Democracy altered bailout, can it kill it???

September 28, 2008

(Copyright 2008)


By Tony Walther

While a compromise has been reached in the $700 Billion Wall Street bailout bill and it may go to the House as early as Monday, I would think that the same public outcry that caused it to be delayed and reworked could kill it outright, although the pressure from money experts who have a vested interest in a system that up until now has been working quite well for them may win out nonetheless. This stuff is so complex that few, if any, seem to fully understand this global market and highly sophisticated finance (the basics reamin simple, though).

I believe you can get a full text of the bill via your usual news sources, such as CNN online, and I know that Huffington Post online has it too (I have not read it).

I recommend you read the comment from Susan at the bottom of this blog. Personally, I do not pretend to have the answer for all of this, but I do have thoughts. My old lead and previous, but related blog follows (and please read the comment):

Today, Sunday, it looks as though some type of compromise has been reached in the $700 billion Wall Street bailout bill and I think it proves that democracy is alive and well in America.

And not a minute too soon, this is happending, for the second richest man in America, Warren Buffet, has reportedly warned congress that if it does not get something done ASAP that there will be a complete “economic melt down” across the nation. While I wonder on that, who can argue with Warren Buffet?

But the reason I say that democracy is alive and well is that last weekend the Bush administration tried to push through a one-way no questions asked bill that would have simply given $700 billion in taxpayer money to the Secretary of the Treasury to hand out to reckless speculators. But there was an outcry among the public with e-mails (and thank God for e-mail) and phone calls flooding the offices of congress. That alerted congressmen and senators that they needed to pay attention to the public will. So now a compromise is in the works, that while extraordinary will hopefully be a more prudent, sober, and reasonable approach.

The question in my mind remains as to whether this is all necessary and whether the free market should be allowed to work. On the other hand, it is probably inaccurate to say we simply have a free market. There are government controls, but sometimes they have not been enforced and we may need a little more oversight, to say the least.

An interesting thing about language —  a senator was telling reporters of the problem and I think he gave an example why poor English often heard in everyday speech is misleading. People often use the double negative, such as “it don’t have no value.” I already forgot how the senator actually expressed himself, but he awkwardly said something about mortgage-backed securties the government proposes to buy up “don’t have no value.” Actually, as he went on the explain, that doesn’t mean they do not have value, it means just what he said, they don’t have no value, instead they have value, but the problem is no one knows what it is. He said the governmnet will set a value on them. Now I am not exactly sure how that works, and he indicated he did not totally understand it either, but he said that eventually when (and if) the markets stabilize, the government (and in turn one hopes the taxpayers) stands to make a profit, but it could also only break even or worse yet, lose. (I did not mean that the senator was inarticulate, he was just making a statement in an impromtu fashion.)

The underlying problem is that the bubble burst in the housing market and along with it mortgage- backed securities, and something not realized by many of us, our total economy from Wall Street to Main Street has been riding on these securities. And now there is a lot of paper out there which is either worthless or at least the market does not know its value, so the credit market has come to a standstill at the higher levels, at least, and stocks are expected to tumble if the uncertainty remains.

The following is an already-posted blog on the same theme:

…I’m reading that the powers that be are still hoping to get some version of the $700 billion Wall Street bailout bill into law or all-but into law over this weekend. And I have read in a couple of places where people have reminded the public that it was not just Wall Street who got carried away but anyone who is over-extended on their credit or who went into a mortgage and should have realized they had no ability to keep it up. It all adds to the mound of bad debts that have clogged our financial system. I still say just cancel everyone’s debt and let us start over again – but then I suppose that would make everything worthless, I don’t know.

As little as I know about economics, I have written a lot this past week or so. I have noticed that nearly a week after we were told the world would come to an end if congress did not pass Bush’s bailout with no strings attached for Wall Street everything is still standing, okay a couple of banks have gone under. I still say, take it a step at a time and along the way let’s revamp the system, not perpetuate the problem.

For some strange reason, business people, who often or usually consider themselves conservative, have over these past many decades pushed folks to charge things up on credit cards and the real estate industry, abetted by Wall Street financiers, and yes Democratic (and Republican, I think) politicians pushed for everyone to get in on home ownership and either dropped qualifications or looked the other way as to the probability that folks could really pay back their mortgages.

The old timers were right. They shied away from credit and saved back, putting their money out at interest, knowing that better a lender than a borrower be (although someone has to borrow for someone to lend).

And the inflation in housing caused by easy credit hurt renters too. They have to pay high rents for landlords who don’t own property free and clear and may be behind on their own payments and property taxes.

I’m so far out of my league in economics that probably no one would want to pay attention to me, but I think there is something to be said for a cash society. In capitalism, there does need to be capital, and in order for there to be capital (at least the kind with any liquidity), there needs to be savings so financial institutions can take those savings and lend them out at interest. If there is caution and careful rules, such as requiring sufficient reserves, things can work out fine.

And now I’m really getting in too deep. But I think that for the most part capital should be used to invest in things such as the production of food and durable goods, and the provision of services, all of which, along with jobs created in the process, make up our quality of life. But when you reduce the whole thing to some type of gambling game in which you just borrow money and lend it out and then turn around and borrow money on the money you lent out and so on, that can lead to too much wealth in too few hands and a reduction in the quality of life for the nation as a whole. I know that some of the financial trading has the utility purpose of I think they call it adding liquidity to the market. There has to be safeguards, though, in order to prevent the near catastrophe we are told we are facing.

I apologize or beg forgiveness to anyone who has read this far and understands this whole thing far better than I and feels he or she has just suffered a fool. But don’t get too haughty, I think I get it better than you may realize.