TARP and Other Bailouts

[Patricius Maximus 236]

This is an offshoot from Fox News Sues Federal Government.

This thread is for general discussion about the US/UK government intervention in the economy, commonly referred to as "bailouts" or "rescue packages".

I'll withhold my views on the matter for a while, as the discussion gets going .

Please observe the Current Events rules, and keep a reasonable level of civility.

[_Atticus 10]

Well, I'll start. I'm all for the bailout, 100%. I don't have time to go into it right now, but there it is.

-Pingangster

[ILL Tonkso 1,236]

I agree our economies need saving before it effects the general population too much, it has already effected the British High Street with big names such as Zavvi and Woolworths now gone forever. One thing that concerns me though is that only a fraction of these bailout costs could end world hunger...

It is a difficult decision really, save the banks and corporations but if we can afford that?...

[_Atticus 10]

World hunger is a wholly different issue. Let's not even go into that            

 -Pingangster

Edit: I agree though, it is a difficult decision.

[Callbat 8]

The bailout can be potentially helpful, but without proper planning and oversight your money will easily end up paying for fuel for the jets of CEO's. So we need to plan it and oversee it to the highest degree possible and scrutinize every move the money makes, and show these companies that the people of the public mean business.

[Duke87 1,070]

Well, I hold that in free market capitalism, the government has no business getting involved.

Taxpayer dollars are public money. Their proper use is on public projects. Simply handing them over to private companies to save their sorry asses after they do stupid things and get themselves into trouble is just wrong.

Those companies (banks and otherwise) need to be held accountable for their actions. If the consequences of that are that they go bankrupt, so be it. They only get what they deserve if that happens. There's not enough personal responsibility in this country. Let the banks lie in the graves they dug for themselves, I say. Same goes for those car companies.

Besides, it's not possible to bail out everyone and everything. The only fair and proper thing to do is bail out no one and nothing.

[_Atticus 10]

I agree with you that in normal circumstances, taxpayer money should go only to public works, and the government should not intervene in the market. However, this, I'm afraid, is not a normal circumstance. I don't care about the banks either, and under normal circumstances I wouldn't even consider the possibility of even maybe "bailing them out" like the government has done. However, these are not normal circumstances, and letting these companies collapse would, like it or not, devastate the country's financial system - and the world's for that matter. And letting the car companies go would create a loss of about 12 million jobs, some estimate, including all the people whose jobs depend on the car industry, without necessarily working directly for the car companies.

So, what's more important, a principle, or the well-being of the country?

[krbe 193]

Originally posted by: pingangster So, what's more important, a principle, or the well-being of the country?quote>

What about the very principles the nation is built on? As it doesn't disappear in a puff of logic even though the Congress turns itself into a federal Soviet, someone have to stand up for them.

[duack 14]

I think it would be better that if instead of bailing out businessess, everyone should get like a thousand dollars. Thats what they did in Australia (a thousand dollars for me ) and I'll just give this short explanation as to why -

In an economy, individuals all have a different marginal propensity to consume (big scary word). Basically it means, if you give someone a thousand dollars, how much of it would they spend. Low and middle income people will spend around 80 to 100% of it, becuase they are spenders.

Lets say, the 700 billion was given to low and middle class americans and everyone got like 2000 dollars. About 80% of that would be spent really quickly. Now this is the amazing part - all those billions of dollars that has just been spent means profits for businessess. Sure some will go to China, but most of it will stay in Americans. This will mean increased incomes for most, and increased income means more spending, and more spending means higher incomes and very quickly, (like in a year) the effect of the 700 billion is HUGE, and would run into the trillions. 

This scenario would expand the economy, making it grow.

Now lets look at what happens if the money is used to bailout businessess. 

700 billion is given to businesses. This would mean that the huge, innefficient companies dont go bankrupt, so people don't lose there jobs. So basically, the economy doesn't get worse but doesn't get any better either, it just has very little growth or decline.

Not only that, but if the money is given to the people, they will probably spend it on the cheapest products, seeing as how they just climbed out of a debt pool. And we all know that cheap things are made more efficiently, as that is why they are cheap, so the efficient businessess survive. 

Sorry for the essay

[Patricius Maximus 236]

Alright, now time to add in my views to this discussion.

My views generally fall on the left wing of the economic spectrum. Nevertheless, I am a capitalist.

I believe in the economic system of capitalism, simply because it works, it is sustainable, and produces the most economic prosperity of any system yet envisioned.

I also believe in government regulation of the economy -- but only those regulations which benefit the people the government serves. An example of this is anti-monopoly regulation, country of origin labelling, and the FDA in the United States.

I am against the TARP because it solely benefits the corporations in a desperate bid that they will use their blank checks to lend to consumers to attempt to perpetuate the insolvency bubble. I am also against every single similar government program to date because of the same reason.

Capitalism works best by a process akin to natural selection. If a company cannot survive, they go bankrupt. If there is still a need for that product, new companies come in to fill the void. When the weak companies are propped up by the government, the result is stagnation and a gradual degeneration of the economy and the standard of living.

I'm no economist, but these are my views on the economy, and they have historically worked.

Preserving capitalism by destroying it does not preserve it.

- Patricius Maximus

[Ntq€310 1]

I aggre with Patricius on this.

