Taxpayers Shouldn’t Fund Wall Street’s Bailout

Dysfunctional U.S. financial-industry players shouldn’t count on average Jane and John Does to fund the cleanup of their mess. Pro or con?

Pro: Bailout Reinforces Bad Behavior

To say that the situation on the Street is alarming is like saying that a tornado is windy. The financial backbone of the economy is in dire need of help, and in the excitement, a $700 billion bailout is taking shape in the halls of Congress. But in the rush, a number of major problems are being overlooked or simply ignored.

This is not the first time Wall Street has made a huge financial mess and received a taxpayer-funded bailout to fix it. If we keep rescuing banks from their own greed, who’s to say that the Street won’t come to rely on taxpayers to be an insurance policy with no limits and manage to make an even bigger mess next time? When are those responsible going to get punished and how?

There’s also the problem of the bailout’s sum. The current crisis is caused by rapidly devaluing assets. Banks have no idea how much they’re worth and their underwriters have to cover yet unknown, but definitely mind-boggling, claims. This uncertainty makes the size of a bailout extremely difficult to predict. Is $700 billion enough? And we shouldn’t forget that the government just asked the taxpayers to prop up the largest loan portfolios in the country to the tune of $5 trillion. How much more money will we need to cough up? Nobody knows. Nobody.

We certainly need to help the economy survive and recover, but rushing to throw money at the problem without figuring out its real scope and how we can prevent such disasters from happening again is not the way to do it.

Con: We All Benefit By the Bailout

A firestorm brewing for years in the virtual vaults of major financial institutions has engulfed Wall Street. Giant companies with hundreds of billions of dollars at their disposal suddenly have no idea how much they’re really worth and how much they stand to lose if their bets in other companies fail. This horrifying revelation is threatening to implode the financial-services sector unless the companies can find the time and money to figure out what’s going on and separate the assets from the junk. Fannie Mae (FNM) and Freddie Mac (FRE) will get such a break after being taken in by the government, but financial firms are running out of resources and they’re panicking.

While it’s bitterly unfair that we taxpayers have to clean up after the poor decisions made by the Street, we need to realize that it’s our money we’re going to rescue. Banks used the money in savings and investment accounts to make the bets they did. Thousands of companies were built on the financing provided by the troubled financial firms, and thousands more are partly financed by them. If the banks are allowed to implode, it’s very possible that all the businesses built or propped up by them will also fail or be forced to drastically downsize, and many of us will find ourselves laid off and with nearly empty investment accounts.

In a twisted, backward way, the planned bailout of the Street is a way to defend our jobs and rescue our savings. We can punish those responsible for this mess later. Right now, we need to prevent what would be a mortal blow to our economy and ourselves.—G.F.

Opinions and conclusions expressed in the BusinessWeek.com Debate Room do not necessarily reflect the views of BusinessWeek, BusinessWeek.com, or The McGraw-Hill Companies.

Reader Comments

nevermind

Richard V. Raymond

The most chilling aspect of this bailout bill, as presented by the Secretary of the Treasury, is the provision that decisions made by the secretary may not be reviewed by either of the other (regulatory) agencies or the courts.

In short, we the people are to hand over what amounts to almost unlimited power to people in an administration that championed a total lack of regulation, which allowed the disaster to happen in the first place. Not only were laws loosened, starting with the Glass-Steigal act, but also regulatory agencies were grossly underfunded so that what few rules that were still on the books went virtually unenforced.

This is also the same administration that took advantage of the events of September 11 to trash the Constitution and pass the moral obscenity known as the Patriot Act.

This rivals the brazenness of Hitler and the National Socialists, a.k.a. Nazis, who used their burning of the Reichstag to get Germany to hand over power to them.

Does anyone remember the line in Alice in Wonderland, "I'll be the judge, I'll be the jury, said cunning old fury."

Benjamin Franklin said it best. I paraphrase, "People who are willing to trade their freedoms for security deserve neither liberty or security." And in this case, we are talking about the freedom to fail.

Finally, more recently, in commenting on the federal funding of the clean-up of toxic waste dumps, staunch conservative George Will asked, "Why are the profits always private, but the costs are public?" (Again I paraphrase.)

Homero Velazquez

My suggestion is, first check out who you are really helping and also what are the consequences if you do not help.
But it depends strongly on what kind of company it is. For example, if an institution like a normal hospital depends strongly on bank funding, it will be right to back it up. But if you are going to back spa hotels and so on, it will be wrong.
Homero Velazquez

TG

Congress holds the cards; they should protect the taxpayer as much as possible. Under any bailout, the taxpayer will be footing part of the bill, but it can be reduced and can increase the likelihood that it will never happen again. One way to do that is for any company wanting any government support or any government contract to both 1.) limit current and future executive compensation, and 2.) claw back a substantial portion of past pay.

1. Limit CEO pay to 20x lowest-paid employee.

2. Make a substantial claw back of previous pay over the last five years to a level 20x that of the lowest paid employee a prerequisite of participation. If the CEO and other senior executives don't return the money, don't let the company participate, and let the free market savage the company (like Lehman).

3. If the CEO and other executives choose no, he or she can be sued by shareholders for failure to fulfill fiduciary responsibilities.

Tsais

I think you got pro and con designations reversed.

Quoting from the article: "We need to realize that it's our money we're going to rescue."

Well, that's only for the "lucky" few who even had an investment account, or a job that paid anything more than you needed to feed your face and the gas guzzler you use to get to work.

Also, aren't there alternatives? Let the bad banks croak and spend the $700 billion on fixing and upgrading the infrastructure. This method has worked in the past. At least the nation as a whole has a benefit from new public transportation, bridges that won't collapse, and lots of jobs to do it.

I think AIG was a good idea to bail out, cause of the CDOs, but just blanket relieving all the banks of their junk is overshooting the goal.

Savage

Prison for Paulson? Bars for Bernanke? (An American pillage.) Chain gangs for Chris?

No robber baron protectionism and bailouts! Ground the corporate getaway jets. Arrest the suspects. Put the FBI on international alert to hunt down any organized criminal activities including bribes and payola, offshore bank accounts, money laundering, and the like.

Have the FBI detain and question any politician, government official, or individual who is suspected of involvement in criminal activity in the financial meltdown

Have public hearings to question the government bureaucrats and corporate thieves in public on CSPAN, broadcast, and cable TV.

Ed Straker

I don't see a choice. We must bail these companies out or the economy tumbles out of control. The change must take place after this bailout--controls must be implemented to prevent recurrences. So much for laissez-faire.

Jorge

The U.S. is a democracy. This bailout is a tremendous transfer of wealth from the taxpayer to the financial class. It cannot happen in a democracy. The U.S. can set up new banks, the labor force will remain, and the capital can come from the U.S. or foreign countries. Paulson is saving his alma mater at the expense of the nation he has sworn to defend.

Ann

Let them bail them out. But then what becomes of the securities they have purchased? If in fact all of this defunct bad debt is from the crash of the housing market and composed of mostly foreclosures, what do they intend to do with them?

A suggestion may be: Use these securities to create jobs. What better way to benefit our economy and employ the unemployed. It's a tad too late to figure out who to point the finger at for the problem at hand. Not to say that it does not need to be investigated; however, at this moment, action is required on both fronts.

I believe the bailout has merit, but there has to be something in there to help those the officials represent, the people who make up our great country.

npb

I don't buy it. There are still overseas banks that are solvent and can lend those of us who can pay them back, and they can do so directly. We still live in a globalized economy. Let the market decide who lives and who dies. If believing in market wisdom was not a deadly mistake, then we have to trust it to sort things out. There will be blood, but only the haves have something to lose.

Dan Reale

The economy will not tumble out of control. This is a massive shakedown of immense proportions.

The taxpayer should foot nothing. We've already paid for this dearly in inflation, and they are asking to destroy the dollar in its entirety to save what has become a fake economy with no sound means of price determination or assessment of value.

Paulson and Bernanke should be arrested.

Pete

Both Mumbles Paulson and Bernanke are Big Finance mouthpieces and pundits. They lie to the taxpayers and are shysters at the highest level of government. Any Congressman who unconstitutionally gives authority to these crooks will pay dearly at the polls. There is no financial crisis; it's a fantasy to pass Big Finance losses to the American taxpayer. They spout "moving fast," "taxpayers will pay later" (name one you know), and it will "save the economy"--all wrong. Let the market do its work. An absolutely criminal move by these thugs.

Jacqueline Permenter

I am so angry over this $700 billion bailout. Frankly, Congress can go to hell if they pass this bailout. I refuse to pay for the thievery of corporate executives, who, I can guarantee you, do not give a damn about their stockholders. What I find so sad is the majority of our Congress are old folks who need to retire and take their antiquated thoughts and suggestions with them. Can you tell that I am sick of the mess and all Congress is talk, talk, talk? They need to learn to listen.

MC

This will happen again. We've been here before. This is ridiculous. Talk about socialism and nationalism. Let the market set the prices. I don't care. I'm so ripped that these greedy monsters were allowed to rip us all off. We would have been better off just saving our money and not using debt at all.

jon

Where did the $700 billion hole come from? Maybe start by adding up the bank profits and bonuses paid out to bankers over the last five years in the U.S. and U.K. Strangely enough, it totals roughly $700 billion. So if they simply pay that money back, there is no bill for the taxpayer. Simple.

John Kerr

Jorge has it wrong. The equity investors are being wiped out. There is no transfer of wealth. The government will probably eventually recover its investment in full by selling its shares back to the public. If there is no mortgage market it could trigger a depression as credit and capital will cease to exist. Ordinary Americans would see their 401Ks go up in smoke.

No BAIL-OUT!!!!

Stop socialism, especially for rich. Let the market take its toll. I am a middle-class guy and have heard enough of this nonsense. I have gone through the economic roller-coaster and am saddled up for another. Stop scaring Mr. Bernanke and Mr. Senator, you vote for bailout, you lose my vote.

Matt

This is a perplexing situation for all involved. It does not matter whom you speak with, they all agree on a few items. 1) The financial system at this time is broken. 2) There are many people to blame for the issue. 3) We are at a crossroads of sorts requiring urgent decisions.

No one wants the financial markets grinding to halt. Capitalism, and therefore the associated companies and in turn our livelihoods, homes, and in some cases retirement funds, depend on access to the free flow of funds for lending and investment. So the financial instability of the banks that provide these flows of funds is a major issue. Everyone agrees this issue needs to be addressed. Where this becomes complicated is how to fix it and who to trust, not necessarily in that order.

On one hand, Secretary Paulson and the financial community make a compelling case regarding the need to expunge bad debt from the system to regain liquidity and confidence in the system. Their analysis regarding the potential positive effects of a grand government intervention is solid. The only way to get things flowing freely is to eliminate the decay. In turn this will have a positive effect throughout the economy or at the least drastically minimize any further immediate economic slide. They also speak solid sense regarding the culpability of Washington itself in assisting with this crisis in the first place. With little doubt that something significant must be done, a drastic influx of taxpayer money to do the job appears logical.

