    So where should we begin having that ‘reasonable debate’?

    Perhaps we can start with the regulation against lenders of FIRST resort, at the consumer front-lines, and how the non-existence of it (pretty much) started this whole mess…?

  183. September 8, 2008 at 22:44

    Oops, I meant Johnson. I was ref. to Nixon’s moves in 1970 that created the secondary mortgage market.

  184. 185 Richard in Arkansas
    September 8, 2008 at 22:50

    The transfer of wealth is going on, as we speak, behind the scenes. Trust me. The people with the real money are VERY quietly parking it in off shore banks and institutions so as to be safe when the whole house of cards which is the U.S. financial system comes crashing down. This is being done completely out of the public eye. Again, if you can, better get out now before things come to a head. The day of reckoning is near.

  185. 186 Jonathan
    September 8, 2008 at 22:56

    @Jason

    If you seriously think there are no independent businesses providing analysis of financial institutions (and every other kind of corporation), you should see the mass of junk mail they send me. Or look around the internet, likewise clogged with the stuff.

    You describe the free market as some sort of savage jungle, where the unwary and unlucky are devoured by lions, and they darn well deserve it. The logical and very attractive alternative would be the safe snuggly gentle world of protection by the regulations of a wise and benign government You almost had me convinced.

    But as we see today, government is seldom either wise or benign, and almost never both. More often, government is the biggest lion of all, routinely screwing things up massively, and sticking us all with the bill, as in this case. Each of us, whether financially sophisticated or uninterested, should get the chance to make our own decisions with our own money. We’ll manage it better than our politicians do who snatch it away and shovel it out to the corporations with the largest, loudest lobbyists. In the real jungle, they wear Gucci loafers.

  186. 187 Jonathan
    September 8, 2008 at 23:04

    Rene

    No offense, and no “ignorant condescencion,” was intended–by me anyway. I specifically said I hadn’t read any previous comments by you or anyone else. Sorry if I got the wrong idea. I’m not out of my depth, just late to the party and short on time.

    I shall look forward to bathing in the warmth of your nuanced logic, but it’s a pleasure I cannot allow myself just now. My enlightenment must wait another couple of hours.

  187. 188 Jonathan
    September 8, 2008 at 23:06

    @Richard

    Yes, but where to run? Where is safe from the apocalypse?

  188. September 9, 2008 at 00:39

    Each tax payer in America needs to tell the Feds: No money this year!!! By time I paid all my gas, food, health insurance, and mortgage there just was no money left over for taxes.

    If you could charge the folks who made all the money on repackaging, mortgages and reselling them to investors…….us all poverty type peons would sure appreciate it.

    If you get around to it how about sending us all an economic stimulation package so we can buy some rice, bread and beer.

    thanks a lot,

    happy, patriotic votoer.

    troop

  189. September 9, 2008 at 02:19

    8 September 2008

    What seems to escape everyone’s observation is the cause. That is to say, yes, the failure of Fannie/Freddie, the sub-prime crisis, the credit crunch, the redistribution of wealth to the top one percent is indeed the result of political corruption, lack of oversight, federal complacency, greed, political parties and the inherent deficiencies of so-called “free market” capitalism, but these are only the symptoms. The undeniable cause of the aforementioned problems is the Chicago School of Economics as proposed and propagated by the late Milton Friedman. Milton Friedman is the most prolific terrorist in modern history; Milton Friedman’ s free market economic theories have been causing death and suffering since the mid-1970’s when they were first taken from the classroom to be applied in Chile. Instead of being the greatest most celebrated economist of the 20th century, I submit that he has been the genesis for more suffering, more death, more destruction of people’s lives, and therefore the most deadly terrorist ever spawned in human history. All the other things that I have read about on this blog string are nothing more than the result, or effect, of Friedman’s influence.
    James B. Tinsley, B. A.
    Fort Smith, Arkansas

  190. 191 Iddi
    September 9, 2008 at 05:32

    When a business supports national welfare then a government has no other options but to bail it out whenever its in trouble. Taxpayers are the ones who elect a government – well, in most cases – and those elected are responsible for doing everything possible to keep a country’s economy running! Even going as far as using taxpayers’ money to bail out strategic businesses. So, yes taxpayers should pay for bad business decisions because they may have sanctioned it in the first place.

  191. 192 Pangolin- California
    September 9, 2008 at 07:54

    It’s a well know saying that “the US has the best government money can buy.”

    Laws are written by congressmen who are elected or ignored largely on the basis of the “campaign contributions” that they recieve from individuals and groups that make it very clear what they think they are buying with that money.

    The simple solution would be to either ban campaign contributions or make them all go through a firewall where individual donation amounts and sources would be opaque to the candidates until after the term served.

    If they are not bribes then why is it so important who donates how much?

  192. 193 Nofal Elias
    September 9, 2008 at 09:15

    Nationalize the banks? Is this the first step to the socialization of USA.
    I am not an expert in money investing but to me is quite simple, don’t borrow more than you can afford, so as the lenders they should take the responsibility for it as well. I see it as just greed
    Why the CEO’s get bonuses in the millions when their companies make profits and get bailed out by the tax payers money (not goverment money) when they are in trouble.
    When the Republicans gets in, they will find allot of mess to sort out, and that is exactly what is happening in UK, Labour knows for fact thay are not going to win the next election, recently they are making allot of unwise decisions.
    Living in UK, why the goverment is willing to keep house prices infalted? for example, home owner share scheme, suspending stamp duty for a year .. etc.
    I would say let the market force that, the goverment should not interfere with private business.
    Just a thought, why the goverment give the money directly to the home owners to pay off their mortgages directly? then Fannie and Freddie will get the money that way. Of course I don’t support using tax payers money to bail out bad decision makers.