But for the sake of the economy i think the Bailout was a good idea. If the Banks went down most of the economy would go down with it, and the nation could easily be put on the economy stand still. Atleast that is what i think would happen. But i would have liked it also if the Goverment took more time with the bailout, made rules, and really thought about it, and they could have looked at other opitions also.

But Really the whole problem seemed surprising.

In a week the Entire economy goes to hell, and Paulson aswell the rest of the goverment are saying we gotta pass a 700 billion dollar bailout or everything is done the tube. I understand the sub-prime loans were a ticking bomb, but just the way it happend almost seems to played out to me.

But we will be discussion the reasons, causes, how to stop it, ect for awhile now. And i really just hope we learn something over this.

[panthersimcity4 162]

Originally posted by: Duke87 Well, I hold that in free market capitalism, the government has no business getting involved.

Taxpayer dollars are public money. Their proper use is on public projects. Simply handing them over to private companies to save their sorry asses after they do stupid things and get themselves into trouble is just wrong.

Those companies (banks and otherwise) need to be held accountable for their actions. If the consequences of that are that they go bankrupt, so be it. They only get what they deserve if that happens. There's not enough personal responsibility in this country. Let the banks lie in the graves they dug for themselves, I say. Same goes for those car companies.

Besides, it's not possible to bail out everyone and everything. The only fair and proper thing to do is bail out no one and nothing.quote>

I agree with you somewhat on companies having to deal with the problems they got themselves into. However its a bad idea to cause people to lose their jobs and wind up living under the bridge. So this issue is kind of a lose-lose:

If you do the bailout then the rich spoiled companies never learn.

If you don't do the bailout thousands will lose their jobs and live in poverty.

[Duke87 1,070]

Obviously, there are pros and cons to both sides of the issue. I never said no bailout was a glorious magical thing that would not have any downsides to it. The question is what you consider more important.

But, see, here's the rub:

Recessions and unemployment spikes are temporary. Taking actions to try and mitigate them which violate the principles a nation is founded on leaves scars that never heal.

The bailout is a great example of something which is nice short term, but in the long run does more harm than good.

Human tendency is to be focused on the here and now. People don't think about the long term effects of things too much since psychologically they seem less important. But they are not.

[duack 14]

Its just like when you have a pimple. When you get a pimple, you should wait for it to disappear by itself. Attempting to get rid of it will result in a scar.

Much in the same way, innefficient producers should not be saved. If the money was given to the consumers, then they would determine which businesses survive and which go bankrupt, which is usually better. Plus, you'll be helping the low and middle class instead of wealthy business owners.

[Patricius Maximus 236]

I aggre with Patricius on this.

But for the sake of the economy i think the Bailout was a good idea. If the Banks went down most of the economy would go down with it, and the nation could easily be put on the economy stand still. Atleast that is what i think would happen. But i would have liked it also if the Goverment took more time with the bailout, made rules, and really thought about it, and they could have looked at other opitions also.quote>

The economy went to hell during the Great Depression in that way, but it came back strongly afterwards without bailouts. Every single recession North America has ever had we've come out of it, and without such action.

Yes, a lot of banks would fail. Yes, turmoil would ripple through the economy. Yes, a lot of jobs would be lost. Yes, we would come out of it, stronger than before, and with better companies.

Recessions and depressions are as much part of capitalism as the boom time is. If you don't want the risk, go with a Soviet-style economy, but don't expect the boom times to return.

Much in the same way, innefficient producers should not be saved. If the money was given to the consumers, then they would determine which businesses survive and which go bankrupt, which is usually better. Plus, you'll be helping the low and middle class instead of wealthy business owners.quote>

I do agree that, if they money had to be used, that it should have been given to the citizens. However, I don't think that a stimulus package of that nature is the right thing to do in this current state to stimulate the economy.

Economic stimulus packages don't stimulate the economy, but they sure do stimulate people's bank accounts. If the government wishes to do this, then that would be the best way to do it.

[Voar Tok 4]

Originally posted by: duack I think it would be better that if instead of bailing out businessess, everyone should get like a thousand dollars. Thats what they did in Australia (a thousand dollars for me ) and I'll just give this short explanation as to why -

In an economy, individuals all have a different marginal propensity to consume (big scary word). Basically it means, if you give someone a thousand dollars, how much of it would they spend. Low and middle income people will spend around 80 to 100% of it, becuase they are spenders.

Lets say, the 700 billion was given to low and middle class americans and everyone got like 2000 dollars. About 80% of that would be spent really quickly. Now this is the amazing part - all those billions of dollars that has just been spent means profits for businessess. Sure some will go to China, but most of it will stay in Americans. This will mean increased incomes for most, and increased income means more spending, and more spending means higher incomes and very quickly, (like in a year) the effect of the 700 billion is HUGE, and would run into the trillions. 

This scenario would expand the economy, making it grow.

Now lets look at what happens if the money is used to bailout businessess. 

700 billion is given to businesses. This would mean that the huge, innefficient companies dont go bankrupt, so people don't lose there jobs. So basically, the economy doesn't get worse but doesn't get any better either, it just has very little growth or decline.

Not only that, but if the money is given to the people, they will probably spend it on the cheapest products, seeing as how they just climbed out of a debt pool. And we all know that cheap things are made more efficiently, as that is why they are cheap, so the efficient businessess survive. 