On the other hand, the same industry now asking for government money has spent untold amounts of time and money over the past decades with the sole intent of avoiding government intervention, including the use of large amounts of lobbying money to buy political favors and blind-eyed regulation. They have also undoubtedly profited handsomely throughout, even at a time when average workers buying power stagnated. Additionally, there is no question the major role these institutions and highly paid executives and their propensity for greed-driven risk taken have had in their own demise. All without admitting any guilt and still attempting to avoid any additional oversight. Not to mention that the entire basis of capitalism is opportunity--not just to succeed but also to fail if needed as a means of keeping the system just and equitable. Yet suddenly the finance industry is now asking for a huge government intervention--and using the ex-CEO of one of the largest problem children in the financial sector in Secretary Paulson to do the requesting--pleading for and almost demanding immediate action or else. Making matters worse, they are still playing the free market card again when trying to explain why the government money must come with no strings attached, no additional oversight, no CEO-pay restrictions, and no government stake in any of the institutions they may affect.

The result is that while most understand the need for action, they also have far too many reasons to distrust those enlisted in righting the ship to hand them over such an enormous amount of money. Though most even understand simply the potential negative effects of failed solutions, they have such negative opinions of the parties within the financial institution and such a fear about what precedent this might set that they almost would prefer seeing the entire system fail just to ensure those individuals receive their just "free market" result. Hopefully cool heads prevail and a reasonable compromise can be determined to provide the assistance needed while implementing the necessary protections to ensure taxpayers are protected and guilty parties are properly discouraged from going down this path again. Either way, we will all find out in the coming week and likely no one will be a winner.

David

Not one word in any of the major news sources about Rep. Kucinich's proposal for giving Americans actual stock in the companies they are paying to bail out. These companies can well afford to give stock compensation. They do it all the time for their executives. Why is it that whenever something makes sense and is actually fair to the little guy, it is completely ignored (or even ridiculed) by the major news sources. Hey, Businessweek, what about it? This Kucinich plan would give each American an approximate $2,300 share of the companies they're bailing out, which is the estimated out-of-pocket expense of this bailout.

SANGU

I agree that for the companies receiving government largesse, the following conditions should be met:

1) The current emoluments of the top officers (including rewards and stock options) should not exceed 20X the lowest salary in the institution.

2) The company should identify the total similar amounts paid to the top officers during the last five years and apply the same rules and recover the money from them.

Above two conditions should be held applicable to all the officers whose salary is more than 20X the lowest salary.

Drew

Funding a war that is going nowhere, way to go Bush. My kids will be paying for our mistakes.

David

This is like a spam e-mail I received:

Dear American:

I need to ask you to support an urgent secret business relationship with a transfer of funds of great magnitude.

I am Ministry of the Treasury of the Republic of America. My country has had crisis that has caused the need for a large transfer of funds of 800 billion dollars US. If you would assist me in this transfer, it would be most profitable to you.

I am working with Mr. Phil Gramm, lobbyist for UBS, who will be my replacement as Ministry of the Treasury in January. As a Senator, you may know him as the leader of the American banking deregulation movement in the 1990s. This transaction is 100% safe.

This is a matter of great urgency. We need a blank check. We needs the funds as quickly as possible. We cannot directly transfer these funds in the nmaes of our close friends because we are constantly under surveillance. My family lawyer advised me that I should look for a reliable and trustworthy person who will act as a next of kin so the funds can be transferred.

Please reply with all your bank account, IRA, and college fund account numbers, and those of your children and grandchildren to [URL deleted] so that we may transfer your commission for this transaction. I will respond with detailed information about safeguards that will be used to protect funds.

Yours Faithfully,
Minister of Treasury Paulson

Kevin McMahon

I am in favor of the "bailout" of the financial markets. This country needs the debt markets to be fully functioning to have a healthy economy. As part of the "bailout," I am in favor of limiting executive pay and I am most in favor of all upside in this going to the American taxpayers to be used only to pay our national debt.

Houston

History is being made in front of our eyes: "Republican Administration requires socialism for Wall Street rescue." Why is anyone surprised that they have found another way to transfer wealth into their pockets? Greed is their creed. Fear is their method.

Ed Posnak

Why not just use the $700 billion to buy up all the foreclosed properties in the U.S.? Paying down those mortgages should establish a real price for mortgage-related securities. At least then the taxpayers would get some return on their investment. Instead, Paulson proposes we just buy the securities at inflated prices and receive no upside.

brionesflash

Paulson and Bernanke have made it clear that there will be no profit for the government (as there was with the Chrysler bailout in the 1970s) or even break even. However, that should be a goal of the program. The assets should be purchased at some sort of fair value, with the hope that over the course of the next 10 years they can be sold back to the private sector without taking too much of a loss. As I understand the problem, the bad paper is clogging the financial system because there is no market for it (and the holder would suffer unsustainable losses if sold now at the "marked to market" price). The U.S. government is the only possible buyer. The devil is in the details, but there should be a mandate to purchase the paper aggressively so that the sellers realize a significant loss and the taxpayers (in the long run) do not. There should be a deadline for the companies to dump their bad paper, so there is an incentive to get it out of the system in a hurry and an incentive to realize losses now.

Mike Cunningham

I smell a rat.

The events of the last week have a familiar odor. A crisis that needs immediate action, fear mongering, and a demand for new sweeping powers for the executive branch of our government. The result being the citizens giving up their rights to the checks and balances laid out in our Constitution. Smells like Iraq. Smells like the Patriot Act.

MadMike

If the lending institutions that are in danger of failing do in fact fail because of their poor decisions, then new institutions will rise up and take their place. We should not mess with evolution. It will lead us to stronger, smarter business.

winsley

How about this? Let all the people working in these investment banks give up all they have (liquid cash, vacation home, assets, etc., which is worth billions of dollars) and then we can use the taxpayers' money for the rest. I guess the amount will come down to around $300 billion to $400 billion

JRBaum

If it is indeed the "mark to market" requirement that is fueling the downward spiral, why not simply suspend the requirement for 24-36 months or longer? In this case, the banks, etc., are not forced to sell them at deep discounts in order to shore up their balance sheets and, with the no-short rule extended as well, there should be enough time for the markets to right themselves. All the derivative overhand can be unwound in an orderly fashion and portfolios de-leveraged gradually.

No bailout is required, no taxpayer dollars used and, once this extraordinary set of events is past, we can reinstitute the MTM rule. In the interim, more stringent oversight rules and regulations can be developed and implemented that would prevent such occurrences in the future.

highroller

When they tell us that in the long run government probably will profit from the bailout, it is a straight lie. Those CDSs and CDOs are intentionally overinflated so that they can be used as collateral to borrow more money. In reality, they aren't worth the paper they printed one. In order to save the "market," the Fed has to overpay for these securities. If the Fed pays market or below-market prices, that would just bring the whole CDS, CDO price down and the whole system would implode, which is what Paulson trying to scare us with. If the Fed pays the price the Street wants, it is for sure we are not going to see any return. Because those CDOs are worth nothing.

Second, the size of those problematic CDOs are trillion dollars in size; how would $700 billion help?
The root of the problem is the huge debt of Americans, ridiculous housing prices, and the fake-priced CDOs. I don't see how this can be fixed by bailing out or anything else. A recession is long overdue. To postponed the recession by temporarily bailing out or setting interest rates artificially low, we would just build up for a bigger collapse in the future.

Al

No bailout, no way. Let the market correct itself.

It is time for the robber barons and their Washington lackeys (Administration and Congress) to stand up and be patriotic, take on for America and the American people. Use our tax money to provide reasonable mortgage loans at reasonable or low rates to keep people in their homes. The world financial institutions will own America's financial institutions, but that is better than having all of our industry owned by foreign investors because that is what will happen if you bail out Wall Street anyway, because this bailout will destroy the dollar.

Senators and Congress representatives, if you vote to give Wall Street $700 billion to $1 trillion of my money I will not vote for you--no exceptions.

Manuelita Vega

I am so mad. Why should I bail out multimillionaires who have trashed our economy and sent American jobs overseas. I don't want one red cent of my money going to rich, self-serving MBAs. Why doesn't Congress instead bail all Americans who make less than $150,000 per year out of credit card debt? Congress, I fear will bail out these companies because let's face it, Wall Street bought the Congress long ago.

Robin Hewitt

It's worth reading the actual text of what Paulson proposed:

Section 8: "Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency."

Also observe that Section 2b allows him carte blanche in how he spends the money and even gives him power to sidestep the normal public review process for putting regulations (legal rulings) in place.

There's nothing in this proposal to reassure that it will avert disaster. In fact, it reads disturbingly like a vehicle for delivering unprecedented power into the hands of one man and for removing all possibility of reversing that decision once the panic mood has subsided.

Can Congress and the public resist being stampeded into ill-thought-out legislation that may have dire consequences? This situation is not akin to Pearl Harbor. It should be no surprise to anyone that the bad debts and impossible mortgages we've all read about would create problems from massive defaulting.

We should question "everything" here--including whether there should be a blanket bailout. We may be far better off tackling the situation as it unfolds (thereby keeping federal actions in the public view), continuing to encourage sell-offs of distressed funds and failing institutions, intervening case by case--just enough to keep things limping along--accepting that prices of overvalued securities need to fall, and hanging in through tough times while the bubble deflates.

sam

Why would we believe anything Bush has to say? Why should Paulson have a free hand?

Greg Fish

Writer Greg Fish Responds:

First and foremost, I'd like to thank everyone for their comments. There are a few points I wanted address a little further as they've come up in the discussion.

Across the web and in Congress, the bailout has often been called socialistic. And that may be true to some extend, but this kind of socialism is bizarre and new. Usually when we think of socialized industries, we think of the government taking control and laying down the law. Instead, we have troubled banks asking the government to take them under its wing. Fannie Mae and Freddie Mac were already GSAs, so their nationalization was pretty much inevitable when they sounded the alarm. How much further the government will go depends on the outcome of the debate in Washington.

As mentioned in the con view, the economy consists of intertwined banks and businesses. Doing nothing will send aftershocks down the line as massive banks implode. We don't know how bad they will be because again, we don't know how much money the banks are really losing and neither do the banks.

In the economy, uncertainty on such a massive scale causes panic and tends to provoke experts to make the most dire predictions possible. Neither Paulson nor Bernanke wants to spread fear, uncertainty and doubt on purpose. To put it bluntly, they're just scared of what could happen next.

brionesflash

The CDOs aren't worthless; they just have no market value right now. Only about 3% of U.S. first mortgages are in foreclosure (twice the normal rate). The underlying collateral of the mortgages, the houses, are still there, and still have value. The overwhelming majority of homeowners pay their mortgages. It took a frenzied activity over several years for Wall Street to concoct that paper, and it will take several years to unravel and liquidate it. The U.S. government is the only entity that has that time. It is big enough to absorb the assets, and does not have to report a profit. And given enough time and aggressive valuations up front, it may not have to report much of a loss.

dw

If we have to bail out these companies, and if the executives at these companies don't want to restrict their pay, no bailout. The only way for them to get a bailout in this case is for all of the executives to be fired. And if we do bail them out, they have new contracts. Pay is limited to 20X the lowest-paid employee, no golden parachutes unless the company was doing well when the executive left and five years before and after, and the taxpayers get equity in the company equal to 30% to 40% of the stock, permanently, and the number of employees for that 10-year period must be stable (no big changes).

dw

I think the root of the housing crisis is that housing prices got out of sync with wages. And this bailout won't fix that.

