The Bailout

http://www.house.gov/paul/congrec/congrec2008/cr092908h.htm



The process of this bailout reminds me of a panic-stricken swimmer thrashing in the water only making his situation worse. Even a “bipartisan deal”—whatever that is supposed to mean— will not stop the Congress from thrashing about.



The beneficiaries of the corrupt monetary system of the last three decades are now desperately looking for victims to stick with the bill after they have reaped decades of profit and privilege.



The difficulties in our economy will continue because the Legislative and the Executive branches have not yet begun to address the real problems. The housing bubble’s collapse, as was the Dot Com bubble’s collapse, was predictable and is merely a symptom of the monetary system that brought us to this point.



Indeed, we do face a major crisis but it is much bigger than the freezing up of Wall Street and dealing with worthless assets on the books of major banks. The true crisis is the pending collapse of the fiat dollar system that emerged after the breakdown of the Bretton Woods agreement in 1971.



For 37 years the world built a financial system based on the dollar as the reserve currency of the world in an attempt to make the dollar serve as the new standard of value. However since 1971, the dollar has had no intrinsic value, as it is not tied to gold. The dollar is simply a fiat currency, which has fluctuated in value on a daily, if not hourly, bias. This worked to some degree until the market realized that too much debt and malinvestment existed and a correction was required.



Because of our economic and military strength, compared to other countries, trust in America’s currency lasted longer than deserved. This resulted in the biggest worldwide economic distortion in all of history. The problem is much bigger than the fears of a temporary decline on Wall Street if the bailout is not agreed to.



Money’s most important function is to serve as a means of exchange—a measurement of value. If this crucial yardstick is not stable, it becomes impossible for investors, entrepreneurs, savers, and consumers to make correct decisions; these mistakes create the bubble that must eventually be corrected.



Just imagine the results if a construction company was forced to use a yardstick whose measures changed daily to construct a skyscraper. The result would be a very unstable and dangerous building. No doubt the construction company would try to cover up their fundamental problem with patchwork repairs, but no amount of patchwork can fix a building with an unstable inner structure. Eventually, the skyscraper will collapse, forcing the construction company to rebuild—hopefully this time with a stable yardstick. This 700 billion package is more patchwork repair and will prove to be money down a rat hole and will only make the dollar crisis that much worse.



But what politicians are willing to say that the financial “skyscraper”—the global financial and monetary system-is a house of cards. It is not going to happen at this juncture. They’re not even talking about this. They talk only of bailouts, more monetary inflation, more special interest spending, more debt, and more regulations. There is almost no talk of the relationship of the Community Reinvestment Act, HUD, and government assisted loans to the housing bubble. And there is no talk of the oversight that is desperately needed for the Federal Reserve, the Exchange Stabilization Fund, and all the activities of the President’s Working Group on financial markets. When these actions are taken we will at last know that Congress is serious about the reforms that are really needed.



In conclusion, there are three good reasons why Congress should reject this legislation:

1. It is immoral—Dumping bad debt on the innocent taxpayers is an act of theft and is wrong.
   
   
   
   
2. It is unconstitutional—There is no constitutional authority to use government power to serve special interests.
   
   
   
   
3. It is bad economic policy—By refusing to address the monetary system while continuing to place the burdens of the bailout on the dollar, we can be certain that in time, we will be faced with another, more severe crisis when the market figures out that there is no magic government bailout or regulation that can make a fraudulent monetary system work.

Monetary reform will eventually come, but, unfortunately, Congress’ actions this week make it more likely the reform will come under dire circumstances, such as the midst of a worldwide collapse of the dollar. The question then will be how much of our liberties will be sacrificed in the process. Just remember what we lost in the aftermath of 9-11.


The best result we can hope for is that the economic necessity of getting our fiscal house in order will, at last, force us to give up our world empire. Without the empire we can then concentrate on rebuilding the Republic.