Sorry for the essayquote>

I hate to shoot your idea down, but this isn't even close to how it works.  Increased economic spending will not mean increased incomes.  Why?  Because if you give everyone a thousand dollars, they won't be a large enough force alone to produce a large enough revenue base for companies to start feeling like they can afford to increase their worker's salaries.  On top of that, the companies are the ones that are going to need to have the money.  Well, they create the products and they are the ones that have to have money to hire you, so if they get 80% of that money through sales, the money they're receiving isn't worth the same amount to them.  The short and simple of it is that a dollar given to them is worth more than a dollar from a product sold.  On top of that, you also have to look at the side impact of things.  What would be the financial loss to Detroit if Ford, Chrysler, and General Motors all went out of business?  The damage would be huge to put it mildly.  Giving the entire public a lump sum of money wouldn't account for situations like that where an entire city or region is going to live or die based on a few companies in the area.

On top of that, the public would either hoard the money or spend it on smaller ticket items.  We're talking stuff that's $500 or less.  And to be honest, if the average consumer had any sense, they wouldn't be spending the money at all.  Economies are never rebuilt on the backs of people without jobs, so it makes more sense to keep the jobs around rather than the make an incentive for people to spend more by giving them a little extra cash.  Who's going to spend more - the person with a job or the person who doesn't have a job and isn't going to have for the forseeable future?  So long as people have jobs, they will spend.  So long as people spend, the economy will not go entirely in the toilet.  When mass numbers of people lose their jobs, there goes the economy.  And the other thing that's important - the economy won't truly start to recover until people start more luxury items.  Sales of foodstuffs may go down, but the agricultural market is much safer from total disaster than the market for flat screen TVs.  People sitting on a limited quantity of money and no job aren't going to be the ones buying the luxury items.

Another thing that greatly needs to be stressed is the statement you made about people just climbing out of a debt pool.  This is not an accurate reflection of the average American.  Most Americans have not gone into massive debt because of this.  They either had it already or they still have roughly where they were at.  And on top of that, the idea that cheap products are made more efficiently isn't really relevant to this discussion.  Cheap products don't mean that they're made more efficiently - it just means that they're cheap.  Efficiently produced goods have a tendency to be cheaper than their counterparts, but for example - computer chips are produced incredibly efficiently.  They're still going to be more expensive than rubber balls.  Which one serves a greater good to the economy?

Much in the same way, innefficient producers should not be saved. If the money was given to the consumers, then they would determine which businesses survive and which go bankrupt, which is usually better. Plus, you'll be helping the low and middle class instead of wealthy business owners.quote>

Inefficient producers should not be saved - in a normally working economy.  Consumers should determine which businesses survive and which ones don't - in a normally working economy.  When the economy is in a funk like this one, you don't want businesses closing down.  On top of that, wealthy business owners are actually a good thing.  Everyone hates them, but stop and think for a moment.  These people that everyone hates so much make it possible for you to afford to eat.  The following is a pretty well known fact among the business world.

When the poor suffer, the poor suffer.

When the middle class suffer, the poor suffer and so does the economy.

When the rich suffer, everyone suffers.

These people make our jobs.  Kill their ability to provide for themselves and their business, and I guarantee everyone reading this that it'll hurt you worse than it'll hurt them.

[TheSixCents 0]

I am sorry to all you Adam Smith "Invisible Hand" economists out there, but the current structure of the world market is not a simple supply and demand system. It has become incredibly artificial, that without intervention it will collapse. Its unfortunate but the truth.

To Patricius Maximus...

"The economy went to hell during the Great Depression in that way, but it came back strongly afterwards without bailouts. Every single recession North America has ever had we've come out of it, and without such action."

Ever heard of the New Deal?

[Patricius Maximus 236]

Inefficient producers should not be saved - in a normally working economy.  Consumers should determine which businesses survive and which ones don't - in a normally working economy.  When the economy is in a funk like this one, you don't want businesses closing down.quote>

How do you determine if an economy is working normally or not? How do you determine what is normal and what is not?

Businesses shouldn't close down? That is rediculous. In a functioning economy, businesses that cannot make it have to close down so that the economy does not become a collection of bloated, oversized corporations on life support from the government, and the inefficient producers will be perpetuated.

That fits in with my earlier comment on destroying capitalism to preserve it. Destroying it does not preserve the capitalist system. It puts in a hybrid fascist-socialist system. Do you want that?

On top of that, wealthy business owners are actually a good thing.  Everyone hates them, but stop and think for a moment.  These people that everyone hates so much make it possible for you to afford to eat. The following is a pretty well known fact among the business world.

When the poor suffer, the poor suffer.

When the middle class suffer, the poor suffer and so does the economy.

When the rich suffer, everyone suffers.

These people make our jobs.  Kill their ability to provide for themselves and their business, and I guarantee everyone reading this that it'll hurt you worse than it'll hurt them. quote>

Alright, so you are saying that because the corporations provide compensation to people for services, then the government using those people's money has to perpetuate it if it is failing to compete?

There are ways to afford to eat other than providing services to corporations.