G Friedrich

As an ordinary taxpayer who does not work in the financial services industry, I have a question. If we do bail these banks and institutions out, will they continue to do "business as usual"? Will they continue to offer mortgage loans, etc., to people who are not credit-worthy and then bundle them to sell to more investors? Will they continue the same practices that got us into this mess?

jD

Yet another example of the Bush Administration asking the American people to trust them, while they spend our money and our good name to enrich those who made bad decisions.

Steve_O

This is very simple, and I don't understand why everyone makes it so complicated. The companies that have overextended themselves should be liquidated, the shareholders first and then the debt holders to the point that assets cover liabilities--maybe they get 50 cents on the dollar, but so what? They made the investment.

The pool of real savings (not phoney paper money) is only so big, so let's not see that destroyed, too.

The Federal Reserve created the problems in the 1890s, the 1920s, the 1930s, etc. Stop bailing out the banks, and we may have enough real savings to have a chance at taking this country back from the bankers who seek to turn us into perpetual debt slaves. May they all burn in hell.

Mike

Anyone who thinks we are going to be able to go after the fat cats with their high-dollar lobbyists and lawyers after the crisis subsides either is delusional about how Capital Hill works or is a fat cat lobbyist/lawyer sandbagging. It is now or never or at least not until the next, bigger crisis.

BT

They should use the $700 billion to pay down the mortgages of the people who are not in trouble, which would free up a lot of cash flow to invest in sound businesses.

DP

This is the biggest rip-off in the history of the United States. Tell the politicians no bailout, not even a reformed bailout. If it happens, then we must vote out of office every politician who is in office right now. This is the only thing we can do. Please call your representatives and tell them no bailout in any form.

Earthling

Either the USA is a free enterprise system or a centrally managed socialist system. The latter is not a cure for the former. Let the creative destruction of capitalism play its role and destroy the failures, punish the folly of fools, and cleanse the space for fitter and more responsible participants.

SNB

No Bailout. Period. We will survive, and the markets will adjust accordingly. What comes out of this will be better for everyone in the end. We have to make them all step up and take the hit.

julie young

There is absolutely no effort to explain what exactly the scenario would be if the bailout did not occur. All we hear are "dire predictions." If the result is a vast revision of how individuals are able to borrow, that might enforce sustainable microeconomies more effectively than years of half-hearted participation in sensible growth. What is wrong with pay as you go? What is wrong with saving for consumer items? What is wrong with renting? Bailing out those who have benefited from this rampant greedfest rewards the consumer spectacle. Slow down the whole show. "Dire" is a relative term.

Geizer

Jim Jubak of MSN.com says if you give Wall Street the money, you have lost all of your leverage for reform. Make Wall Street accept the required reforms before they receive anything. I think he is right. If there is an urgency to the situation, then let Wall Street get crackin' so they can save some of their necks.

MR

It's an outrage and rip-off. And if at all it should be approved, the touchstone to its approval should be based on equity stake that the government gets. That stake should be proportional to the subsidy the rescue provides over the market value of the securities it purchases. That way the risk is compensated by some potential upside. The right way is to see this as a re capitalization of the needy banks and not as Paulson thinks it needs to be seen, that is the government purchasing it from the banks.

If equity stake is not accepted, then lawmakers need to call Paulson's bluff and not bend over. Anything less means the Congress cannot reasonably face the people on this.

JeffersonHI

I agree with a previous post that the $700 billion would be better spent rebuilding the nation's infrastructure and putting people back to work. Let the investment banks suffer the consequences of their own actions, while the government takes the time to analyze how this happened and how best to prevent a recurrence.

Sat

The following comment by Paulson makes me suspicious of the true intention of the bailout proposal.

"Layering conditions on the program would dissuade them. If we have to have companies grant equity stakes, grant options, that would render this ineffective," Paulson said.

If a bank is in a good enough financial position to pick and choose terms of the bailout package, that bank apparently would not need a rescue. So, let's not help them. It's as simple as that.

Stefan Saal

If the U.S. government really wants to spend more of the money that we already don't have, then the terms that Warren Buffett got for his cash infusion to Goldman Sachs would be a good model for the taxpayer to follow. For $5 billion in cash, he got $5 billion in preferred stock, a regular dividend, and a five-year option to buy common stock at a very favorable fixed price.

Of course, he already had the cash, and we would have to borrow. Also, Goldman is a promising company, but a lot of the distressed companies are less promising. Unpromising companies will need to be liquidated promptly in some orderly bankruptcy procedure.

So let's face it. Americans will be feeling much less rich after this winter. Housing valuations have gone down about 20%, but that's probably only halfway down to the bottom. Our standard of living is about to decline precipitously. Our shopping spree is over, and it is now time to become a productive people again.

mike

Read about the Great Depression of 1930. The government then did nothing, and credit froze up and everything went into the tank. Unemployment, no food, so Bernanke has learned that you have to infuse money in the monetary system, but the banks need to start lending it out right away. If not, deflation will start and we are in grave danger.

Smart1

We do need a bailout, but not a blank check. There is plenty of blame to be shared at every level, from your neighbor who bought more house than she or he could afford and is now claiming ignorance to the mortgage officers who twisted things to allow the liar loans to be written, to the analysts, to the boards and officers who bought them, repackaged them, and sold them. Those at the highest level should certainly not be rewarded for misdeeds and poor judgment and should be jailed or banned from working in the industry for a minimum of a decade, instead of skipping onto the next thing to screw up. If the person is licensed in any way, their participation should be reviewed, and suspensions or revocation of those licenses should occur. Those who have been foreclosed on will already be being punished via their credit report, a document which will likely carry more weight in the future, and the actual loss of their home and any equity in it.

Whatever is done, some form of credit should go to the taxpayer who is bailing the system out, whether that is a direct or indirect holding of stock.

What is needed is more local and state input on the details of this bailout and not by the politicians. By the average, middle-class Joes and Janes are going to bear the brunt of this from every direction: Business owners, teachers, homeowners, farmers, nurses, tradespeople, and fishermen.

We've left it up to the supposedly elite brains of the world, and it's not done a whole heck of a lot for any of us. Chances are, if it doesn't make sense to the average middle-class worker, it probably just doesn't make sense at all. On the other hand, we've been as complacent as sheep, going along to get along, with our community participation not expanding any further than PTA or our local place of worship. If you want your government to reflect your needs and desires, speak up. Write letters, and go to hearings and community forums. Quit waiting for election years to get involved. Your biggest gift to your kids is to stand up and set an example of how democracy is supposed to work. It is, has been, and always will be a process.

BIGWEEDS

We have been told that the best method of investing is to buy and hold, and down the road you will have more than you started with. Why do these banks and financial entities not follow their own advice? Makes one wonder if we have been told a non-truth all these years.

Bob

(1) Let the firms use their good assets (sell them off to others) to cover their bad investment choices--yes, they exist. The bailout is only to cover the losses in one major market sector. They are being allowed to retain the profitable aspects of operations while passing the debt to the taxpayers

(2) Increase regulatory oversight, not diminish it.

(3) Disallow any involvement by any firms receiving assistance from participating in managing the process.

(4) Freeze the personal assets of CEOs of the troubled firms, force reorganization on them, and accept an international review of our system.

(5) Don't buy into the bull. Read the damn document that essentially codifies unbridled financial oversight and power under one executive office without accountability but to the President.

Dennis

Tell me why my family of four needs to pay $10,000 (our share of the $700 billion) to bail out companies that have nothing to do with me. If I can get 20% credit card interest rates for the money I lend to them until they pay it back maybe. Where is my upside? I consider money spent on publicly traded companies as investments, not handouts.

bilunski

From Robin Hewitt: "Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.”

Also observe that Section 2b allows him carte blanche in how he spends the money and even gives him power to sidestep the normal public review process ....."

Could this be a way to fund a new and very unpopular war effort? Who needs Congress when you have a $700 billion slush fund?

Kimberly

I'm fine with a bailout. Just not so fast there, fellas. We need to think about this for a while; who really needs it and why. I like the suggestion from TS above, that CEOs should leave or receive not more than 20-times the lowest paid employee (And I mean lowest paid, not executive. Think mailroom).

Roben Farzad was on NPR today waxing on about how the implicated CEOs and executives really need a lot of cash because they've lost millions in investments in the debacle and they'll have legal fees. (http://en.wikipedia.org/wiki/Image:The_Scream.jpg)

Seems like last time things went this far south, the responsible parties were jumping out of windows. I think it won't kill them to take a walk on the poor side for a while. Perhaps they'll learn something interesting. Like how to suck it up for real, not just to get ahead, just like their fellow Americans.

Maybe they can go on welfare? There's always Social Security to count on down the road. It's not all bleak.

Joyce

Where is the bailout for the homeless, the unemployed, the uninsured? Why is Wall Street so important but the individual is not, other than to pay taxes? We have a clueless President with an MBA. I mean clueless as to how the average American lives. I actually feel betrayed as an American. I feel that my children's future has been sold out by my government and its marriage to Wall Street. That also happened in the Great Depression. Thank God for Roosevelt.

George S.

What taxpayers are we talking about? Nearly 40% of Americans belonging to lower income brackets do not pay any federal income tax; thus they are not going to "fund" the "bailout," since the national debt incurred has to be paid through tax revenues. Furthermore, the top 20% of taxpayers pay 80% of all U.S. income tax burden. Thus, if anything, this so-called bailout is going to be mostly funded by the top 20% of the taxpayers, particularly the top 5% that pay 50% of all U.S. income taxes--the Wall Street type.

A lot of Americans, particularly those in low-income brackets, are up in arms that this is mainly to help the well-to-do (which isn't--wait till your next credit card purchase is declined due to the bank not lending money any more), while not recognizing that the well-to-do are the ones who would have to pay most of the tax burden incurred by the rescue plan. The reality is, if we ever want to pay off the multitrillion dollar national debt, we'd better hope that Wall Street will do well so that the well-to-do would pay more tax money to bankroll the federal government and its debt.

David

Paulson and Bernanke:

- Didn't see it coming so they don't know how to fix it

- Said that $500 billion to fix Fannie and Freddy would fix the problem--it didn't

1 The banks don't want to use their own money to buy this trash, and they created it.

So don't make the taxpayers buy it because they don't have a choice. They have already paid too much and have nothing to show for it

Mary

Four points to consider:
1. Dissolve the board of directors at each firm and replace them with salaried economists and accountants.
2. The executive staff stays and receives no bonuses, no raises, and pay cuts of 90%.
3. The money is not given by the U.S. people but lent with interest like the country of Chile did successfully, and the companies must pay back every penny with interest before the executives can leave the company.