Americans would have been forced to sacrifice and could not have continued to live beyond our means without this bailout. It's nothing more then cash flow and bribery to keep banks and credit card companies from drying up their credit and Dr. Paul was correct, it's throwing money down a rat hole.

The sad thing is, I saw some liberal commentators on television yesterday saying our basic problems are caused by a lack of investment into infrastructure and the economy and the solution was to spend more even it means increasing the debt up to $12 Trillion.

Talk about lunacy.

Well I hope you guys know as much as you think you do.

I hope Congress doesn't cave in to the pressure they're undoubtedly under from the idiots who got us into this mess......those who stand to profit most from a bailout.

Stephanie wrote:I hope Congress doesn't cave in to the pressure they're undoubtedly under from the idiots who got us into this mess......those who stand to profit most from a bailout.

Well Steph again forgive my ignorance but who specifically do you refer to when you say "those who stand to profit most from a bailout"?

What with all the insurance, re-insurance, credit default swaps and other financial derivatives it leaves me scratching my head.

Imagine if you were a U.S. Representative. And don't sell yourself short, Mister, you know as much or more than some who voted on the package.

I like that, Jim! I'm confident that's an accurate statement. I think my 17 y/o daughter probably knows more about this than some of the folks who voted on it.

What mystifies me is these people count Congressional votes professionally. Why would they let a proposal they categorized as "imperative" fail? Why even bring it to a vote? Was Pelosi's posturing, name-calling really effective at losing votes?

I think the deal is the individual reps were afraid of voter backlash if they voted for the bailout. The public outcry has been historic.

I'm sure you've seen the lists being emailed and posted all over the place listing who voted in favor of the bailout. When you've got the Congress receiving so many emails and phone calls that the communication system is bogging down, and their 10-1 against the propose legislation, a few weeks before the election, it has to make some of them worry about the things they care most about, their own personal power and the wealth they derive from that power.

So to me, the question becomes one of the resolve of the American people. Will they turn tail and run because of the stock market plummet? I don't know that they will. I'm not. It's frightening, sure, but the alternative is worse.

Did you watch the video Keli linked to? Yes it was edited for effect and all that, but still Americans can watch that and see Maxine Waters call Frank Raines' leadership "outstanding" and Waters, Frank, Meeks and others declare there is "nothing wrong". They weren't cooking the books. No oversight needed. The regulators are liars out to sabatoge the GSE's.

I'd like to see that footage of Maxine Waters follow her straight to hell. Likewise footage of Meeks telling the regulators how "pissed off" he was at them for having the audacity to bring the nonexistant troubles to the attention of Congress and the American people should follow him to his grave. Franks didn't see any trouble then, but he's voting for the bail out now.

It would be hilarious if we weren't in this kettle of fish.

Well I am trying to educate myself here.

It looks like the owners (stockholders) of the "rescued" financial institutions will not profit.

They are losing their shorts.

The stock values have plummeted to near zero.

When they are taken over, there is new management, so the hi-roller management employees are not really profiting.

Looks to me like the people who benefit are the lower level employees who get to keep their jobs and the depositors (primarily businesses) who need the ongoing cash flow to keep their own doors open and meet payroll.

I suspect you are right when you say some of those in Congress are not themselves financial whiz kids.

But you guys seem to believe that only applies to those on the President's side. I see no reason to think the hardcore rightwingers are any better educated in such matters.

Far as I can tell from the posts Stephanie has been educating herself on this longer than most of us here.

So it looks like she could be able to answer who stands to profit most and why.

Seriously I would like her or anyone else who knows to explain it to me.

Seems to me there is a lot of grandstanding going on by the opponents.

But that is just my opinion.

There was a congresswoman on GMA this morning, Maureen something or another, I didn't catch her name or state, but I know she was a democrat. She summed up the problems in a nutshell and said the quickest way to fix the problem wasn't legislation but to change the writing to market rules and that's and SEC change.