A lot of those wealthy people you speak of filled the void of a bankrupt company, drove their competition into Chapter 11, or went bankrupt themselves, and learned from that failure. If all that opportunity is eliminated, there will be far less rich people in the future to "make it possible for you to afford to eat."

I am sorry to all you Adam Smith "Invisible Hand" economists out there, but the current structure of the world market is not a simple supply and demand system. It has become incredibly artificial, that without intervention it will collapse. Its unfortunate but the truth.quote>

I do not consider myself one of those economists. A free market does not work on a pure supply and demand system. Government has to provide regulation that benefits the people and the market.

Perpetuating quasi-bankrupt corporations will only prolong the recession/depression and stunt future growth, it will not allieviate it.

- Patricius Maximus

[TheSixCents 0]

It worked in the Great Depression.

[Patricius Maximus 236]

Ah, editing your post. I'll respond to it here.

Ever heard of the New Deal? 

It worked in the Great Depression.quote>

Yes, I have heard of the New Deal. Yes, it did work. But it did not perpetuate failing companies by giving them blank checks from the government. It worked by assisting the people and inspiring confidence (e.g. Social Security, FDIC, CCC, infrastructure projects), not by perpetuating the existence of failed companies using the people's money.

[_Atticus 10]

I'm with Voar Tok.

As I said before, in a normally functioning economy, companies that are not viable should not be helped by the government. But this is evidently not a normally functioning economy.

If a few companies go bankrupt during prosperous economic times, it will not hugely affect the economy. But if 30 huge companies go down when the economy is already in a precarious state, then it will completely devastate it. It will create huge unemployment, which will drastically reduce consumer spending, which in turn will cause more companies go go bankrupt, and so on. And giving everyone $1000 dollars won't miraculously rescue the faltering economy either.

The economy went to hell during the Great Depression in that way, but it came back strongly afterwards without bailouts. Every single recession North America has ever had we've come out of it, and without such action.quote>

First, just because it happened in the 1930's does not mean it will happen now, the world is radically different from then.

Second, the economy came back mostly because of WWII, so it's not like it magically got better.

-Pingangster

[Meg 368]

Speaking of WWII, let's not forget that, during that time, US factories were cranking out an airplane a day.   Isn't it in the interest of our national security to retain some kind of manufacturing capability?

 

The US manufacturing sector has been shipped overseas, bit by bit.  Economically, I certainly understand why.  But I do believe it is in our best interests to retain some factories.  Being dependent on overseas sources during a war seems like a very bad idea.

 

 

[saltandsauce 0]

since i am midly socialist, i do think some companies neeed help (such as when a bimbo ends up controlling the sharesand runs it into the ground) but i don't like the way the whole "we give you money and you don't go bust" way of doing it

i prefer bailouts to be in the form of the government buying enough shares for majority control which means the government will be determined to keep top end pensions and benefits at sane levels and actually punish incompetent employees (not give them golden goodbyes) and it means publicc money can be recouped when the government sells those shares (usually for a higher price)

this is not nationalisation as the company does not have access to the public purse so even mild capitailsts could accept that way, it also stops jobs being lost and the social decay thaat follows that.

during the great depression, people with money clung on to it thinking that merely "waiting it out" would work - it didn't only when the government started employing people (through projects like the hoover dam) that money started moving and production starting to climb. so the hallowed "market forces" don't solve anything.

[_Atticus 10]

Originally posted by: SkiGeek Speaking of WWII, let's not forget that, during that time, US factories were cranking out an airplane a day.   Isn't it in the interest of our national security to retain some kind of manufacturing capability?

 

The US manufacturing sector has been shipped overseas, bit by bit.  Economically, I certainly understand why.  But I do believe it is in our best interests to retain some factories.  Being dependent on overseas sources during a war seems like a very bad idea. quote>

I'm glad you brought this up, I completely agree with this. Even though it goes against free-market ideals and WTO regulations, I believe it is very much in the interest of the US to retain its manufacturing sector, especially some of the heavier industries, such as auto-making, airplanes, etc.

It is important for two reasons: national defense and also to preserve jobs.

Should the US find itself in a war where it needs to produce massive amounts of armaments to fight a power like Russia, for example, it would need a strong manufacturing base to do so. That is one the main reason why Germany lost: American sheer manufacturing capability.

-Pingangster

P.S: I know this is completely off topic, but I felt I had to say it

[Meg 368]

I don't think it's off topic at all (of course I don't; I brought it up )

 

Part of the rationale to bail out manufacturing firms is that we need factories around.

 

Do I like giving money to those fools who are mismanaging their companies?  bleep no!  They have earned every bit of grief they are getting.

 

Do we have to nationalize the factories to keep them?   I do not like that idea for a variety of reasons.  Other people have gone over them so I won't repeat them.  But I have to admit that I don't have the magic solution.

[Voar Tok 4]

Originally posted by: Patricius Maximus

Inefficient producers should not be saved - in a normally working economy.  Consumers should determine which businesses survive and which ones don't - in a normally working economy.  When the economy is in a funk like this one, you don't want businesses closing down.quote>

How do you determine if an economy is working normally or not? How do you determine what is normal and what is not?quote>

Anything other than negative economic growth is a pretty good start.   There really isn't a good way to define normal, but anything other than the economy going in reverse is generally believed to be tolerable.