No one cleans up my messes, and the taxpayers should not have to clean up these messes of the wealthy.

highroller

Brionesflashsaid, "The CDOs aren't worthless; they just have no market value right now. Only about 3% of U.S. first mortgages are in foreclosure (twice the normal rate)."

The housing is overpriced. After the bailout, the dollar is going to devalue, and interest is going to go up (China is not going to continue buying our debt to keep the interest and inflation low), and that will cause more foreclosure.

The CDS and CDOs are amplifiers of the mortgage default. We are going to see equity and mezzanine CDOs lose 100% of their value.

The bailout plan calls for voluntary participation from the banks. Guess what would they dump first. Certainly not any good MBS and assets.

Squeezebox

I'd rather put the $700 billion into the FDIC, the Pension Benefit Guaranty Corporation, and the Securities Industry Protection Corporation. Let the banks fail and pay off on the insurance.

williambanzai7

To Bail Or Not to Bail
(Adapted from William Shakespeare's Hamlet)
(WilliamBanzai7)

To bail, or not to bail, that is the question:
Whether 'tis nobler in the mind to suffer
The slings and arrows of outrageous loss of fortune,
Or to take arms against a sea of financial troubles
And by opposing end them. To die—to sleep,
No more; and by a sleep to say we end
The heart-ache and the billion market shocks
That investor hubris is heir to: 'tis a consummation
Devoutly to be wish'd. To die, to sleep;
To sleep, perchance to dream—ay, there's the rub:
For in that sleep of death what dreams may come,
When we have shuffled off this market coil,
Must give us pause—there's the respect
That makes calamity of so long life.
For who would bear the whips and scorns of time,
The CEO banker's wrong, the proud man's contumely,
The pangs of write offs, the law's delay,
The insolence of office, and the spurns
That patient merit of th'unworthy takes,
When he himself might his quietus make
With a bare quill? Who would federal oversight bear,
To grunt and sweat under an ordinary life,
But that the dread of something after death,
The undiscovere'd country, from whose bourn
No traveller returns, puzzles the will,
And makes us rather bear those ills we have
Than fly to others that we know not of?
Thus conscience does make cowards of us all,
And thus the familiar hue of resolution trust
Is sicklied o'er with the pale cast of thought,
And enterprises of great pitch and moment
With this regard their currents turn awry
And lose the name of action.

Eric

What no one seems to want to talk about is that the Wall Street firms are in trouble because they bet that John and Jane Doe would pay their mortgages. If John and Jane Doe hadn't taken out mortgages that they couldn't afford and didn't use their mortgages like credit cards so they could live beyond their means, Wall Street wouldn't be in trouble.

windcloud

"Crisis" usually likens a coin of two faces--one face of threat of danger, the other face of opportunity for change. Because of the makeup of our psychology, we usually react strongly to the threat of massive danger, without seizing our opportunity to demand new change that can potentially help us emerge from the crisis and move forward.

True, given the crisis we are in--whether our government or ourselves--we cannot just let our ball drop or our boat sink and we drown as a result. True, it is unfair for taxpayers who have nothing to do with this mortgage mess and don't profit from any risky investments related to the mortgage investment products to shoulder the consequences due to the mortgage chores. True, in face of a crisis, it is not the right time and not helpful to lay blame on any parties--our government, our investment companies, our mortgage companies, our credit rating agencies and administrators, ourselves, etc. True, we need some sort of prompt, decisive and powerful actions in place to guide our "out-of-joint" economy into the confidence of "back to right joint" again, or it will spiral down to more chaos and uncertainty and panic.

Yet we cannot just write a blank check to the government because our treasury has money or plan for funding the money without any strings attached, it will be highly irresponsible from our part, as the citizens of America.

In an ideal and social responsible and democratic society, every citizen knows he or she is part of the whole society and we all are connected in the society--should the government or economy fall, each of us has a role in it, appropriated with our authority given our social roles. So it is really not an option for us to ignore this crisis and think this is only the mortgage players' problem and they should be cleaning up the mess themselves as if our boat of economy falls, we will sink also?

Also, it is not sensible to limit CEO pay of a particular company, for this is really the company's affair.

That said, the strings we need to "demand" from the government this time, in my view, include: 1. Strong governance of quality of credit rating agencies (should the credit rating agencies oversight the possibility of potential risks due to financial or mortgage company practices and not caution the generic public, they should pay a big penalty to the government) 2. While innovations of products should not be discouraged and the normal business cycles and survival of the companies should not be intervened by the government, high transparency of the investment products should be made available to the general public investors. 3. Bailout could be helpful for trouble financial companies, but to be fair to the taxpayers and the financial, maybe a 50%-70% bailout of the bad assets will be enough for the government to swallow, not the whole 100%. The risk of a total bailout now, though looks like the government would take the bad assets from the financial companies and cures their pains magically, the government ends up with the "write-offs" in its balance sheet--this is not a true free economy, but a "mother-pampering-a-child" economy. The financial companies need to should some of the write-offs (not little write-offs compared to their whole sum of write-offs) raise fund within themselves and work on a common consensus and lending practices to address this problem with the government and the general public.

While we cannot change the past nor are we prepared to wake up in a crisis, the time has come for each of us to think hard about what we could responsibly contribute toward the economy and policy makers, partner with them in a more involved way, support them and supplement them and work with them a balanced approach to resolve chaos and irresponsibility presented to us and lives in us.

Kitty

I am sick of "Main Street" blaming Wall Street for the credit mess. People have no business buying homes that they cannot afford or lying about their incomes on mortgage application. Or even for that matter signing loan agreements without understanding that the favorable terms they are receiving come with conditions. Main Street is just as complicit in this mess as Wall Street. I personally have no sympathy for people who "bet" that the housing market would continue to go up and overextended themselves hoping to make a profit. Watch a little HGTV and see how many people just cannot live without double sinks in the master bath and a room for each child, plus a bonus room, a three-car garage and a fenced-in backyard. I work on Wall Street, where few but the top CEOs make big money, and where people have been losing jobs for the last three years. Everyone seems to forget the thousands of support staff, back office and administrative people, cafeteria workers, etc., who work on "Wall Street." I also live in a city where homes of 700 square feet cost a fortune and people make do in tiny spaces because they cannot afford bigger.

I do not know if this bailout is needed, or if the final plan will be one that actually helps the country. What I do know is that no one--on Wall Street or elsewhere--really wants to pay to bail anyone else out.

Disgusted!

This is a very sad day for Americans. This day will stand out like the assassinations of JFK, RFK, and MLK. We will live to rue this day, and so will our children. Let them do the same thing we do when we get tight on money--use your savings, move to a cheaper place, sell your car, pawn your jewelry, stay home, eat cheaper.

This will not help the U.S. People will still be losing their homes, jobs, going without health and dental care, eating cheaper, driving less. If there's going to be government investment, put it into the people and watch what they can do.

Nic

The criminals leading these banks into the ground should be prosecuted and their assets handed over to cover a percentage of their own mess.

I need a bail out, too? Where can I sign up?

IMPRISON THE CEO'S

First and foremost, there should be criminal prosecution of the executives entrusted with the management of the failing institutions. They played fast and loose with corporate assets to the detriment of employees, shareholders, and ultimately all Americans. Second, hold these executives financially accountable over the remainder of their lives by making them pay restitution. Why should the American people bail them or their companies out? Unfortunately, it is the responsible bearing the brunt of the blow while the irresponsible fade into the sunset unscathed.

Cody

This bailout needs to happen.

Then we need to demand that legislators update the tax code. Since the Republican tax cuts in 2003, the tax code has disproportionately benefited short-term investment and speculation (only taxed at a capital gains and dividend tax rate of 15%) and left intact relatively high taxation of earned income (i.e., real work). This disproportionately benefits owners of capital. Only the truly wealthy Americans pay significant capital gains taxes. Probably 90% of Americans will never pay substantial capital gains taxes. Most of us don't even save money. Those that do, mainly invest inside 401k plans that are subject to income tax rates (not capital gains tax rates) when redeemed. Our houses are not subject to any capital gains tax unless it appreciates more than $500,000 per couple (how many of us will see those kinds of gains after we get through our current crisis?) Even the Republican desire to remove the "death" tax is ridiculous. Wealthy families are easily able to transfer tens of millions of dollars to children and grandchildren before death using various legal tax strategies. If we remove the estate tax, most Americans will return to the Middle Ages of Europe when a privileged few eventually owned almost everything. Our culture has celebrated CEOs in recent years, and often justified their disproportionate pay. But don't forget the increasing productivity of the American worker has also contributed to the market value of our great public corporations. Don't forget that our military (mainly children of the middle and lower class) protects our capital markets.

Our democracy will never be able to legislate CEO pay, but we can tax the hell out of it. Corporate governance rules should be established that require that representatives of the five largest (non-executive) shareholders of public companies decide compensation of senior executives. Executive pay should no longer be decided by hand-picked and conflicted appointees of senior management.

Don't forget that none of the passive income received by investors and speculators (such as capital gains and incentive stock options) is subject to FICA, which is now the largest tax on most Americans' income. Dual-income families bear even more burden. The first dollar earned by my working wife is taxed 49% (Since she is self-employed, she must pay employee and employer FICA, which adds up to 15.2%. Since we pay the alternative minimum tax, she then pays additional 28% federal, then she pays 6% to state income tax). She is considering not working since half goes to the government (this coming from someone with a graduate school education). Even the alternative tax is a penalty on wage-earning Americans since it removes most of their tax deductions.

When foreign investors demand that we balance our federal budget and start paying down our debt, whose taxes will have to pay for that? I doubt it will be offset by increasing the estate tax of the capital gains tax. You better believe it will come off of the backs of working Americans by taxing their wages. Don't be fooled by doctor and lawyer salaries. It's the under-taxation of hedge fund managers' carried interest, real estate developers' deals, and senior executive incentive stock options that is contributing to our federal budget deficit.

Don't let our politicians shrink the budget deficit by cutting the few remaining government programs that still support working Americans. Raise taxes on excessive and unnecessary compensation and excessive (and often short-term and transient) capital gains.

Lucille Grace

To quote my 42 year old son: "It's like an infomercial on cable in hell. 'You must act now, but wait! There's more--buy today and the world won't end! Hurry, hurry, this offer only good for the next 10 minutes!'"

That idiot has about 90 days left in office; that's the rush. I can't believe we're falling for it again.

Heard news this morning about a job fair somewhere in Florida: line out the door three hours before it opened. Only jobs inside were Amway, Avon, Tupperware, and an army recruiter--shudder. People are right on the edge of freaking out and running on their banks.