Every leading economist I've either heard or seen is saying the same thing. Makes me wonder why it hasn't been done and why the news media isn't reporting both sides of the story.

Chris Cuomo tried to corner her and the Republican congresswoman on the interview and blame them for the losses yesterday and Maureen put him in his place, telling him he was too anxious, she could hear it in his voice and that he needed to calm down.

It was a good interview in which the interviewer was put in his place. I doubt that it will be posted online.

Who stands to profit the most are the banks and investment firms who made all of these bad loans and are now losing their businesses because of them.

Sound businesses and banks are not going out of business. Washington Mutual failed but was purchased privately without government intervention by JPMorgan with no guarantees. This was done at no taxpayer cost, unlike Bear Sterns, which the government did intervene on and taxpayers do have a stake in that transaction, also by Bear Sterns.

Before AIG took government money, they turned down private money because they didn't like the terms.

Those in charge in Washington want to make the average American believe that if the bailout isn't passed, America will fail and that's just not the case and imo, their fear mongering is borderline criminal.

If Hank Paulson wants to ease the problems, the first thing he needs to do is suspend the SEC regulation that requires banks to write assets to the market. That one action will do more then anything to ease the credit crisis, which is the number one problem affecting Americans right now.

"Who stands to profit the most are the banks and investment firms who made all of these bad loans and are now losing their businesses because of them."

Well Aaron thanks for answering.

When you say banks do you mean the bank stockholders?

Because it seems to me they are the big losers in this.

Under the "rescue" as I understand it, there would be what amounts to a reverse auction of the so-called "bad paper".

So the gvt. would get them for fire sale prices and probably make money in a couple years assuming the whole bottom does not fall out and throw us into a Hoover level depression.

In which case this so-called rescue will be irrelevant anyway.

But if gvt. does not act to stabilize the credit market then lots of businesses will close their doors and it goes downhill from there.

sodbuster wrote:"Who stands to profit the most are the banks and investment firms who made all of these bad loans and are now losing their businesses because of them."

Well Aaron thanks for answering.

When you say banks do you mean the bank stockholders?

Because it seems to me they are the big losers in this.

Under the "rescue" as I understand it, there would be what amounts to a reverse auction of the so-called "bad paper".

So the gvt. would get them for fire sale prices and probably make money in a couple years assuming the whole bottom does not fall out and throw us into a Hoover level depression.

In which case this so-called rescue will be irrelevant anyway.

But if gvt. does not act to stabilize the credit market then lots of businesses will close their doors and it goes downhill from there.

Egads.

Sherm, I had to feed Loyd his breakfast. Now I can only answer you briefly because it's school time over here.

Please, first you must understand that what will send us into the Great Depression Redux isn't the failure of these insolvent institutions. The bailout will do that.

Look at what happened in 1921. Look at the response and the results. Then look at 1929 and the government response and those results. At least look at the history before you go thinking you want to repeat it.

The insolvent banks will be saved. They will keep whatever assets of any value they actually possess, and we the taxpayers will buy up all the worthless paper, the bad debt. This bad debt is never going to be worth anything.....that's why it's called "bad debt".

There aren't teams of well educated, veteran bank managers not involved in this disaster going to swoop into all these losers and make them solvent. They are insolvent, that is the problem. Let them be bought out by solvent, private institutions who will get the assests along with the debt and maybe do something with it.

Those elected and appointed officials who for years were insisting Frank Raines did a bang up job and nothing was wrong at Fannie or Freddie and 100% loans were the greatest thing since sliced white bread need to be made to face consequences. Just as the Federal Reserve needs to be made to face consequences for manipulating the market with their phoney interest rates and constantly, increasingly printing money out of thin air.

Tell Congress to regain control of our currency. Printing billions of dollars out of thin air and just releasing it into the market creates inflation. Too much of it will create hyper inflation.

