4 ms·

That's a great analogy. There's a brick wall looming up ahead, and we just cut the line to the brakes.

davidw 18y ago
Like I said, to be honest I do not know if it is in any way an accurate analogy, but it seems to capture the sentiment I hear from some economists saying "yeah, giving money to people who screwed up sucks, but the alternative is much worse".
- davidw 18y ago
  Looks like I'm not the only one who plain doesn't know: http://www.marginalrevolution.com/marginalrevolution/2008/09/the-best-and-wo.html http://www.marginalrevolution.com/marginalrevolution/2008/09...
gscott 18y ago
Maybe the banks and whomever else holds mortgages will start to seriously restructure mortgages to generate cashflow from those so far behind and feeling hopeless they have just stopped paying altogether. This way the following doesn't collapse: http://www.nomoneylimitsblog.com/blog/_archives/2008/1/10/3458664.html http://www.nomoneylimitsblog.com/blog/_archives/2008/1/10/34...
- Xichekolas 18y ago
  I think one of the commonly held misconceptions about this whole 'bailout' thing is that fixing the mortgage market NOW will fix the problem. Fixing the mortgage market in 2006 might have helped, but it also might not have. We'll never know. While subprime mortgages got this whole ball rolling, the credit crisis extends way beyond that now, and has taken on a life of its own. This bailout plan was to try and fix the credit crunch by restoring confidence in the financial sector, taking toxic assets off their books, and giving them a more stable capital base. The housing crisis is now a separate issue, and if lawmakers want to address it, it should be in a separate bill. If the housing crisis continues, it hurts a lot of people that made bad borrowing decisions and it hurts a lot of banks that made bad lending decisions, but the turmoil is mostly in the financial/construction/materials sectors. If the credit crunch continues, just about anything could fail unexpectedly, including things as diverse as insurers and big manufacturers, which could leave a lot of people out of work, and turn this from a Wall St crisis into a Main St crisis.
  - gscott 18y ago
    No one clicked on my link above or they would have understood what I meant.
    - netcan 18y ago
      I did. No offence, but it's a poor explanation. Actually I think it's flat wrong. There's a crucial link in the chain she is missing.
      - gscott 18y ago
        If you mean the credit default swaps, those are worthless pieces of paper peddled by companies that didn't have the means to keep up with those contracts. In other words, they are fraudulent. There was one hedge fund that setup a company with $4.5 million dollars to be able to cover a possible default of into the billions. Those contracts are worse then worthless and should be annulled like a marriage to Britney Spears.
        netcan 18y ago
        This is what I meant: "You deposit $100,000 into a CD. The bank creates three loans based on the original $100,000 deposit. Loan /Asset #1 = $90,000 Loan/Asset #2 = $81,000 Loan/Asset #3 = $72,900. The total = $243,900 in assets for the bank. This is $243,900 in new money."... ..."After it pays you 5% interest, the bank has made a tidy profit of $238,900. ($243,900 - $5,000 = $238,900.)" The crucial link that wasn't mentioned is that when as loan is issued that money is returned to a bank as a deposit (usually). Only then can then re-issue it as a loan.
kingkongrevenge 18y ago
Pumping in a huge amount of government debt and credit is hitting the accelerator, not hitting the brakes. Cheap credit is the fuel that produced the mess.
- run4yourlives 18y ago
  I disagree. The bailout gives us more time to find out where the brake pedal is, so that we can press it. We're already speeding towards the wall whether we like it or not.
  - kingkongrevenge 18y ago
    I think it's more like putting on a gorilla mask and hanging our ass out the passenger window while screaming like tarzan, so we can find the choke cable. The car analogy is stupid. There is no brake and there is no gas pedal. There is a natural balance between savings, loan interest rates, and consumer demand. What's happening now is that demand and savings rates are trying to return to their natural balancing levels after having been knocked out of whack by fake interest rates. The powers that be don't like that rebalancing, but it will happen one way or the other. Government can only exacerbate the process (and make certain insiders rich at public expense). The simple fact is that thousands of businesses NEED to go under and lots of people NEED to lose their jobs. Many of the businesses and jobs were created to service demand that doesn't really exist. The demand was an illusion created by fake cheap credit. The faster this process is run through the better the ultimate outcome.
    - run4yourlives 18y ago
      In that case, will you be declaring bankruptcy and putting everyone that much closer to recovery then? No? Then I don't see how it's seen to be acceptable to demand that action of others. The effects of the crunch will go much further than fat cats on wall street.
      - kingkongrevenge 18y ago