I say, "The Bush strategy is a rush to? Just like the rush to Iraq. Congress and the Senate are in a rush for some action because they want to hurry home to campaign to keep their jobs and get re-elected. Anyone who runs home without participating in a prudent plan that helps the people of the United State --not banks and especially not foreign banks--should not be re-elected.

My friend said, "Krugman and two other finance people were on NPR the other night--with thoughtful discussion/debate about the "bailout." One of the men, from a college in Pittsburgh, said that the government, if it wants to help should make a loan with payback arrangements just like a business, but not to do a "bailout" of corporations at the expense of the American people, especially in view of the fact that no one has stated this will solve the problems. What a frigging, frigging, mess. Krugman stated words to the effect that this is one of the biggest power grabs in history. I can't help but wonder if this rush is just like Iraq.

My other son said, "If U.S. authorities keep nationalizing mortgages and businesses, the next dollar could become seen as backed by the value of people. The mortgages, loans, and stocks our government is buying in bulk are, by extension, people's houses and jobs. The value quantified in their work, credit, and houses is being scooped up at fire sale prices. Most reasonable people realize that any bailout just delays the inevitable. Why then, do governmental entities want to subsume and consume such huge parts of the economy?"

maple613

Do we have no say in whether or not this $700 billion bailout goes forward? Can't be the American people vote on this monstrous decision? Yes, the general public has made bad decisions that have aggregated the mortgage bind. Indeed, $700 billion would go a long way to right what is wrong with this mortgage crunch instead of bailing out these conglomerate businesses. While these companies don't deserve a bailout, rescuing every business on U.S. soil is not brilliant either.

Midwestern

No bailout.
1. The Market and economy will survive.
2. The banks and many employees will suffer the natural consequences of their behaviors.
3. Those who want to earn money will find (legal) ways of making it through physical labor, offering their service, selling crafts, changing careers, etc.
4. There were similar reports of doom and gloom in 1930 with bread lines down the street and around the corner and houses sitting vacant with no buyers. Bread lines eventually disappeared and those once vacant houses became homes where many children have grown up over the past 75 years or so.
5. The media’s love of every country except the one that has given them a public soapbox and huge paychecks needs to be refocused to love of the country that has given them freedom to express themselves publicly, freedom to accumulate their own wealth and live grandly in California, New York, and D.C.
6. Listen and repeat the stories of our parents, grandparents, and great-grandparents on surviving and ultimately flourishing after the Depression.
7. Stop playing and publicizing the victim mentality. We are not victims of anything but ourselves and the media. We are Americans who are people from many different countries, religious beliefs or none, values, educations, and socio-economic history. We have many opinions and thrive on voicing them.
8. Strongly consider:
a. Voting against everyone currently holding an elected office in Washington, D.C.
b. Pushing for and voting for salary reductions in D.C.
c. Pushing for and voting for all government employees to contribute to Social Security rather than their special benefit programs.
d. A moratorium or even a halt to foreign purchases of US real estate and key security industries.
9. We all want raises and recognition for a job well-done and so do CEOs. But CEOs and all levels of employees, especially upper management should suffer the consequences of poor performance and poor judgment. When a board of directors or a company determines a CEO or member of upper management has poor performance, there should be no golden parachutes. Just a “You’re fired” will do.
10. The government is not a good landlord, but use part of the $700 billion to buy back the home foreclosures and rent to own them back to new, more responsible people.
11. Use the remaining portion of the $700 billion to employ people in infrastructure repair and rebuilding.
12. Quit complaining. “Pick yourself up, brush yourself off, and start all over again.” It may be hard if you're 80, but that is when family, not government handouts, needs to step up.

Big John

There can be no justification for asking the American taxpayer to pay for the mismanagement, incompetence, and greed of the banks and other financial institutions (and, of course, their officers). They dug their own graves. Let them lie down in them. Whatever the resolution of this catastrophe is, the people who derived outrageous profits from the system they created should have to return the money to Uncle Sam.

frank

No bailout. CEOs should be held accountable. Hey, could I go to the Mirage and borrow $40 mirage and gamble and lose and then have the government pay off my marker? How long will the public allow this corruption to go on? The savings and loan scandal in the 1980s has Bush's brother involved and a bailout. The corruption in Florida had his brother Jeb stealing the U.S. Presidency from Gore, the lying of weapons of mass destruction in Iraq, the Haliburton no-bid contract for Cheney, now a bailout for our so-called elite gamblers on Wall Street?

The Bush Administration has caused so much destruction to this country. He has veteran benefits while sending National Guard soldiers to do the fighting so he and his friends can benefit. Now a bailout for more of his friends. No way. Enough.

craig s

Time to get real. Time for the politicians to show some leadership instead of following. This is not a bailout of Wall Street. Wall Street is gone. This is a rescue of the global financial system that supports the ability of Americans to spend more than they earn. Without the credit markets, the average American will lose their job, house, etc. P.S. The cost will be borne mostly by those earning more than $250,000--not the average American.

MAD

According to the "experts" who looked the other way and permitted this house of cards to fall, this bailout is necessary. So be it; then those who benefit from the bailout, i.e., Wall Street firms whose employees and executives made huge bonuses during the hey day of the housing market as well as individuals who chose to take risky ARM mortgages in the hopes of refinancing later, they should be held accountable for higher taxes or extra contributions to Social Security. If they are willing to accept government financial assistance they must be made responsible for the brunt of the payback. There are no government handouts for those of us who have conservative spending habits or don't have jobs where the bonuses exceed our salaries. When we make poor decisions or bet on the wrong investment, we take our hits, lose money, and move on.

Jim

A lot of good points made here. I fall on the side of getting the mess cleaned up with the least amount of damage possible. I would normally not favor a "bailout," but it seems there is lots of blame to go around on this one--and while we may wish to demonize greedy Wall Street types and stupid or dishonest Main Street types, neither will solve the problem. So in the process of cleaning up the mess, let's also put in needed rules to ensure that this does not happen again. No need drag it out.

EBOW

There is a reason we may never know, that Paulson and Bernanke wanted this bailout to take place in a matter of hours this week.

There is either some huge profit taking or there are serious criminal charges pending. Why else would the FBI step in hours after the hearings and announce they are investigating some 12 different banking houses?

This is only the tip of the iceberg. There are things not seen that will surface in the future.

The bailout should stipulate full cooperation with investigators, no immunity, no bailout without jail. Investigate, prosecute, and convict.

Start with Geo-Bush and go down the ranks. Confiscate their homes, off shore and Euro accounts, right down to their $800 cufflinks.

Of course there isn't anything that we could take back from the street executives that would ever compensate this country, not to mention the effect that their greed, arrogance, and lies have had on homeowners and small businesses.

Vote McCain and this will all happen again.

WCW

Let them fail. It is the law of free commerce and capitalism--freedom to fail. We are strong enough to get back up. Most of those who have homes they cannot afford knew this when they signed the note.

OladapoShobowale

The problem is not just the USD $700 billion price tag; the fact that this sort of behavior has become the norm rather than the exception in Wall Street. These guys can always count on being bailed out by the hardworking taxpayer. History reminds us that this is not the first time Wall Street executives have lined their pockets with billions while banishing Americans to suffer avoidable economic woes. To combat this malaise, a long list of regulations needs to be crafted to discourage overbetting; this is in addition to caps on executive pay, above which such individuals' personal assets can be seized to correct the mess created.

BC

One of the "I don't knows" is how do we, the government or "the people," limit the amount CEOs of the companies receiving taxpayer bailout money are paid? I say the SEC or some other "regulatory" body should levy fines in the amount that the top dogs receive in compensation from their failed firms. That goes for CEOs, CFOs, everyone who carries a "Chief" in their job title, vice-presidents, and anyone else in the company deemed to be in a position to have known what was happening. I would even include board members since they're supposed to advise and act as watchdogs on the operation of the company. That would really make the Good Ol' Boys Club think twice about sitting on each other's boards, taking each other's company's money to sit around and act like they're doing something.

JRC

This bailout is nothing more than a short term fix for Wall Street crooks to prop up the Dow and the S&P, allowing them to cover for their tracks before the next big market fall. No one can say what will happen with the stock market within three months after the election. Then in addition to a down market and declining 401Ks, the taxpayers will be stuck for $700 billion to boot. This doesn't fix any of the fundamental issues with this economy. Until we address trade, energy, the shrinking job market, inflation, and taxes we're heading for more of the same.

kirk

No to bailout. I vote Democratic. But in this case, I agree with the ultra-conservatives. No, not that fear-monger Bush, but people who actually believe in deregulation and letting its consequences materialize for the people who took the risks.

If they must spend $700 billion, spend it directly on the small businesses who haven't made mistakes and are now hurting for credit, spend it on infrastructure, spend it on education, spend it on hardworking low income people. Don't spend on banks; there will always be more banks to take over the failed banks.

kirk

The Bush people, they've already frittered away $500 billion on various bailouts (Bear Stearns, Fannie, Freddie, AIG. Each time they promise that money will fix the crisis; each time they failed and came back for more.

How are we to believe that an additional $700 billion (without oversight) will fix the leak? Americans, say no to ill-thought-out panicky bailouts. Sometime there will be terrible inflation because of this incompetent administration's bailouts.

Bill Young

Ladies and gentlemen, hate to be the bearer of bad news. I know what happens to the messenger too often.

But it is already too late. The greedy geniuses on Wall Street have waited not only until the horse has left the barn, but the barn has burned down. No one wants to own up to the truth, but here it is. The total amount of credit derivatives, the so-called "securities" pyramid on top of not just mortgages but also credit card contracts, auto loans, etc., total more than $500 trillion.

The banks hold more than $200 trillion of this garbage. $500 trillion is more money than all the world's economies produce (GDP) in 10 years.

