Bailout seen as lesser of evils Government regulators fear allowing Citigroup to fail would lead to more chaos
By JEANNINE AVERSA, Associated Press First published in print: Tuesday, November 25, 2008
WASHINGTON — Taxpayers may be wondering why they're forking over more money to rescue yet another behemoth, Citigroup, even as their own nest eggs crack and jobs evaporate.
The answer is that Uncle Sam thinks letting Citi fail is unthinkable.
The government has decided that guaranteeing hundreds of billions of dollars in possible losses and injecting $20 billion more into Citi trumps the alternative — a panic that could leave retirement accounts and investment portfolios of millions of ordinary Americans in tatters and shove more people out of jobs.
Whether the government's rescue of Citigroup Inc., announced late Sunday, will ultimately prove a good deal for taxpayers is hard to tell. In part, that's because no one seems sure what Citi's troubled assets are actually worth.
If the gamble pays off, Citigroup would be back on firm footing, unhinged financial markets would recover and taxpayers would turn a profit. If it doesn't, taxpayers would take a hit. And they would possibly have to rescue still more huge financial institutions, digging the bailout hole even deeper...................
How the Wall Street Bailout works in layman's terms
Young Chuck moved to Texas and bought a Donkey from a farmer for $100.
The farmer agreed to deliver the Donkey the next day. The next day he drove up and said, 'Sorry son, but I have some bad news, your donkey died.' Chuck replied, 'Well, then just give me my money back.' The farmer said, 'Can't do that. I went and spent it already.' Chuck said,'Ok, then, just bring me th e dead donkey. The farmer asked, 'What ya gonna do with him?' Chuck said, 'I'm going to raffle him off.'The farmer said: 'You can't raffle off a dead donkey!' Chuck said, 'Sure I can. Watch me. I just won't tell anybody he's dead.' A month later, the farmer met up with Chuck and asked, 'What happened with that dead donkey?' Chuck said, 'I raffled him off. I sold 500 tickets at two dollars a piece and made a profit of $998.' The farmer said, 'Didn't anyone complain?' Chuck said, 'Just the guy who won. So I gave him his two dollars back.' Chuck now works on Wall Street for AIG.
-- The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance. Cicero - 55 BC
When the INSANE are running the ASYLUM In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. -- Friedrich Nietzsche
“How fortunate for those in power that people never think.” Adolph Hitler
Don’t bail out the fat cats, help the little guy instead
Giving billions of dollars in bailout money to the leaders of companies that have failed due to faulty leadership is simply stupid. Not that I expect better from politicians, but really, why can’t they design something that actually goes right to the guy at the bottom? Like me. If they want me to have some financial relief, all they have to do is make my mortgage payment twice a year. Maybe January and August. I don’t need much, just a little helping hand. I know if they give a billion to a bank, half of it will go to the lawyers who write up the contract and half of the remaining half will somehow line the top dogs’ pockets, and somehow the remaining quarter will go to somebody besides me. Even a loan directly from the government to me would be fine. Skip the middle men and get the help straight to the people who need it. Why do banks get 1 percent interest on loans when I have to pay 6 percent from the bank? Just give me the 1 percent loan, direct from Uncle Sam, and I’d be fine. Seems simple. Like me. BILL DENISON Burnt Hills
When we talk about blaming the leadership.....guess what?????......there has to be followers..........who were the followers???? Blind, deaf and dumb....
...you are a product of your environment, your environment is a product of your priorities, your priorities are a product of you......
The replacement of morality and conscience with law produces a deadly paradox.
STOP BEING GOOD DEMOCRATS---STOP BEING GOOD REPUBLICANS--START BEING GOOD AMERICANS
A SIMPLE STORY Once upon a time a man appeared in a village and announced to the villagers that he would buy monkeys for $10 each.
The villagers, seeing that there were many monkeys around, went out to the forest and started catching them.
The man bought thousands at $10 and, as supply started to diminish, the villagers stopped their effort. He next announced that he would now buy monkeys at $20 each. This renewed the efforts of the villagers and they started catching monkeys again.
Soon the supply diminished even further and people started going back to their farms. The offer increased to $25 each and the supply of monkeys became so scarce it was an effort to even find a monkey, let alone catch it!
The man now announced that he would buy monkeys at $50 each! However, since he had to go to the city on some business, his assistant would buy on his behalf.
In the absence of the man, the assistant told the villagers: "Look at all these monkeys in the big cage that the man has already collected. I will sell them to you at $35 and when the man returns from the city, you can sell them to him for $50 each."
The villagers rounded up all their savings and bought all the monkeys for 700 billion dollars.
They never saw the man or his assistant again, only lots and lots of monkeys!
Now you have a better understanding of how the WALL STREET BAILOUT PLAN WILL WORK!!!