Businesses shouldn't close down? That is rediculous. In a functioning economy, businesses that cannot make it have to close down so that the economy does not become a collection of bloated, oversized corporations on life support from the government, and the inefficient producers will be perpetuated.quote>

In a normally working economy, they should close down.  This isn't normal.  Yes, it's a normal part of an economy, but in the same manner that disease is a normal part of human existence.  The analogy works out like this.  Recession is to an economy what the flu is to humanity.  When you get the flu, you take steps to get better.  You don't work as hard during it's duration and if things are bad enough, you look for outside help in the form of doctors and medicine.  Is it a normal part of life - yes it is.  However, you don't just sit around and act like it's not happening and go on with your life like normal.  The same concept applies to the economy when it's in a recession.  Now if it's not bad, then you don't worry about it.  This was a significant case though because banks were failing.  When the banks start failing, you have to look at what is going wrong and see if you need to intervene.  The bailout was a response to a lesson learned from the Great Depression.  If you have a bad recession and you do nothing to help stave it off, when people start making a run on the banks, you're screwed.  The banks have to stay open and functional.  If they don't, then you're really headed for a fun ride.

That fits in with my earlier comment on destroying capitalism to preserve it. Destroying it does not preserve the capitalist system. It puts in a hybrid fascist-socialist system. Do you want that?quote>

It's a very fine line to walk, but unless we feel like going through a semi-Great Depression again, it's going to be necessary.  To give an example of what I mean, after Galveston, TX was wiped out in the Hurricane of 1900, the authority of rebuilding the city was handed over to five men.  These men were virtual dictators - basically able to do what they wanted, when they wanted, how they wanted.  Nowadays, people would complete flip out - "they're trampling democracy!" - but looking back on it, historians all pretty much agreed that the city needed it and was better off with a small dictatorship after the hurricane. 

Besides, as things begin to take back off, the capitalistic system will once again resume normal functioning.  Right now, you don't want businesses closing down, because even legitimate businesses are not doing so well.  Are you sure that you're prepared to let pure capitalism solve this problem, because if we want to go down that road, the worst is just getting started.  Capitalism - even through the current laws allowed, would dictate that everyone who has a sub-prime mortgage on their house would have their mortgage called back in.  The repo man would be so busy he wouldn't know what to do with himself.  Millions of Americans would lose their homes in the blink of an eye.  What about the people who don't owe money on the house but have credit card debt?  Guess what - if you can't pay when MasterCard comes knocking, you can kiss your car goodbye because in some states (don't know how many) they can legally take any asset you own until your debt is paid off.  The public is not going to put up with that, but if we really want to just let capitalism solve it, I guess we can.

On top of that, wealthy business owners are actually a good thing.  Everyone hates them, but stop and think for a moment.  These people that everyone hates so much make it possible for you to afford to eat. The following is a pretty well known fact among the business world.

When the poor suffer, the poor suffer.

When the middle class suffer, the poor suffer and so does the economy.

When the rich suffer, everyone suffers.

These people make our jobs.  Kill their ability to provide for themselves and their business, and I guarantee everyone reading this that it'll hurt you worse than it'll hurt them. quote>

Alright, so you are saying that because the corporations provide compensation to people for services, then the government using those people's money has to perpetuate it if it is failing to compete?quote>

Not when things are working normally - as in something other than negative economic growth.  If I company can't cut it in a market when the market is doing well, let the thing wither on the vine and rot away.  But the key to recovering from a recession is people with jobs feeling confident enought to buy luxury items.  And if companies were just allowed to close by the masses now, we wouldn't be helping the economy by cutting away the inefficiency.  We'd be killing it further by guaranteeing that the public had even less opportunities to have jobs.  If General Motors, Ford, and Chrysler were all allowed to just sink because they couldn't cut it right now, then guess what would happen.  Unemployment would go up even more, increasing the competition for a job and the amount of money that would be going out to people on unemployment funding would skyrocket.  The Detroit economy would go bust and wouldn't make a recovery anywhere in the forseeable future.  And the economy would be even further down the crapper than it already is.  So, same question back at you - do you want that?

There are ways to afford to eat other than providing services to corporations.quote>

That's not the point.  Corporations provide jobs.  Jobs provide forms of income.  Income provides a means on which to live.  Let the corporations die and the jobs will go away, the income will stop flowing to millions of Americans, and a good percentage of them will be pushed over the edge and unable to recover.

A lot of those wealthy people you speak of filled the void of a bankrupt company, drove their competition into Chapter 11, or went bankrupt themselves, and learned from that failure. If all that opportunity is eliminated, there will be far less rich people in the future to "make it possible for you to afford to eat."quote>

Well, let's see what those wealthy people who made it rich through bankruptcy had to say about the bailout plan.

Congress: "We are not approving the so-called bailout plan!"

Dow drops 700 points in less than 24 hours.

Congress: "Oh crap!  We screwed up!"

Congress passes the bailout plan.

Those rich business men of which you speak made their point clear with their money - they aren't looking forward to the concept of bankruptcy and the promise of lessons that it might provide.  Very, very, very few people in the world have the means and the knowledge to take something like that and use it to catapult themselves back into their greatness.  It's not even realistic to expect a disaster to improve your situation.  Sure, it happens occassionally, but it's definitely not the norm.  No one ever got rich off of economic failure.  They only got rich when things started to turn around.  And the number of people who will be able to do that is very slim.