A sizable amount of these derivatives make up what is called the institution's "Level 3" assets. These are the riskiest, shakiest class of assets there are. They almost never see the light of day, let alone be traded. Level 1, for instance, might be mortgages or the first level of mortgage-backed securities. Level 2 could be securities such as CDOs, or Collateralized Debt Obligations. This catch-all term could include securities secured by credit card contracts, auto loans, mortgages, anything that would stand still long enough to be packaged and sold. Level 3 assets, on the other hand, could be pieces other securities, even "synthetic" CDOs, which are CDOs made up of other CDOs. Another component of the Level 3 assets are known as CDSs, or Credit Default Swaps. These are insurance contracts written to protect against the loss of value of other securities, such as CDOs. Now that so many mortgages have defaulted, the securities they are supporting have plummeted in value, triggering CDSs. The only problem, called "counter party risk," is that many of the firms who sold the CDSs are unable or unwilling to pay the claims of those who borrowed heavily and bought the shaky securities. Therefore, no one knows if the CDSs or CDOs are worth anything at all. These make up the bulk of the Level 3 assets. Recently, Merrill Lynch "sold off" $30 billion in face value of their Level 1 and 2 assets. They sold them for $6 billion one week after swearing that their value was $11 billion, and Merrill financed 75% of the deal. Hardly an arm's length transaction, but enough to get $30 billion in weak assets off their books, which is why they were saved and Lehman, unsuccessful in trying a similar gambit, was let go. Merrill then is reported to have turned down an offer of 8 cents on the dollar for their Level 3 assets, which gives us an idea of how much they are really worth. It is these toxic time bombs that Wall Street wants to foist off onto the taxpayers. Don't believe the bull about taxpayers buying mortgages that could appreciate some day and could be sold at a profit. We the taxpayers will end up with $700 billion in rotten Level 3 assets, having vastly overpaid for them at the "steeply discounted price" of 65 cents on the dollar. However, the $700 billion is a microscopic spit in the ocean of up to $500 trillion dollars in derivatives. Already, you see the other institutions and even whole industries, the FDIC, and the automakers, for instance, gingerly mounting the slippery slope, hands out for a bailout. This is after the government has already agreed to cover Fannie Mae and Freddie Mac with an unlimited line of credit from the Treasury. This would be comical, something out of a scene worthy of Mel Brooks in a Producers-like film set on Wall Street instead of Broadway, as Fannie and Freddie together owe $5.4 trillion dollars, more than the entire amount of federal bonds, representing more than $5 trillion of debt.

So, all the dire predictions of banks collapsing, businesses failing, local and state governments going bankrupt, a Depression in other words--is on its way and cannot be stopped. The only difference is whether the some of Paulson's Wall Street fat cat friends will be able to scamper away with this $700 billion or not. I say, "Screw them." It is only right that they suffer along with their victims. No bailout.

ss

"Limit" the CEO's payout? How about, no payout and some jail time for fraud, theft, misrepresenting the businesses, and for causing financial ruin to millions of families? If I do my job poorly, I am held accountable. Why can't these people be held accountable before they steal more of taxpayers' funds?

poorvic

Upon whom falls the blame? Why, nobody but ourselves. We elect and re-elect the same scoundrels year after year. When we were presented with a G.W. Bush as a Presidential contender, we should have screamed with rage. That was, after all, a slap in the face for those (the minority it seems) who still possess a brain.

We elect our officials based on the fact that we'd like to have a beer with them? And now we have a doddering old fool with a half wit who has a profound understanding of Russia because she can see it from her bedroom window?
Paulson helped drive Goldman Sachs into the ground; why is he in his current position? Remember the S&L's? Another brilliant coup and bailed out by the government.

What about Chrysler, because the autos are next? If they are losing business, perhaps it's because they make bad products. So make better cars or get out of the business. You never hear of the Toyotas or Hondas going downhill.
The airlines treat their customers like cattle, then complain because they lose customers who don't like to sit for hours in a space designed for a midget. Now we are being charged for an aisle seat? Please. I recently travelled with Singapore Airlines, and it was a treat. Comfortable seats, good food, and no incidental idiotic extra charges.

We are in this mess for one solid reason: Americans want everything and are not willing to pay the price for their own stupidity. Where are the riots in the streets? Where are the Congressmen being bombarded day and night by e-mails and phone calls? Where are the threats of not voting for them again unless something other than stealing from the taxpayers is devised?

Why aren't the criminals of the Iraqi war impeached and in jail for conspiring to start a war of aggression and crimes against humanity (remember Nuremberg anyone)? It's too late to moan now--the world looks at us and our politicians as if we are children who will believe anything. Three little pigs comes to mind.

Charlie Stromeyer Jr

I have been a strong supporter of Barack Obama for more than 1.5 years, but if Obama votes for this bailout of Wall Street fat cats, then I will not vote for Obama in the November election.

The SEC should lift the ban on shorting financials, so that we can make some money by shorting our financial system into the ground where it belongs.

TT

Greedy executives in financial companies and socialist governments who want everybody to own a house, even those who cannot afford it, help create massive financial derivatives (fake money, time bombs) that have been crushing the market. Gains are privatized. but losses are socialized. Obviously, the system is not working and fundamental changes is needed. The $700 billion bailout may not be enough to reverse the damages caused by the massive derivatives.

PoorHelpless

This country of ours has just taken a turn toward the path of a socialist republic. The end of everything we stand for as a free democracy has been brought about by our corrupt investment bankers in cooperation with many of the political leaders of this and several other countries. The evidence is clear in the thoughts, words, and actions of the corrupt and incompetent leaders who are hell bent on destroying the democracy as well as the foundation of our founding fathers. All for the selfish benefit of keeping their pockets full of stolen wealth of the hard-working, ordinary people all around. They have managed to successfully scare the nation and held the country hostage with threats of depression if we don't bail out their complex schemes in their banking system they have laid out as a trap. Ultimately, this will likely bring the worst of all revolutions mankind has ever witnessed. It will make the French or American revolution of past centuries look like child's play.

Scott Beesley

“To Bailout or Not To Bailout, That is the Question”
Scott Beesley, Economics Instructor, University of Alberta,
Edmonton, Alberta, Canada September 26, 2008

I believe Mr. Paulson’s suggested bailout is nothing more than blackmail on a truly grand scale. The claim is that the U.S. will have a banking panic, followed by something approaching the Great Depression, if the proposed scheme is not passed, and quickly. There is no moral justification for spending perhaps $1 trillion in taxpayer’s money, which will either be borrowed or printed, to save the behinds of a group of overwhelmingly high-income investors who will be burned otherwise by losses on mortgage-backed bonds. Similarly, with respect to the loans that are held by banks themselves, taxpayers should not have to bail out bank shareholders or debt holders because the banks lent money like idiots.

The only government obligation, the only morally fair policy, and the best macroeconomic policy is to have the government pay out deposit insurance only, under the current limits and rules. That system pays $100,000 per depositor, per bank, and $250,000 per institution on some retirement accounts.

If the U.S. government were to give up on this corrupt and ill-conceived plan today, and announce that deposit insurance was the only amount that taxpayers would guarantee, what would occur? I discuss the universe with and without the bailout in this article.

Notice that many articles refer to this as a mortgage bailout, as if it was directly assisting those who are having trouble paying for houses they could never really afford. That would be unfairly subsidizing people who bought well beyond their means, and speculators, at the expense of taxpayers. That would still be wrong, in my view, as well as stupid macro policy, but it would make the package more palatable to the public. BUT what is proposed is even worse – it purports to have the government buy mortgage-backed bonds for far more than they are likely to be worth (over time), and have the public eat the difference.

Who do you think holds these bonds? How many people in society are wealthy enough to have invested $100,000 to millions in such securities? The top 5 or 10 percent of the population, as ranked by wealth or income, owns most of the money in such instruments. Why should average taxpayers cover their losses? This is, as I said earlier, blackmail. There will be losses in pension funds, both directly and as holders of mortgage-backed securities, and indirectly as shareholders of banks, etc., but I do not believe that justifies this giveaway.

The fear mongering claim of Paulson (and Bernanke, who ought to know better as a student of the Depression) is that in the absence of the big giveaway, there will be a banking panic. Lines in the street, rioting, a dead economy, and all that fun stuff. This is a complete crock. Imagine the government announcing that the only public funding will be to cover deposit insurance, as of that instant. From that time onward any withdrawal would count towards that person’s limit. There would be no reason to run to the bank and grab your cash (though some people would anyway, and the Fed would have to be ready with excess currency). If you have less than $100,000 in the bank (in each bank, perhaps), then your deposits are safe. In fact, not only are they safe, but their real value will increase in the deflation that would accompany this course of action. If you have more than $100,000, the excess is lost, and that is regrettable, but not tragic. All of this of course only occurs in the case of banks that fail, and most will not.

It is also certain that most wealthy depositors have already spread their money out over many institutions, meaning their losses could be small or zero. If they literally have far too much to park it in bank deposits, and lose some in other falling-value investments, that is the risk part of risk vs. return that “unconstrained free-market” advocates love to blather about. I cannot see why a janitor in Peoria should send money to a hedge fund investor in San Francisco or New York, because that investor lost on a very dicey bet.

Another factor is the sheer nerve of the present lame-duck government in suggesting, at the end of a miserable term, that the public commit to the greatest single peacetime expenditure in history--with that money directed overwhelmingly to the friends and financiers of the Republican Party.

There is the well-discussed moral hazard issue as well. We can hardly expect Wall Street to rein in its lies, tax evasions, lobbying, excessive compensation, etc., and then perhaps even move to a multi-year pay scheme (refer to Dr. Stiglitz), if they get away with this round of thievery.

It has also been pointed out that many of the executives who created this orgy of lending have taken home compensation in the tens and hundreds of millions. Many were paid based on the volume of their unit’s business, or the gain in value of the assets they managed, or the value of the transactions they carried out. All those valuations were pumped to the sky by the credit bubble, and many are now falling like rocks. The investors who bought bank shares, or some bought-out company, or whatever, have been suffering huge losses. Yet the dollars that were granted to these individuals are gone, and as Springsteen sang, “They ain’t comin’ back.”

The financiers in question, therefore, have already inadvertently or deliberately stolen a decade of extremely high incomes from investors in the aggregate. They are also investors themselves, of course, and some will suffer large losses if their own bank, investment bank, hedge fund etc. goes under. So what? That is the risk in capitalism, or should be. Thus it is particularly brassy of them to not only keep the ill-gotten, obscene compensation of the last few years, but to demand that the public minimize their personal losses by bailing out their funds and firms.
The taxpayer would not get off scot-free in the absence of the Paulson theft, I mean, bailout. I am not claiming that at all. If the bailout does not occur, house prices, mortgage-backed security prices, and other asset prices will all fall further, down to the level they should have been at all along (relative to incomes and rents and so on). They have been hanging at current levels precisely because the industry has been lobbying for and getting case-by-case bailouts, and hoping for the big giveaway that Paulson is now after.

Without the bailout, it is true that more banks will become insolvent. There would be a second wave of jingle mail as house price declines drive more people to walk away from their mortgages. (More are coming in any case because the adjustable-rate mortgage resets are going to continue through 2009 and beyond.) There would be a consolidation in the industry, which will occur even with a bailout, and there is certainly not enough money in the FDIC to cover the deposit insurance payouts that will be necessary. It is only a guess, but perhaps that would put taxpayers on the hook for $100 billion to $200 billion, rather than double or triple that range. The scope of it depends on what fraction of overall mortgage losses remains on the books of banks, as opposed to having been palmed off on outside investors.
The economy will not be pretty in either case. I think the U.S. is looking at the “Great Recession,” much worse than in, say, 1981, but nowhere near the Great Depression as far as human suffering is concerned. I am certain that the no-bailout plan suggested herein would lead to a quicker recovery, and far less family misery, than Paulson’s money grab. It avoids the gross inequity of transferring money from the bottom and middle of the income scale to the top. That inequity was bad enough already with the Bush tax cuts, but the bailout would be truly immoral.

