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I still cant figure out why we are bailing out financial companies instead of bailing out consumers directly. I realize Obama is going to do some sort of tax re

I still cant figure out why we are bailing out financial companies instead of bailing out consumers directly. I realize Obama is going to do some sort of tax rebate again, but it seems like it would be more straightforward to take all of this money and use it to pay off American taxpayers credit cards, mortgages, student loans, etc. And it could be done in a fair way, capping the payments at the amount of taxes you paid in the last couple years, and capping payments for people above 100k income or something. This would solve the financial problems of the companies because, ideally, less consumers would be defaulting on loans and would continue their normal business. On the other hand, leaving consumers out of this whole deal doesn't help the taxpayers and continues to burden them to pay both debts and higher taxes. I'm no economist, but knowing that I'll be paying for these bailouts later on regardless (through taxes), I'd rather skip the filtering through a few handfuls of failing companies and just go straight to the source. If there is some solid reasoning for this, I'd love to read about it. Everything I've read seems to just assume that bailing out the corporations is the only way, but doesnt really provide any critical discussion of why. Brian

potatolicious 18y ago
Bailing out individuals (in the cases you mention) makes no sense either. People keep saying that we need to hold banks and investors accountable for the risks they knowingly took. In the same logic, we must also hold individual consumers accountable for their own actions. Why should I, a responsible, fiscally conservative individual who has very little debt, bail out someone who's swimming in their own material extravagance, living beyond their means from credit card to credit card? Why do I, a person who has never owned a big-screen TV in my life, bail out someone who couldn't keep their wallet in their pocket despite not having the money? Don't get me wrong, there are plenty of people who are in debt despite their best efforts - we should be helping these people, who I believe are a minority of all people in debt. Likewise, many of the same homeowners who are getting wiped out mortgaged for a house that was well beyond their income to support. My folks had a number of opportunities during the last bubble to "trade up" - sell our house (which had appreciated massively) and trade up to something larger, so we can flip it for an even higher price later. They didn't, because they didn't believe in a free lunch, and they were perfectly happy with the house they lived in. I despise how we are blaming banks and investors for their greed (they were greedy) but we look at all consumers as victims. Everyone is screaming for the banks' blood - let them burn for their own irresponsibility... so why can' we let consumers do the same?
- time_management 18y ago
  Don't get me wrong, there are plenty of people who are in debt despite their best efforts - we should be helping these people, who I believe are a minority of all people in debt. You are wrong on the Internet. Most people in debt are in that situation because of uncovered medical bills.
  - potatolicious 18y ago
    Hmm... Point taken. My perspective is distinctively Canadian, and massive unpaid medical bills are quite rare around here :S The majority of "poor" people I know personally are there because of their own indiscretions.
    - krschultz 18y ago
      Yes but in the US, the vast majority of bankruptcies are due to our crappy healthcare. A better fix would be to work out a health care system that didn't have such a terrible side effect and then those in bankruptcy would have done something wrong rather than being screwed by a crappy deal in life.
      - time_management 18y ago
        The motto of for-profit medicine: "Save the body, ruin the life".
  - ig1 18y ago
    citation ?
    - time_management 18y ago
      http://newstandardnews.net/content/?action=show_item&itemid=1439 http://newstandardnews.net/content/?action=show_item&ite... I'm slightly wrong. It's "half", as "most" requires that the proportion be strictly greater than 50.0%. I'm off by epsilon. Also, I meant to say "in bankruptcy"-- or, more appropriately, "in unmanageable debt"-- rather than "in debt".
jcl 18y ago
I think part of the problem is that we already have bailed out consumers directly -- we just haven't paid for it yet. Thanks to changes in governmental regulations, a lot of people got to live in houses that they couldn't afford, and banks used these mortgages as a base to loan out more money than was safe given the risk. With all the extra loan money around, we've all been enjoying a better economy than we otherwise would have, for years. And now we pay for it.
- Brushfire 18y ago
  Sure. I agree with you. But the problem is that it takes two to tango. As an earlier poster pointed out, both parties are at fault -- the consumers for being frivolous and the banks for allowing it. With that in mind, why are all the bailouts going to banks? Id rather we bail out no one, but if we are going to do it, there seem to be more efficient and effective means out there. Again, I'm not really making a statement as much as I am looking for a logical reason why banks are preferable to consumers. Are you sailing the consumer bailout was the prequel to the whole situation?
  - jcl 18y ago
    My admittedly limited understanding of the situation is: Banks (and consumers!) made some dubious mortgages. Then financial services companies packaged up the mortgages into derivatives that were bought and sold on the market as investments. Suddenly, someone realized that the component mortgages were not as sure as they thought; word gets around, and everyone tries to sell off the derivatives at once. This ordinarily would not be a big problem -- investments are expected to fluctuate in value -- except a lot of banks were holding the derivatives as assets. Banks are only allowed to lend out a fraction of their assets, and the assets are valued based on the price they can be sold. When the derivative market crashed, suddenly these banks couldn't lend out any money at all. At this point, the $700 billion plan made sense to me: they'd buy up the derivatives, propping up the market so that the banks could lend money again. But now I don't know what's going on... It sounds like they're just giving the money directly to the banks. Which by some arguments might make more sense than giving it directly to consumers: banks make loans to businesses. If the money is given to consumers, it might eventually find its way to banks and businesses through consumer spending, but it would take a lot longer, and banks and businesses might fail in the meantime. But it does feel like a big pie-grab, now.