Honestly, Sherm, I swear to you, I can't think of too many worse ways to spend 700 billion taxpayer dollars. Honestly, if we can afford to go 700 billion US dollars further into debt, let's rebuild our crumbling infrastructure. Let's send every kid to the college of his or her choice tuition free. Let's build a $700 billion monument to the great, the almighty, the all powerful, and all knowing William Jefferson Clinton and his lovely bride Hillary. Anything but this.

I do not believe for a second that we are going into a FDR depression S but that's just me. I could be wrong.

I will say again (maybe if I say it enough...) that the one change that will ease the credit crunch is a SEC regulation change regarding the rules of writing to the market. If that is done, this Wall Street bailout is not necessary.

"I will say again (maybe if I say it enough...) that the one change that will ease the credit crunch is a SEC regulation change regarding the rules of writing to the market. If that is done, this Wall Street bailout is not necessary."

Well Aaron I came across that term for the first time last week.

I posted here and asked if anyone knew what it means and got no response.

So can you explain what "writing to the mkt." means?

First, I was wrong, it's not write to market, it is mark to market.

It's not that easy to explain if you're not an accountant or an ecomonist. You can start here and I'm confident you'll do just fine.

I found out what "mark to market" means. It's when you hold an instrument with a due date. For instance, a certificate of deposit comes due on a certain date. You pay so much for the thing and it matures on a certain date and it is worth a certain pre-determined amount of money. If you cash it in early you don't get all the money. What they want to do is re-value their more questionable loans to sell now. It is mostly an accounting practice that allows them to put a realistic value on the asset and not state its value as the amount due at maturity.

Well how does that solve the current meltdown?

Or do you agree that it will?

(Is it safe to assume that that practice would have a negative impact on their reporting of what they are worth and how they are doing?)

Right now, all of these mortgage backed investment funds are "losing money" because the assets (homes) are losing money simply because the market says they are losing money. This is because the homes have to be priced on their 'market' value instead of their 'book' value.

We all know that these homes are not losing value and won't over time. If anything, the value will increase which is why I believe Lehman Brothers, who took no government money and doesn't have to worry about paying creditors, can set on their assets and over time, as the value increases, come out of this smelling like a rose when the TRUE market value of their assets are realized and they aren't required to pay a bunch of money back to the government or another private industry for 'bailing' them out.

Newt Gingrich writes in Forbes to suspend this practice here. The article does provide links to two leading economist who agree with him. I hope you don't let the fact that the article was written by Newt sway you from reading it.

Here is a commentary written by two economist from First Trust in Chicago.

The Senate is going to vote on the bill the HOR voted against when the sun goes down with a few additions to hopefully entice house Republicans to flip their support for the bill.

The only problem is, this is unconstitutional. The constitutional specifically states that All spending bills must originate in the the House or Representatives.

The reason we have more Repsentatives is they answer directly to the people and their wishes, which is what happened on Monday. Now the Senate is overstepping their boundries.

Seems to me that the best thing to do would be to come up with a good bill that addresses the real problems and doesn't just throw money at it.

Senate to vote on bailout package by Stephen Collinson
1 hour, 16 minutes ago


WASHINGTON (AFP) - The US Senate votes Wednesday on a revised 700-billion-dollar Wall Street bailout after the House of Representatives rejected the original package, sending shockwaves through global markets.

The surprise vote, following pleas from President George W. Bush for quick action before the US economy slumps into a deep recession, is expected after sundown on Wednesday when the Jewish Rosh Hashanah holiday ends.

In a bid to build Republican backing for the bailout in the House, the Senate bill will include measures to extend tax cuts set to expire and an expansion of federal insurance for bank deposits to 250,000 dollars.

"Senate Democrats and Republicans believe it is essential that we work quickly on this important legislation to restore confidence to our financial system and strengthen the economy," said Senate Majority leader Harry Reid.

"It is my hope that with the improvements we have made to the administration's proposal the Senate will pass the legislation tomorrow (Wednesday) and the House of Representatives will follow suit soon after," he said.

source