Report says government ignored warnings of meltdown BY MATT APUZZO The Associated Press
WASHINGTON — The Bush administration backed off proposed crackdowns on no-money-down, interest-only mortgages years before the economy collapsed, buckling to pressure from some of the same banks that have now failed. It ignored remarkably prescient warnings that foretold the financial meltdown, according to an Associated Press review of regulatory documents. “Expect fallout, expect foreclosures, expect horror stories,” California mortgage lender Paris Welch wrote to U.S. regulators in January 2006, about one year before the housing implosion cost her a job. Bowing to aggressive lobbying —along with assurances from banks that the troubled mortgages were OK — regulators delayed action for nearly one year. By the time new rules were released late in 2006, the toughest of the proposed provisions were gone and the meltdown was under way. “These mortgages have been considered more safe and sound for portfolio lenders than many fixed rate mortgages,” David Schneider, home loan president of Washington Mutual, told federal regulators in early 2006. Two years later, WaMu became the largest bank failure in U.S. history. The administration’s blind eye to the impending crisis is emblematic of a philosophy that trusted market forces and discounted the need for government intervention in the economy. Its belief ironically has ushered in the most massive government intervention since the 1930s. “We’re going to be feeling the effects of the regulators’ failure to address these mortgages for the next several years,” said Kevin Stein of the California Reinvestment Coalition, who warned regulators to tighten lending rules before it was too late. Many of the banks that fought to undermine the proposals by some regulators are now either out of business or accepting billions in federal aid to recover from a mortgage crisis they insisted would never come. Many executives remain in highpaying jobs, even after their assurances were proved false. PROPOSED GUIDELINES In 2005, faced with ominous signs the housing market was in jeopardy, bank regulators proposed new guidelines for banks writing risky loans. Today, in the midst of the worst housing recession in a generation, the proposal reads like a list of what-ifs: Regulators told bankers exotic mortgages were often inappropriate for buyers with bad credit. Banks would have been required to increase efforts to verify that buyers actually had jobs and could afford houses. Regulators proposed a cap on risky mortgages so a string of defaults wouldn’t be crippling. Banks that bundled and sold mortgages were told to be sure investors knew exactly what they were buying. Regulators urged banks to help buyers make responsible decisions and clearly advise them that interest rates might skyrocket and huge payments might be due sooner than expected. ‘IT WAS SPOT ON’ Those proposals all were stripped from the final rules. None required congressional approval or the president’s signature. “In hindsight, it was spot on,” said Jeffrey Brown, a former top official at the Office of the Comptroller of the Currency, one of the first agencies to raise concerns about risky lending. Federal regulators were especially concerned about mortgages known as “option ARMs,” which allow borrowers to make payments so low that mortgage debt actually increases every month. But banking executives accused the government of overreacting. Bankers said such loans might be risky when approved with no money down or without ensuring buyers have jobs but such risk could be managed without government intervention. “An open market will mean that different institutions will develop different methodologies for achieving this goal,” Joseph Polizzotto, counsel to now-bankrupt Lehman Brothers, told U.S. regulators in March 2006. Countrywide Financial Corp., at the time the nation’s largest mortgage lender, agreed. The proposal “appears excessive and will inhibit future innovation in the marketplace,” said Mary Jane Seebach, managing director of public affairs. One of the most contested rules said that before banks purchase mortgages from brokers, they should verify the process to ensure buyers could afford their homes. Some bankers now blame much of the housing crisis on brokers who wrote fraudulent, predatory loans. But in 2006, banks said they shouldn’t have to double-check the brokers. “It is not our role to be the regulator for the third-party lenders,” wrote Ruthann Melbourne, chief risk officer of IndyMac Bank. California-based IndyMac also criticized regulators for not recognizing the track record of interest-only loans and option ARMs, which accounted for 70 percent of IndyMac’s 2005 mortgage portfolio. This summer, the government seized IndyMac and......................................http://www.dailygazette.net/De.....amp;EntityId=Ar02101
The bush Administration has got to take some responsibility for what happened to the economy but so does the Democratic controlled Congress for blocking any attempts to make any changes in the law that may have cost them votes. There's enough blame to go around for both parties and both have got to take responsibility for what has happened and stop pointing fingers at each other and fix the problem.
I'm sorry, if bankers are bankers then they know about risk......just because something is not illegal doesn't mean that it is profitable in the end......
Who are the 'thugs' here????
...you are a product of your environment, your environment is a product of your priorities, your priorities are a product of you......
The replacement of morality and conscience with law produces a deadly paradox.
STOP BEING GOOD DEMOCRATS---STOP BEING GOOD REPUBLICANS--START BEING GOOD AMERICANS
A SIMPLE STORY Once upon a time a man appeared in a village and announced to the villagers that he would buy monkeys for $10 each.
The villagers, seeing that there were many monkeys around, went out to the forest and started catching them.
The man bought thousands at $10 and, as supply started to diminish, the villagers stopped their effort. He next announced that he would now buy monkeys at $20 each. This renewed the efforts of the villagers and they started catching monkeys again.
Soon the supply diminished even further and people started going back to their farms. The offer increased to $25 each and the supply of monkeys became so scarce it was an effort to even find a monkey, let alone catch it!
The man now announced that he would buy monkeys at $50 each! However, since he had to go to the city on some business, his assistant would buy on his behalf.