Paying only deposit insurance also has the desirable macroeconomic effect of leaving spending power in the hands of those who will use it, thus helping to keep the economy moving. It is a truism that the government should provide crisis assistance to those at the bottom of the income scale, both for obvious moral reasons and because that group has the highest marginal propensity to consume.

The process I am suggesting would have to be done as quickly as possible. Banks would have to seriously negotiate the sale of foreclosed properties, getting those houses out of limbo and into the hands of those who can live in them or rent them out. Rents would fall, providing great assistance to a huge and vulnerable piece of the population.
Young singles and couples who have been completely priced out of the housing market would finally get their chance to buy at a fair price. In a cautious way, they would begin to furnish and improve their new homes, as always occurs when people become owners. There would be a period of rapid turnover, as the second wave of foreclosures occurs, and houses move to new owners at much lower prices.

When banks go under, it is not as if their buildings and computers and staff disappear. There will be layoffs and consolidation, but the industry will not vanish. The stronger banks will take over the assets of the dead, leaving bank common and preferred shareholders with nothing. Again, I do not think that is a particular problem. The remaining banks will have adequate capital, and will be able to lend again, using much more conservative metrics. I do not see that as a problem either. It can hardly be argued that the U.S. needs to somehow encourage & finance the creation of many more houses and cars, when there is already a glut of both.

One argument for the bailout is that it would be immoral for the United States to shaft the foreign investors who hold such huge amounts in mortgage-backed securities. First, I would argue that they will take big losses, even under the bailout, as the U.S. dollar turns into a wisp of its former self. Second, as some have suggested, there could be a bailout of foreign investors only, in which they are partially made good on their losses. (There would be frantic attempts by Wall Street to relabel domestic holdings as foreign, but that can be countered.) Note that in a no-bailout situation, the fall in U.S. housing and other asset prices would lead to a strengthening of the currency, as investors would buy houses, firms, sound bonds, etc. in large volumes. Imagine that foreign and domestic investors refuse to lend the U.S. the money necessary for the bailout, at prevailing low interest rates. One result could be a more sudden run on the dollar, possible technical bankruptcy, and an emergency rise in interest rates. That would cause a chaotic decline in asset and bond prices, bank runs, etc., i.e., all the things the bailout is supposedly designed to avoid.

I encourage the reader to find the comments of the many economists and experts more qualified than myself to address this issue. Articles by Yves Smith and Luigi Zingales are particularly recommended.

Good luck to everyone over the next five years. I am afraid we will need it no matter how the financial questions are answered.

Scott Beesley, Edmonton, Canada

David Michalek

We now know that Wall Street was running a shell game and the people at the top are con artists. Paulson was one of them, and he wants to bail. They should all be behind bars. They should be banned from working in investments, banking, insurance, finance, or anything else involving money.

Banks need to be regulated. The regulators should be given the authority to file charges. Wall Street has shown pretty clearly they were a bunch of crooks running a con and have gotten caught. Unfortunately they have destroyed the entire banking system.

Much of the population will get fired for being late or surfing the Internet.

What about the rest of the ideas promoted by the "get the government off our backs" crowd? Free trade? Anti-labor laws? Lax regulation?

What exactly do these people stand for? Lead in children's toys? Tainted Milk? Pesticides? Enron? The war in Iraq?
Lax Immigration?

And they want to privatize Social Security? They want to outsource everything to Blackwater and Haliburton? Is it not about time that these people be tossed out? They have wrecked everything including our banking system.

Anyone read Ayn Rand lately?

So much for U.S. MBA programs.

Samuel Reich

Since real estate and employment have yet to hit bottom, there would have to be a lot of bailouts for that to work.

The feds should stand behind new loans only but change the rules: 80% maximum mortgage, fixed-rate loans only because no one can know what a variable rate will be, and loans only to the solvent. The fixed-only and solvent-only should be for all loans, not just real estate.

Sam Reich

Government funding of business construction and research and government building infrastructure is a more effective stimulus than funding bad private investments.

And $1 trillion divided by 300 million people is $3,333 per person or about $10,000 per household or too much to do very often. Real estate has not hit bottom; there be more bad loans.

The rules for new loans should be fixed-rate only to the solvent only (all loans not just real estate). Real estate loans just should be for 80% or less of the value, so people do not walk away from them.

Thinker83

To all of you people blaming only Bush and Republicans, you're amazingly blind. Bill Clinton said that this was a Democrat-caused problem during his Administration. Check it out if you don't believe me.

Also, do you realize that it was mostly Democrats who pounced on the idea of spending more money? Republicans were mostly against it. So get off of your high horses, come back to reality, actually look at the facts, and then try--just try--to say something even moderately intelligent.

Jacob

While I do not support the bailout, some kind of government control needs to be given to these big financial institutions. The current system is obviously not working. People will always be greedy.

TheOldHand

Long Wave Theory addresses the debt accumulation and reduction that results in psychological reaction of a society giving rise to business cycles. The ending cycle is an economic crash brought on by too much debt.

Our society has now structured its economic survival upon ever-increasing debt. Periodically, a new lending source must be found to provide additional debt. Now, after exhausting willing lenders, both domestic and foreign, it is suggested that government--which has no funds of its own to lend--provide the lending.

This would lead to increased taxation were that politically possible, but as it is not, will lead to devaluation of the currency via inflation.

Roebert Smith

Unfortunately, the people who are against the bailout plan forget the world economy is more intertwined today than even 5 years ago.

Look for the Long Term

As much as I hate the greed on Wall Street, the consequences of doing nothing will be incredibly bad for the average American. The question is how exactly we go about it. It would be "good" for taxpayers if we take the Warren Buffet approach--immediate equity in the form of preferred stock, plus warrants to buy additional equity in the future if we (i.e., the government) elect to do so. If you have warrants to buy 10% of a bank and the price is higher, you exercise those warrants and the taxpayers profit--just like Warren Buffet.

Adding a bankruptcy provision to bail out homeowners would be a disaster-- tantamount to raising taxes on 94% of Americans paying their mortgages on time to bail out those people who were too stupid or too greedy to pass on the teaser rate to begin with.

Chellen

I'm pretty disgusted with most of the players in the House, all across party lines. They should have passed the bill. Speaker Pelosi was wrong to make her partisan comments at that time. It was a foolish thing for her to do.

But the Republicans should not have responded as they did.

We need a Dr. Phil in their midst, reminding them that someone needs to be a hero and forget personal power plays and do what is right for the good of all the citizens of this land.

Let the partisan politics resume after the bill is passed and we can begin assigning blame where it is due.

Symp

This is the culmination of the American Dream Pyramid Scheme since the 1960s, with a mid-life crisis in the 1980s. Wall Street is not the only party to blame. Look in the mirror, folks.

That said, no bail out. If you want capitalism, American-style (like the Wild West), you've got to take the good with the bad. Right now, the government could easily freeze valuations and insure 401K, annuities, and all that jazz. Let the investment banks fail; let a Phoenix rise.

Homeowners in debt need to crash, too. Prices will fall and we'll all take a hit. But if we allow it to sting us now, we'll be vaccinated for the foreseeable future. The bailout way is the chicken-crap way, and the wrong way.

Michael

There is a scene in The Matrix where Morpheus asks Neo, "Do you think that's air you're breathing?"

Similarly, do you think these big shots did not know that a meltdown was coming? Of course they did. Warren Buffet spoke out against the subprime shenanigans five years ago. And they knew the meltdown would be so bad that when the time came, it would be a choice between disaster and oh-my-God catastrophe.

The situation is exactly what the executives wanted. The government has practically no choice but to approve a bailout. But they shouldn't. Let the market correct itself.

bigey

The management of the defunct financial institutions are the ones who receive the big bonuses and multimillion dollar pay packets to manage the operation of the company, which includes all its products and services. It is difficult to understand how they should expect the average joe to bail them out when they are in trouble.

Marie

Can someone give me an idea of what is going on now? Will I be able to continue receiving student loans? Has the no-bailout helped us? As far as I can see the answer is no. How much do you think will go down the tank today? I'm just trying to understand this as I have yet to take Economics 101.

Chet

Capitalism is good.
Some people are not good.
Money attracts corruption.
Corruption corrupts the corrupt.
I say, "Off with their heads!"

Marco Montini

I think Paulson's plan 1) gives too much power to one man (him), 2) removes accountability from the economic system and from government's handling of the current situation, 3) shows no possibility of taxpayers regaining much of this expenditure, 4) does nothing to help the troubled homeowners who are hurting more than the banks in this crisis. The plan as it stood was bad at best, but some kind of plan was needed in this situation.

Though the last bailout plan might have been too much of a giveaway with little control and little oversight, some sort of bailout will be necessary. Already financial markets and institutions throughout the world are freezing up and are in deep trouble. Though some revision to the bailout plan is definitely necessary, some version of it should be passed to save the average middle class taxpayer from the deep and lasting pain associated with the possible collapse of the financial markets and the resulting collapse of the economy.

I would propose the following be instituted in the next plan to secure the interests of the American taxpayer and the interests of the average American homeowner. First, the government should acquire a 90% equity share in AIG, ensuring the U.S. government has absolute control over the company and the existing stockholders bear the full brunt of the resulting losses/costs associated with the bad assets and the cost of the bailout. The losses born by the existing shareholders would be a little less than 90% of the existing equity value in the company (the government taking from them the 90% equity share).

Second, a Congressional Oversight Committee should be established to oversee all operations in the company. The oversight committee can then act as a very involved board of directors, overseeing all major decisions and all management/managers in the company. The committee can also establish new rules within the company as to how it will function and carry out its general operations.

Third, the entanglement of the mortgage backed securities/assets should be "disentangled," allowing for identification of individual mortgages contained within the assets and allowing for proper treatment/management of each mortgage within the operations of the firm.

Fourth, the terms of these existing mortgages should be reset to allow the interest rates embodied within them to go back to the low levels that existed when they were first issued (all rises in interest rates being canceled). This would entail a major write-down of these assets; however, it would almost surely ensure the repayment of the principal amount of these mortgages along with some payment to cover inflation. I also agree with those of you who indicate that the CEO salary should be rolled back and tied to the lowest-paid employee (see one of the prior discussions). After all, wasn't it the mismanagement of these companies (by the CEO and staff) that helped cause this problem?

The value of doing this is multi-fold. This would unfreeze the financial markets, thereby restoring the ability of the economy to function normally. The result of this would also mean the average citizen would maintain his or her job and be able to meet their obligations. It would also ensure the avoidance of a massive drop in tax revenue that would be the result of a massive collapse in the economy and a large increase in unemployment. Disentangling the mortgage securities, changing the interest rate terms of these mortgages (thereby reducing the mortgage payments) would allow many to avoid foreclosure and to continue to live in their houses and make payments toward the principal amount of the debt being (now) held by AIG (the U.S. government). This alone would minimize the size of the necessary write-down/loss associated with these assets, and would allow taxpayers to get back much of the money put into the bailout. It would also ensure fewer houses enter into the housing market because of foreclosure, thereby helping the housing market to recover as well.