potatolicious 18y ago

Bailing out individuals (in the cases you mention) makes no sense either. People keep saying that we need to hold banks and investors accountable for the risks they knowingly took. In the same logic, we must also hold individual consumers accountable for their own actions. Why should I, a responsible, fiscally conservative individual who has very little debt, bail out someone who's swimming in their own material extravagance, living beyond their means from credit card to credit card? Why do I, a person who has never owned a big-screen TV in my life, bail out someone who couldn't keep their wallet in their pocket despite not having the money? Don't get me wrong, there are plenty of people who are in debt despite their best efforts - we should be helping these people, who I believe are a minority of all people in debt. Likewise, many of the same homeowners who are getting wiped out mortgaged for a house that was well beyond their income to support. My folks had a number of opportunities during the last bubble to "trade up" - sell our house (which had appreciated massively) and trade up to something larger, so we can flip it for an even higher price later. They didn't, because they didn't believe in a free lunch, and they were perfectly happy with the house they lived in. I despise how we are blaming banks and investors for their greed (they were greedy) but we look at all consumers as victims. Everyone is screaming for the banks' blood - let them burn for their own irresponsibility... so why can' we let consumers do the same?

time_management 18y ago
Don't get me wrong, there are plenty of people who are in debt despite their best efforts - we should be helping these people, who I believe are a minority of all people in debt. You are wrong on the Internet. Most people in debt are in that situation because of uncovered medical bills.
- potatolicious 18y ago
  Hmm... Point taken. My perspective is distinctively Canadian, and massive unpaid medical bills are quite rare around here :S The majority of "poor" people I know personally are there because of their own indiscretions.
  - krschultz 18y ago
    Yes but in the US, the vast majority of bankruptcies are due to our crappy healthcare. A better fix would be to work out a health care system that didn't have such a terrible side effect and then those in bankruptcy would have done something wrong rather than being screwed by a crappy deal in life.
    - time_management 18y ago
      The motto of for-profit medicine: "Save the body, ruin the life".
- ig1 18y ago
  citation ?
  - time_management 18y ago
    http://newstandardnews.net/content/?action=show_item&itemid=1439 http://newstandardnews.net/content/?action=show_item&ite... I'm slightly wrong. It's "half", as "most" requires that the proportion be strictly greater than 50.0%. I'm off by epsilon. Also, I meant to say "in bankruptcy"-- or, more appropriately, "in unmanageable debt"-- rather than "in debt".

jcl 18y ago

I think part of the problem is that we already have bailed out consumers directly -- we just haven't paid for it yet. Thanks to changes in governmental regulations, a lot of people got to live in houses that they couldn't afford, and banks used these mortgages as a base to loan out more money than was safe given the risk. With all the extra loan money around, we've all been enjoying a better economy than we otherwise would have, for years. And now we pay for it.

Brushfire 18y ago
Sure. I agree with you. But the problem is that it takes two to tango. As an earlier poster pointed out, both parties are at fault -- the consumers for being frivolous and the banks for allowing it. With that in mind, why are all the bailouts going to banks? Id rather we bail out no one, but if we are going to do it, there seem to be more efficient and effective means out there. Again, I'm not really making a statement as much as I am looking for a logical reason why banks are preferable to consumers. Are you sailing the consumer bailout was the prequel to the whole situation?
- jcl 18y ago
  My admittedly limited understanding of the situation is: Banks (and consumers!) made some dubious mortgages. Then financial services companies packaged up the mortgages into derivatives that were bought and sold on the market as investments. Suddenly, someone realized that the component mortgages were not as sure as they thought; word gets around, and everyone tries to sell off the derivatives at once. This ordinarily would not be a big problem -- investments are expected to fluctuate in value -- except a lot of banks were holding the derivatives as assets. Banks are only allowed to lend out a fraction of their assets, and the assets are valued based on the price they can be sold. When the derivative market crashed, suddenly these banks couldn't lend out any money at all. At this point, the $700 billion plan made sense to me: they'd buy up the derivatives, propping up the market so that the banks could lend money again. But now I don't know what's going on... It sounds like they're just giving the money directly to the banks. Which by some arguments might make more sense than giving it directly to consumers: banks make loans to businesses. If the money is given to consumers, it might eventually find its way to banks and businesses through consumer spending, but it would take a lot longer, and banks and businesses might fail in the meantime. But it does feel like a big pie-grab, now.