In the absence of the man, the assistant told the villagers: "Look at all these monkeys in the big cage that the man has already collected. I will sell them to you at $35 and when the man returns from the city, you can sell them to him for $50 each."
The villagers rounded up all their savings and bought all the monkeys for 700 billion dollars.
They never saw the man or his assistant again, only lots and lots of monkeys!
Now you have a better understanding of how the WALL STREET BAILOUT PLAN WILL WORK!!!
(And, coming soon....stay tuned for the auto bailout)
In Earmarks Lies Salvation? by Patrick J. Buchanan Posted 12/09/2008 ET
In a deepening recession, what does the reasonable man do?
Seeing friends laid off, he will get rid of all but essential credit cards, dine at home more often, terminate unnecessary trips to the mall, put off buying a new car, give up the idea of borrowing on the vanishing equity in his house. He will begin to save and start paying down debt.
A company that has reached the limits of its credit and is staring at Chapter 11 will batten down the hatches, lay off nonessential workers, cut employee hours, put off expansion plans, cancel year-end bonuses and try to ride out the storm.
This is the natural behavior of people responsible for others in an economic storm of the magnitude of the category 4 hurricane heading our way. Yet, to see and hear our government, folks are doing exactly the wrong thing.
For the U.S. government is set to borrow on a colossal scale, unprecedented save in World War II, and to take America trillions of dollars deeper in debt to pick up the slack in the economy caused by the rational decisions of individuals and corporations.
The Fed, whose easy money policy created the housing bubble that has exploded in our faces, is back printing money and shoveling cash into the banks. And, though the Bush deficits are said to have been responsible for our troubles, a new Congress and president have advanced a deficits-be-damned, full-spending-ahead policy.
On top of Bush's $455 billion deficit and hundreds of billions in bailouts for AIG, Bear Stearns, Fannie, Freddie and CitiGroup, Obama is talking up a new stimulus package of $500 billion to $1 trillion.
Our governors and mayors -- who, facing deficits, had been cutting back -- have now reversed field and are demanding to follow the federal formula.
When Obama arrived at the National Governors Association Conference in Philadelphia, they pounced. Led by Pennsylvania's Ed Rendell, they handed Barack a bill: $138 billion. The governors want U.S. taxpayers to relieve them of what U.S. families face: the need to cut spending, pay down debt, make sacrifices, take pain and live within their means.
According to The Wall Street Journal, the mayors have now followed the governors' lead, declaring they have 4,100 projects "ready to go," which they want U.S. taxpayers to fund.
What are these projects?
Under the ever-popular rubric "infrastructure," they include roads, bridges, schools and public buildings. California Gov. Arnold Schwarzenegger says he has $28 billion worth "ready to go," which he would like folks in the other 49 states to fund.
Now, historically, bridges, highways, roads and public buildings have been regarded as pork. In the campaign, they were "earmarks" -- payoffs for powerful constituents, a form of political corruption that reformers like Barack and John McCain were going to end.
Now, it seems, earmarks are our salvation.
Why are governments at every level doing this?
Because government believes that the restoration of economic health requires us to act against our natural instincts in a recession, and start buying and financing new homes and cars, and get back to the malls, lest this Christmas season become a bummer for retailers.
After all, 70 percent of our gross domestic product is now based on consumption, though Americans in recent years have had a savings rate of zero.
The disconnect between the instincts of average citizens and the policies of government could not be greater. Governments want us to act prodigally, while natural instincts and inclinations are telling us to act conservatively.
Conservatism and capitalism are giving conflicting signals.
Average Americans are behaving as though in rehab, trying to kick a bad habit of spending more than they earn and borrowing more than they can pay back, while the U.S. government is suggesting that what we really need is to return to the auto showrooms and malls, and start spending again, only in radically increased dosages.
Beyond the present recession, questions arise as to whether the U.S. model is sustainable. If government spending were the remedy to recession, why, after Bush's deficits, are we in recession? And if the easy money of Ben Bernanke's Fed is the cure for what ails us, how did we get sick when Alan Greenspan's Fed was conducting a never-ending policy of easy money?
How does it stimulate the private economy to pump hundreds of billions of dollars into consumer checking and credit-card accounts, when more and more of what we consume -- from computers to cars to clothes -- isn't even produced in America anymore?
What do conservatives, few of whom have opposed the Obama plans and fewer of whom have called for repeal of Bush's big-spending social programs, believe is the alternative approach to ending the recession and creating a sustainable economy?
For the economy we have seems to be condemned to an ever-deepening and widening cycle of crises, each brought on by the cure for the previous crisis, which is always the same: more government.
Back in 1990, the Government seized the Mustang Ranch brothel in Nevada for tax evasion and, as required by law, tried to run it. They failed and it closed. Now, we are trusting the economy of our country and 850+ Billion Dollars to a pack of nit-wits who couldn't make money running a whore house and selling booze. Now if that don't make you nervous, what does???
When the INSANE are running the ASYLUM In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. -- Friedrich Nietzsche
“How fortunate for those in power that people never think.” Adolph Hitler
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