  193. September 9, 2008 at 10:43

    first and foremost,americans should not make noise thinking that its their money that is being used to bail out this ministrys of housing in US most favoured contractors for housing(THE F n F).its people from other countries who should complain because this is just money printed out illegally by the govt,yet the same fake money will be used to buy original products from africa and other places out of america……it means that we will work harder for our money yet americans will buy our goods with money not worked

    THE LAST DON
    KENYA.

  194. September 9, 2008 at 13:16

    One of the reasons I am voting for Bob Barr and the Libertarian Party is because the Nationalisation of Fannie Mae and Freddy Mac by the US Government is Unconstitutional. It is also unconstitutionsl to have the taxpayers pay the bill for the wrong decisions made by politicians, mortgage companies, banks, and consumers. In fact, the politicians, mortgage companies, banks, and consumers that committed the errors should be made to pay the errors of their way.

  195. 196 smithcopper
    September 9, 2008 at 13:31

    It’s because we have to perpetuate that this is “dreamland”
    It’s all about God and apple pie

    I call it IRS (Inflated Reality Syndrome)

    No we should not bail them out but these are signs of the crisis to come.

  196. 197 Tom D Ford
    September 9, 2008 at 16:26

    @ James B. Tinsley, B.A.

    Yeah,” the Chicago Boys”, and Kissinger implemented their policies, but what’s the cure?

    What is the cure?

    We’re all dying to know, literally, humanity is dieing to know the cure to Conservatism.

  197. 198 Jonathan
    September 9, 2008 at 22:39

    @JamesB.Tinsley

    I need to defend the memory ofa great man whom you defame with no evidence at all.You say a bunch of ugly things about Milton Friedman, but none of them is true, and you don’t bother to cite any evidence, make any specific cases, or even invent anything to back anything you say. Milton Friedman would have been the first to warn against the folly that was F&F, and for all I know he very well might have. I’m not going to waste my time looking for it, since facts don’t matter to you. As for Chile, I suggest you compare the economy there before and after he offered his advice, and if those numbers aren’t compelling, ask Chileans themselves. Among other things, they have virtually no inflation by Latin American standards, and they have a real, sustainable retirement system, which the US does not.

    But you’re not going to do any of that; you don’t want to cloud the issue with facts because your mind is made up. What a strange way to think.

  198. September 10, 2008 at 19:16

    mmmm politics yummy,
    pangolin cali had a bright idea, a contributions fire wall, but lets extend that a little, what is politics anyway, the first thing that springs to mind, to make life better for people, which usually revolves around money, therefore at least in the UK possibly the US, lets have a no holds barred on the amount and origin of money in politics, as long as its ethical and legal, which begs the question what is ethical and legal, well, the basic stuff, money laundary, drugs, what about guns, mmm well, ok, guns used to defend and up hold law, minimal corruption, now we are cookin. Ok, lets sort out this bail out of fanny and freddy. No system is perfect, all need refining, which is what this bail out is, I’m on a roll here, how about the oil problem, mmmm well, oil is rapidly becoming a dirty word, I sense a culture where people become proud to use little or no oil. There, think I’ve earned my dole money today, any more problems 🙂

  199. 200 Krisso
    September 20, 2008 at 06:23

    So what they are trying to say to us is that to be fiscally responsible and live within your means is punishable by tax?

    Let them burn, let them burn to the ground so that the responsible can take control, rebuild and replenish. Aren’t these responsible folks the kind you want in chage here?

    Can I also point out that the majority of people cannot afford to invest at all and that labelling this as a ‘crisis’ is an overstatement. It is all a measure to ensure the rich stay rich and the poor, well…

    In short, nobody likes to lose, but you can’t go changing the rules just because things aren’t going your way. There will always be winners and losers, it just depends on how smart you play the game as to which side you will be on.

    Which brings us to the point, why play at all? Well, if there was no stock market and fractional reserve banking were abolished we could actually see real value placed in our currency instead of it being a measure of debt. Everytime the Fed ‘pumps aid into the economy’ that is to say they are ‘making money’ which as a side effect causes inflation, thus devaluing our currency and buying power.

    This brings about the real root of the problem:

    THERE IS NOT ENOUGH MONEY IN EXISTENCE TO PAY OFF THE TOTAL SUM OF ALL DEBTS OWED TO EVERYONE.

    Ron Paul was on the right track.. its all about education and unfortunately they dont and probably never will teach you about this in school.

  200. 201 Reader
    September 24, 2008 at 20:28

    We are not getting the person who bought a TV off the hook!

    What this is about is these companies Fannie Mae, Goldman, etc are traded in the stock marked. People with big bucks bet on these companies. These companies made bad lending practices and they lost money. So those who bet on these companies are loosing money. The millionaires! Now they want the tax payer to pay for those bad bets so they don’t loose money and we do!! Talk about rob the poor to feed the rich. Where were they when people were loosing their home, etc?


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