I believe that this option must be considered. One might think that it is only the wealthy who will hurt as a result of a financial market melt-down, but the fact is that such a melt-down would have a devastating impact on retirees, and those getting ready to retire. It will also have a negative impact on any person who has used the financial markets to invest in their children's education. It will also affect the average citizen who may lose their job as a result of the impending financial/economic crisis that looms ahead if some thing is not done to stop it.

The proposed suspension of the mark-to-market rule will not help. If this is done, the value of these securities in the open market will still plummet since everyone knows they contain a lot of bad debt. Avoiding the rational "booking" of the asset value at the "market value" will not change the actual market value. For the firm to either 1) sell the assets for cash 2) factor the assets as collateral to borrow cash, the firm depends on the market value of the assets to use them as collateral for cash (firms are cash starved, reason why they can't meet obligations). Allowing firms to avoid "booking" the market value only throws other institutions with viable assets into trouble since the suspension of the accounting rules makes lenders unsure of the value of their (otherwise viable) assets as well.

James Gaskell

I think it is terrible to fund these crooks after they have mismanaged so much of their money--overpaying their top management people. Our government will keep operating as usual. The banks deserve what they get. They have always been greedy. Time for payback. No to the bailout. Perhaps Congress needs to go after the money that is missing.

Bry

We need a bailout for people who actually need it, not Wall Street!

Anna

Richard V. Raymond--touché!

You touched on some serious and very truthful issues: Nazi Germany, yes, we are headed in that direction to a worse end than what occurred in the 1940s. If people would really do their homework and look at the facts, they are out there. The closed-doors meetings deciding to declare martial law by your government in the event of a financial collapse (pre-planned)--the data is out there, and the message is clear: You are all intelligent people, so research your own futures. The government is not trying to "save us and the banks" as they had stated with this bailout--it's a very poor attempt to cover more funding for their regime. I don't speak from an extremist position for those of you who will come back with that. I did my homework and was terrified at what I found. Let the big banks fall if this is the case. Theirs is a hidden agenda regarding this so-called bailout plan.

suman.rakha

In a nutshell: No bailout.

It's a no-bainer. When consumers have money, they spend. Consumers work and slog every day just so that they can spend. Partially this crisis started when consumers used "plastic money" to upscale their lifestyle.

When reality struck, this plastic melted.

At this point, it would be much wiser to have a nationwide debt reduction and just simply reduce the debt of an average consumer (simply cut the principal of everyone's mortgage by 10%). This will put a lot of money back into people's pockets. Also, psychologically they will feel a lot more secure. And they'll be back spending again. This will benefit the retail sector considerably. I am surprised the retail sector is not using its lobbyists to lobby something like that.

Prithvi

I have a better idea. Let's seize the assets of a responsible bank like Goldman Sachs to "rescue" the irresponsible people that bought houses they couldn't afford. I'd like to see what Paulson and the financial media would think about that. They would be up in arms. Well, this is the same, and we have the right to be furious.

Jerry

Classic statement: Socialism for the rich, capitalism for the poor.

I like to state this repeatedly cause this is what we are doing with the bailout. But I understand the bailout is a necessary evil.

Looking back to the boom years, did anyone complain that the economy was booming, bank are creating too much liquidity, and too many jobs are being created by the liquidity? No one did. It's our duty to rescue these job generating mammoths--to save not only the Wall Street companies but also the associated Main Street from a collapse.

kati

There are both pros and cons to all this in my opinion.

A lot of people are right. They made the mistake of getting us into this mess. Why should we pay to fix it? After all, this is not the first the taxpayers have paid for mistakes made by the street.

But then again, if we don't, what will happen? The ripple effect. In time, all this will end up hurting the people as well as the economy.

So we really just need to think. It's our money we're rescuing. And in time, there will be time for punishment for the butts who caused all this, that is after we rescue not only our economy, but our country as well.

Douglas Modig

Hollywood And the Mythology of Value

No wonder even the financial connoisseur is not in control. The banc note, or whatever piece of paper it may be, more or less invented in late medieval Italy is an intelligent scam built on human greed and psychology.

It takes two aficionados to agree that exchanging material goods by way of a symbolic piece of exchange value, the valueless banc note per se, in order to create a hypothetical value to generate a surplus for both protagonists. It´s one of the oldest scams in the book and we are all party to it…
.
Market value cannot materialize. It´s built on assumptions and the stock exchange is a store where assumptions are bought and sold. As long as all actors agree to disregard that the Emperor is naked and has been ever since the start, the business can go on in it´s own logic, dialectically in an accumulative process until the level of nothingness is reached and the Emperor´s clothes discovered tossed away and torn.

The American politicians recently made an ungifted step to reject the propositions to save the illusion and must act acrobatically to convince people that nonvalue is worth bartering and accumulating, so that the show may go on.

For years the enteratinment business has perpetuated the idea of acummulation and surplus and the American gospel that a good person is a rich person. As long as the movies have existed, we are being told there a riches out there for us to pluck if only we adapt to the rules. The idea of the self-made man as a benevolent hard-working individual succeeding in business because of talent, piety, and being good-natured, has been impersonated by Jimmy Stewart, Spencer Tracey, Henry Fonda, Clint Eastwood, Paul Newman, et al, and the image must be kept intact at all costs. Hollywodd is a tour de force in order to strengthen the contemporary political and socioeconomical mantra. As soon as the U.S. market falls back into a recession, Hollywood disqualifies the Indians and the Afro-Americans and the temperature of the U.S. establishment is easily detected in the film productions. Benevolence, tolerance, and multi-ethnic stardom is always accompanied by the all time highs on Wall Street.

Picture this: You are a shareholder of the H&M Company. Your shares are valued an estimated $3,000 dollars and you decide to go to the nearest retail and collect whatever products until you assume they correspond to your shares and withdraw from the shop. You have "sold" your shares and collected something concrete. Picture tens of thousands of shareholders who simultaneously decide to withdraw and sell their shares and collect their value in materials. A very, very small minority would empty every store within minutes and 99.9% of the rest of the owners would go without. Because there is nothing there.

The small house in Columbus, Ohio, is not worth $350,000 U.S. dollars per se. The assumption may be worth the sum, and we are bartering with assumptions and not face value.

If we are to exchange the system built on the noble art of self deception, extreme changes in the geographical distribution of face value, of value in corpus, foods, protein, and shelter that may guarantee the human socio-emotional and physical reproduction, things we actually need in order to simply survive.

We may have to go pretending that we own what we own and the our riches actually may be manifested or transformed into a concrete manifested surplus once we sell it so that we may avoid a surplus, which only is a frail suggestion that never may materialize.

The present crisis is a generalized anxiety disorder, and we need every cognitive behavior therapist to persuade us that our cognition or thought of value or loss of value is what rules the market and the problem thus a psychological one.

I cannot understand why the specialist in the U.S. Board of Psychological Defense has not hurried to our side.

Douglas Modig
Social Anthropologist
Kristianstad, Sweden

CG

We need to freeze all federal employee salaries and require a 10% reduction in head count across the board for all federal agencies.

Jay Cherian

The source of the whole problem is financial institutions without adequate insurance for their businesses. And no insurance company is big enough to handle all problems and disasters. We only have one choice. Let's permit government as well as the private sector to run the insurance sector of economy. This will prevent future bailouts. A bailout is a function of insurance companies, not taxpayers.

brian

Let the oil companies finance this bailout. They have sucked the profits out of every person and business across the nation.

NICHOLAS T. SCHEEL

Convert all defective mortgages to rental properties; rent will be charged to former mortgage holders. Any money paid in will be held in escrow. So the occupant will not be removed from the property as long as they pay rent. Rental payments can be drawn down from any money held in escrow

By converting all these mortgages to rental properties, we eliminate the need for any bailout. Rental payments will not benefit the occupant.

Jim

It seems that we have in our wisdom used our unprecedented post war influence and prosperity to create and expand our now global economy on the foundation of a consumerism that is fully dependent upon an ever expanding population of those drawn into the industrialized complex to squander increasing amounts of cash on a boat load of useless crap. In a nutshell, that is the operative definition of market economy. It obviously also includes your humble home, your basic or your outlandish car, and a refrigerator. And with those come good and bad loans and credit cards. This, anything but free, market economy has become America's current heart and soul. So much so, that when there is a blip in that market, our government sends out what they call tax rebate checks of a few hundred dollars each to those who are more likely to do just that, spend, rather than increase support to the poorest among us who might use extra food stamps and/or a few more weeks of unemployment compensation to buy the barest essentials.

TomasC

Are we really going to use the bailout money to save "our money"? If I didn't have doubts, I wouldn't be asking... The current crisis tells us clearly that something is wrong with our system and maybe values as well. And to me, it seems that we are trying to deny that by pouring government money onto it.

Did you see the movie The Awakenings with R. Williams and R. de Niro? The guy had a mental disease, but he was able to be "normal" by keeping him on drugs. It was successful only for a certain period, after which everything got to its fundamentals - the guy is a mentally sick patient.

The current crisis reminds me of a doctor who prescribes his patient another dose of medicine in order to keep him alive instead of trying to heal him.

Gary

Who is going to bail me out? I'm just a common man working my ass off for basically not a damn thing. I am about to lose everything that I've worked my whole life for because of this damn system. And I'm supposed to pay tax to bail out these @#$%^? Right, lock me up and take away my freedom because I don't support all this crap. Yeah America.

gary

Main Street cannot even feed itself let alone the big business you talk of here. Don't take my tax dollar and give it to anyone but common folks like me. I work my ass of for $30k a year and I am supposed to support billionaires? I can't even afford to buy health insurance for myself or my family. Retire? Yeah, I guess when I die I'll be "retired."

joe

Problem what problem? Illinois is unaware of any budget problems since we are hoping for a federal bailout. Until then it's politics and corruption as usual. Read about our financial suicide as it occurs with the worst abuses in Illinois pensions.

Unsustainable: 3,597 Illinois "Public Servants" Receive $100,000 Plus.

Pensions In 2009 Up 12% From 2008.

Three "Servants" Pull Down $1,000 Per Day.

Six Amazing Facts About Illinois State Pensions:

1. Almost All of These multi-millionaire "servants" are educators.

An amazing 96 of the Top 100 are educators and the Top 13 come from the state universities.

2. Everyone of these "srrvants" is tax funded multi-millionaires.

A $100,000 pension at age 55 is worth $2.4 million in cash. That's based upon the cost of an equivalent pre-paid annuity providing the same income over the assumed life expectancy of a 55 year-old.

3. Illinois taxpayers on the hook for at least a trillion dollars in taxes to pay for state retirements.

That's about $200,000 per Illinois household over next 36 years (see here). That's $200,000 of your money for other people's retirement, money you will not have available for your own retirement.

4. Sixty-three state employees had pensions greater than President Clinton's pension.

Simply put there is no justification for any public employee having a pension greater than the President's pension. Next year we will have a pension greater than President Obama's $400,000 salary.

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