Like I said, to be honest I do not know if it is in any way an accurate analogy, but it seems to capture the sentiment I hear from some economists saying "yeah, giving money to people who screwed up sucks, but the alternative is much worse".

davidw 18y ago
Looks like I'm not the only one who plain doesn't know: http://www.marginalrevolution.com/marginalrevolution/2008/09/the-best-and-wo.html http://www.marginalrevolution.com/marginalrevolution/2008/09...

gscott 18y ago

Maybe the banks and whomever else holds mortgages will start to seriously restructure mortgages to generate cashflow from those so far behind and feeling hopeless they have just stopped paying altogether. This way the following doesn't collapse: http://www.nomoneylimitsblog.com/blog/_archives/2008/1/10/3458664.html http://www.nomoneylimitsblog.com/blog/_archives/2008/1/10/34...

Xichekolas 18y ago
I think one of the commonly held misconceptions about this whole 'bailout' thing is that fixing the mortgage market NOW will fix the problem. Fixing the mortgage market in 2006 might have helped, but it also might not have. We'll never know. While subprime mortgages got this whole ball rolling, the credit crisis extends way beyond that now, and has taken on a life of its own. This bailout plan was to try and fix the credit crunch by restoring confidence in the financial sector, taking toxic assets off their books, and giving them a more stable capital base. The housing crisis is now a separate issue, and if lawmakers want to address it, it should be in a separate bill. If the housing crisis continues, it hurts a lot of people that made bad borrowing decisions and it hurts a lot of banks that made bad lending decisions, but the turmoil is mostly in the financial/construction/materials sectors. If the credit crunch continues, just about anything could fail unexpectedly, including things as diverse as insurers and big manufacturers, which could leave a lot of people out of work, and turn this from a Wall St crisis into a Main St crisis.
- gscott 18y ago
  No one clicked on my link above or they would have understood what I meant.
  - netcan 18y ago
    I did. No offence, but it's a poor explanation. Actually I think it's flat wrong. There's a crucial link in the chain she is missing.
    - gscott 18y ago
      If you mean the credit default swaps, those are worthless pieces of paper peddled by companies that didn't have the means to keep up with those contracts. In other words, they are fraudulent. There was one hedge fund that setup a company with $4.5 million dollars to be able to cover a possible default of into the billions. Those contracts are worse then worthless and should be annulled like a marriage to Britney Spears.
      - netcan 18y ago
        This is what I meant: "You deposit $100,000 into a CD. The bank creates three loans based on the original $100,000 deposit. Loan /Asset #1 = $90,000 Loan/Asset #2 = $81,000 Loan/Asset #3 = $72,900. The total = $243,900 in assets for the bank. This is $243,900 in new money."... ..."After it pays you 5% interest, the bank has made a tidy profit of $238,900. ($243,900 - $5,000 = $238,900.)" The crucial link that wasn't mentioned is that when as loan is issued that money is returned to a bank as a deposit (usually). Only then can then re-issue it as a loan.

kingkongrevenge 18y ago

Pumping in a huge amount of government debt and credit is hitting the accelerator, not hitting the brakes. Cheap credit is the fuel that produced the mess.

run4yourlives 18y ago
I disagree. The bailout gives us more time to find out where the brake pedal is, so that we can press it. We're already speeding towards the wall whether we like it or not.
- kingkongrevenge 18y ago
  I think it's more like putting on a gorilla mask and hanging our ass out the passenger window while screaming like tarzan, so we can find the choke cable. The car analogy is stupid. There is no brake and there is no gas pedal. There is a natural balance between savings, loan interest rates, and consumer demand. What's happening now is that demand and savings rates are trying to return to their natural balancing levels after having been knocked out of whack by fake interest rates. The powers that be don't like that rebalancing, but it will happen one way or the other. Government can only exacerbate the process (and make certain insiders rich at public expense). The simple fact is that thousands of businesses NEED to go under and lots of people NEED to lose their jobs. Many of the businesses and jobs were created to service demand that doesn't really exist. The demand was an illusion created by fake cheap credit. The faster this process is run through the better the ultimate outcome.
  - run4yourlives 18y ago
    In that case, will you be declaring bankruptcy and putting everyone that much closer to recovery then? No? Then I don't see how it's seen to be acceptable to demand that action of others. The effects of the crunch will go much further than fat cats on wall street.
    - kingkongrevenge 18y ago