Perpetuating quasi-bankrupt corporations will only prolong the recession/depression and stunt future growth, it will not allieviate it.quote>

That's what they thought about the banks back in the start of the Great Depression.  We all know what happened there.

[Patricius Maximus 236]

So, you are saying in essence that in the normal functioning of capitalism (i.e. recessions), capitalism has to be abandoned? That makes no sense.

No one ever got rich off of economic failure.  They only got rich when things started to turn around.quote>

Precisely. But the failure has to happen before the turnaround happens. If not, there is nothing to turn around from.

In a normally working economy, they should close down.  This isn't normal.  Yes, it's a normal part of an economy, but in the same manner that disease is a normal part of human existence.  The analogy works out like this.  Recession is to an economy what the flu is to humanity.  When you get the flu, you take steps to get better.  You don't work as hard during it's duration and if things are bad enough, you look for outside help in the form of doctors and medicine.  Is it a normal part of life - yes it is.  However, you don't just sit around and act like it's not happening and go on with your life like normal.quote>

In people, the vast majority of those who have the flu get over it on their own, with minimal or no outside aid. In the same way, most economies and businesses get through a recession.

The same concept applies to the economy when it's in a recession.  Now if it's not bad, then you don't worry about it.  This was a significant case though because banks were failing.  When the banks start failing, you have to look at what is going wrong and see if you need to intervene.  The bailout was a response to a lesson learned from the Great Depression.  If you have a bad recession and you do nothing to help stave it off, when people start making a run on the banks, you're screwed.  The banks have to stay open and functional.  If they don't, then you're really headed for a fun ride.quote>

The main cause of the run on the banks during the Depression was the fear of failure. Back then, if a bank failed, you lost everything. Now the FDIC insures your account up to 100000 USD (temporarily 250000), so the fear of failure is not as great, as your money is safe up to that amount.

Also, people do not run on the banks when they are doing fine -- they run on the banks when failure is imminent. So, that line of reasoning is flawed.

It's a very fine line to walk, but unless we feel like going through a semi-Great Depression again, it's going to be necessary.quote>

No one feels like going through a depression. But do you not agree that going through a 5 year depression is better than going through a 15 year recession? That is what the bailouts will do -- stunt economic growth in the future because inefficient and failing companies are preserved by government life support.

Capitalism - even through the current laws allowed, would dictate that everyone who has a sub-prime mortgage on their house would have their mortgage called back in.  The repo man would be so busy he wouldn't know what to do with himself.  Millions of Americans would lose their homes in the blink of an eye.quote>

The vast majority of the people in subprime mortgages knew what they were getting into. They read the contracts, and they consented to sign them. Now, because their loan terms they agreed to are preventing them from paying their mortgage, they are asking the government to bail them out of their consented mess. Subprime mortgages carry risk -- they knew that.

Now, for those who did not read the contracts, or the mortgage company lied to them, they should not have their home repossessed because (to the best of my knowledge) that is not legal.

What about the people who don't owe money on the house but have credit card debt?  Guess what - if you can't pay when MasterCard comes knocking, you can kiss your car goodbye because in some states (don't know how many) they can legally take any asset you own until your debt is paid off.quote>

Well, guess what -- if you cannot pay your debts as they come due, you'd better declare bankruptcy. That is a part of capitalism as well.

But the key to recovering from a recession is people with jobs feeling confident enought to buy luxury items.  And if companies were just allowed to close by the masses now, we wouldn't be helping the economy by cutting away the inefficiency.  We'd be killing it further by guaranteeing that the public had even less opportunities to have jobs.quote>

Yes, it would help the economy if inefficiency were removed. Then when the recovery comes those people will find jobs with more security and with a better company. Also, if you want jobs in a recession/depression, why not have the government build infrastructure projects and put people to work? It worked in the Great Depression.

If General Motors, Ford, and Chrysler were all allowed to just sink because they couldn't cut it right now, then guess what would happen.  Unemployment would go up even more, increasing the competition for a job and the amount of money that would be going out to people on unemployment funding would skyrocket.  The Detroit economy would go bust and wouldn't make a recovery anywhere in the forseeable future.quote>

First of all, it is unlikely that all three of them will sink. Most likely two will sink. However, your predictions for the short term are correct. Jobs would be lost, and Detroit would sink into a hole.

But, people in America will still want to buy cars. Entrepreneurs in America will want to build cars to sell those people, because Toyota and Honda cannot satisfy every need of the Americans.

When those new companies congeal and grow, the first place they will be looking for growth is Detroit. Why? A vast pool of potential new jobs, of people who want to work. They will set up their plants there, and Detroit will recover within 25 years.

And the economy would be even further down the crapper than it already is.  So, same question back at you - do you want that?quote>

Well, no one wants the economy to go down, but it happens. If a company cannot stay afloat, it has to go bankrupt. Most often the companies who cannot stay afloat are inefficient producers that are not making what the consumer wants. The consumers go to other companies, and their income dries up.

For once, think about the long-term vitality of the economy, instead of worrying about short-term effects, because the long-term effects are the ones you will feel most.

That's not the point.  Corporations provide jobs.  Jobs provide forms of income.  Income provides a means on which to live.  Let the corporations die and the jobs will go away, the income will stop flowing to millions of Americans, and a good percentage of them will be pushed over the edge and unable to recover.quote>

Think about this -- they will recover when they get new jobs, and obtain a new source of income.

Congress: "We are not approving the so-called bailout plan!"

Dow drops 700 points in less than 24 hours.

Congress: "Oh crap!  We screwed up!"

Congress passes the bailout plan.quote>

A necessary functioning of the stock market during a recession or depression. Keep in mind that there was a rally beforehand caused by the prospect of a bailout. When the bailout was not passed, the traders did what they would have done the week before, only at a much faster rate.

That's what they thought about the banks back in the start of the Great Depression.  We all know what happened there.quote>

Yes, the economy capitulated, and started to turn around. That is not a bad thing.

Second, the economy came back mostly because of WWII, so it's not like it magically got better.quote>

Yes, that is true. The economy would not have come back as fast as it did without WWII. Without WWII, the economy would have still recovered, it just would have taken longer.

during the great depression, people with money clung on to it thinking that merely "waiting it out" would work - it didn't only when the government started employing people (through projects like the hoover dam) that money started moving and production starting to climb.quote>

I do agree with you that government infrastructure projects are a great way of jump-starting the economy. I'm not opposed to that kind of action -- I'm opposed to the bailout kind of action.

[_Atticus 10]

Originally posted by: Patricius Maximus So, you are saying in essence that in the normal functioning of capitalism (i.e. recessions), capitalism has to be abandoned? That makes no sense.quote>

This recession is not just any recession. This is possibly the most serious since the Great Depression. It is not part of normal functioning capitalism. Unregulated capitalism failed. Period.

In people, the vast majority of those who have the flu get over it on their own, with minimal or no outside aid. In the same way, most economies and businesses get through a recession.quote>

That analogy doesn't apply to our current situation. This recession is closer to a pneumonia, not a mere flu.

Then when the recovery comes those people will find jobs with more security and with a better company.quote>

It's not that simple. You have to get the economy to recover first. That's the trick.

Also, if you want jobs in a recession/depression, why not have the government build infrastructure projects and put people to work? It worked in the Great Depression.quote>

Once again, it's not that simple. If the Big Three went down, it would eliminate between 6 and 12 million jobs overnight. Can the government afford to employ that many people? Also, public works provide only temporary jobs, so they alleviate the problem without solving anything.

First of all, it is unlikely that all three of them will sink. Most likely two will sink. However, your predictions for the short term are correct. Jobs would be lost, and Detroit would sink into a hole.quote>

Not true. If two sink, the third will undoubtedly sink. Why? Because the three use the same network of suppliers, so if two of the three go, the suppliers do to, and with them the third.

But, people in America will still want to buy cars. Entrepreneurs in America will want to build cars to sell those people, because Toyota and Honda cannot satisfy every need of the Americans.quote>

For the third time, it's not as simple as that. New, efficient companies will not just appear out thin air.

When those new companies congeal and grow, the first place they will be looking for growth is Detroit. Why? A vast pool of potential new jobs, of people who want to work. They will set up their plants there, and Detroit will recover within 25 years.quote>

They would not go looking in Detroit for jobs. Those workers are the reason why the Big Three are doing so badly. The average auto worker in the Midwest makes around $60,000 a year, while the average auto worker in the South makes around $40,000. That is why foreign auto makers are able to make cars that are just as good with lower costs. Detroit is the last place where anyone would want to start a new auto business. So Detroit would never recover from a blow like that, at least not in 25 years.

Yes, that is true. The economy would not have come back as fast as it did without WWII. Without WWII, the economy would have still recovered, it just would have taken longer.quote>

Well it obviously would have recovered eventually. But how long would that have taken? Til the 50's?

-Pingangster

[hym 358]

Originally posted by: Patricius Maximus

If General Motors, Ford, and Chrysler were all allowed to just sink because they couldn't cut it right now, then guess what would happen.  Unemployment would go up even more, increasing the competition for a job and the amount of money that would be going out to people on unemployment funding would skyrocket.  The Detroit economy would go bust and wouldn't make a recovery anywhere in the forseeable future.quote>

First of all, it is unlikely that all three of them will sink. Most likely two will sink. However, your predictions for the short term are correct. Jobs would be lost, and Detroit would sink into a hole.quote>

Actually, it is very likely that all three would go down.  The auto industry is what economists know as an oligopoly.  Oligopolies are systems that are dominated by comparatively few corporations.  Because there are so few competing companies, each is largely aware of what the other is doing, each is (for better or worse) affected by the decisions of the other competitors, each has to plan for competitors' responses in ways that a normal corporation doesn't have to consider, and in the case of the auto industry, each is invested in the well-being of all the rest.  When Kirk Kerkorian sold his stock in Ford, GM lost money.  Why?  Because GM is invested in Ford, just like Ford owns part of GM.  And both own part of Chrysler, just like Chrysler likely owns part of Ford and GM.  The auto industry is like a house of cards; together they stand, but lose one and you might lose them all.  That's how oligopolies tend to work, and that is exactly how the US auto industry is.  The competitors are so tangled up in each other that it boggles the mind.  And this is after several years of serious attempts to detangle the industry.

But, people in America will still want to buy cars. Entrepreneurs in America will want to build cars to sell those people, because Toyota and Honda cannot satisfy every need of the Americans.quote>

They may want to sell cars, but wants don't always translate to abilities.  If you haven't noticed, nearly all cars sold in the US are made by a handful of companies, and there are no new upstart companies.  This is because it takes tens of billions to start a new automaker.  When Robert Lutz cobbled the Chrysler PT Cruiser out of Dodge Neon parts, it cost him $600 million, and the industry hailed that as being extraodinarily cheap.  Automakers are used to having to shell out over $1 billion just to make a new car.  That's pocket change compared to the billions needed to actually start a new company.

All that said, where exactly is an entrepreneur supposed to turn to secure the tens of billions in capital needed to start such a company?

When those new companies congeal and grow, the first place they will be looking for growth is Detroit. Why? A vast pool of potential new jobs, of people who want to work. They will set up their plants there, and Detroit will recover within 25 years.quote>

Actually, no.  If such a company did get off the ground, it would want to stay away from Detroit like it's diseased by the plague.  If you'll notice, Toyota, Honda, and Nissan are concentrating their plants in the South.  They are doing this because land is cheaper, the climate is more business friendly than up North, unions are finding it much harder to organize in the South, and companies are finding it radically easier to successfully fight unionization attempts should they occur.  Because of this and other factors, companies are finding that manufacturing is better suited to be located in the South.  Detriot is not the optimal place for the auto industry anymore.  GM, Ford, and Chrysler simply remain there because they are locked under the deathgrip of the United Auto Worker union.

[duack 14]

Okay, Ill try to put it nicely. The last fifteen years of economic management in the US were terrible. Since the early 80's, almost all developed economies have been growing strongly because the global economy was in its economic boom phase of the cycle. The only two economies I'm really familiar with are the US, and Australia so Ill use these two. They're also pretty similar so its a good example.

  In the early 80's, there was a crazy recession and people were saying "aww its the worst thing since the depression". Regardless of this recession, the australian government introduced a whole bunch of microeconomic reform. Very simply, it means killing off innefficient producers so efficient producers would get a greater market share, and reducing trade barriers allowing foreign producers greater access to australian markets. Unemployment skyrocketed and interest rates were at a whooping 17%. Needless to say, that prime minister lost the next election (and that party only just got re-elected after 12 years). At first it seemed like a bad idea but later, the positive effects were seen. Now the US hasn't gone through a much microeconomic reform as Australia has. It still has high trade barriers and innefficiency. 

  But now, in after one complete cycle of the business cycle, America is in reccession while australia continues to grow at 1.2% (slower than the 3% average but still good). Before this whole credit crunch dealy, unemployment in aus was at 4.3%. Now its at 4.4%. Nothing compared to the rise of unemployment in the US. And perhaps the most amazing statistic of all, Australia's government has zero foreign debt. In fact, other countries owe the government money! whereas in America, the government's debt is really high. 

Now there are few differences between Aus and US. Bopth are free markets, but Aus has slightly more government intervention. But in Aus, government funds go to businessess and individuals that have ptoential whilst in the US, they go towards the most wasteful things. For example, the elderly in Australia have terrible living conditions. Theyre payments havn't even kept up with inflation but the education sector, and grants for young people pursuing education are really good. Also businessess in australia aren't funded or protected. If you want to start a business, make it good or it'll die. 

My point simply is this, the american automakers are going down the drain. They're innefficient, and protecting them will only lead to another reccession. During the 80's reccession, the aust government allowed many companies to go bankrupt, while at the same time foreign producers obtained a large share of the australian consumer market. but now, Australia is one of the few, or only, developed economies that isnt in reccession. A reccession is no excuse to protect bad companies, which will only cause another reccession ten or fifteen years down the track. The one thing that the Australian government did do during the 80's that actually helped people was giving out money to low and middle income people, just like it is doing now. the middle class make up the majority of consumers in an economy, because they are so large. 

The bailout should not go ahead. It is a bad idea. From what Ive heard, barack Obama wants to help the middle class with tax cuts and extra money. This is the policy I agree with. Helping to grow the consumer market. Change is vital to an economy. Bankruptcy of large corps is a part of change. Globalisation is change. Change = economic posperity. There's an obvious link with the long example I just gave about microeconomic reform. Economies change all the time. Even with other countries there is a clear connection between economic prosperity and a country's market's ability to change.

Also, I think this has been mentioned earlier, but reccessions are way of favouring good companies. Just like with natural selection and evolution, during a reccession, the bad businessess are killed off, while the fit ones survive to grow and gain market share. The only good thing a government can do is give the consumers more money to choose which businessess survive. And when consumers choose, the efficient ones survive.

And as for the case of Detroit and it being practiacally ruined by bankruptcy of the major three, it should just be ignored. In Australia, a major city, Adelaide (population 1 million, 5% of all Australia) is going down the drain because businessess are leaving it. Every day, the number of jobs in Adelaide is reducing and its population is getting smaller as everyone leaves while they still can get a decent price for their house. Statistically, an average property in Sydney will get you 8 properties in Adelaide which is how bad it is. You can't stop failure, you have to just allow it.