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Thursday, September 25, 2008

Comments

Howard,

I have to admit this whole economic crisis has me confused! When I hear Warren Buffet say this crisis is equivalent to Pearl Harbor and that Congress needs to pass this bill now I don't understand yours and others opposition to it. If as so many people are saying that our economy will collapse without some relief I have to believe them. By the way isn't this package supposed to be an "investment" since the government should be able to sell these assets in the future and at least break even?

Bill,

I certainly understand your concerns and confusion.

Here is where I'm coming from. No one really knows if in fact the economy will collapse if this "rescue package" isn't passed. That's one reason I'm against it - there is no clear argument that it will result in a collapse. I don't believe it will, but that's just my opinion. However, there are just as many "experts" saying it won't work OR it's a temporary fix that will put us back in the same position down the road. I happen to believe it would be a temporary fix that could put us in worse shape later.

If the plan is passed, basically what we will have is an artificial stock market. We will be worse off as investors because of values more bogus than they are today. Will you be able to trust stock prices bolstered by federal funds? Will you be able to trust stock prices for companies that know they can be bailed out in the future? In my opinion, we simply set ourselves up for another downturn which could be worse and another bailout and a deeper and deeper hole for future generations to dig out.

I know the government keeps saying they can sell the assets in the future, but they don't know that - they are bad loans! They certainly don't know if they can break even or make a profit. They likely will spend anything they get on oversight committees and government red tape. And why should we trust them or the companies they are bailing out on future promises? They certainly have given us no reason to believe they can handle business functions.

I think those of us in the stock market might benefit from this plan in the short term which is a huge selling point for those that need their investments stabilized in the short term. But I think this is a horrible deal in the long run. I, for one, am willing to take the risk now and send these companies and our government a strong message. I'm not so sure it is a bad thing long term if the market crashes. Believe me, that is hard to say as I know it would be devastating for millions of people. But I think the integrity of economic future and the future of the next generations and the future of the country itself could be significantly compromised by opening this Pandora's box.

Of course, that's just my opinion.

Regarding "experts" in any field, keep in mind the phrase, "Follow the Money". While I would like to believe what experts tell me, I have to be skeptical enough to ask how what they say may benefit them.

Compare Buffet's past business models of how to invest and see if there is something in this bailout package that would put money in his pocket. Likewise, T. Boone Picken's plan for windmill programs leads me to believe that he would benefit from "tax breaks" from the government. Just today, the news announced that tax breaks would be available for alternative energy investments.

In reality, I put more stock in Howard's opinion because I firmly believe that Howard is an honest man. That is evident in his willingness to admit in his journal his mistakes, rather than hide them from his readers.

Thanks for all you do, Howard. You are a valuable source of information for many of us. And history may show that "Howard's Rant" needs to be taught in colleges.

OK Howard....way to bust a bubble!!! I had mine all spent and now you tell me I would only get $425 bucks! OH GEEE now that wont buy that new trailer...

Joe and Sherri

Howard,

Thanks for your comments. Too many "experts" are saying this is the worst financial crisis in our country's history. That sure got my attention!

I suggest you watch Jim Cramer's Mad Money on CNBC tonight. He's predicting DOW 8378 if Congress does not pass the Paulson plan! I know, a lot of people think he's crazy, but he's been around and knows what he's talking about. I for one don't want to see our retirement nest egg disappear because Congress is afraid to act! He has lots of other comments so watch and then let me know what you think.

Thank you Terry. :)

As a follow-up, I just watched a Congressman on a financial program saying they will likely have a bailout bill passed by Sunday.

He said "My office is getting calls 10 to 1 against this bill." His colleagues are getting the same thing, but they are still going to pass it.

He went on to say that it is a no-win situation for the politicians. "If we pass it and the economy improves, people will say the economy would have improved without it. If we pass it and it fails, we will certainly hear it."

That's what I'm talking about when I say our representatives have no respect for us or fear of us. They are passing this bill against the wishes of those making their voices heard.

And it sounds to me like they are going to the roulette table and saying "put it all on red" and crossing their fingers. Yeah, I'd be happy to do that too with somebody else's money.

Contrary to what he said, I think this bill is absolutely a no-lose situation for the politicians. Elections are coming up. They get to go home and beat their chests and say look what we did, we saved the economy. They will get to say that because I'm sure the bill will help the market in the short run. But then, in a few years when we have to do this all over again, the politicians that passed this bill will be long gone.

How about adding this provision to the bill? "If the bailout bill doesn't work, or if another bailout bill follows within ten years, or if the national debt is not gone within ten years, all government pensions will be revoked for those that voted for the bill." Now there is a bill with some teeth! :)

It's a sad day when we hand over the future of our country in the form of $700B+ of reward with zero correction of the problem. We'll be right back to this emergency when the next bubble starts to burst. When you see the attempts to go back on coal shale ban and the stimulus rebate scheme being added in you know this is a "put up" job. We're being taken advantage of and the people who are doing it will be back to Congress again. I don't have grandkids but if I did I'd be very concerned. Our insistence upon "getting free" stuff is ruining our great country for them.

Howard you said you live in Kentucky. I just paid my tags here in Florida on my 17000 pound Day Dreamer by Cedar Creek. I hear in Kentucky this would cost me thousands a year instead of the 37.01 I paid here in Florida. Is this internet rumor?

Jimbo

Capital Markets. Enormously complex and the very center of the world economy. Frankly, the Paulson Plan is NOT a "bailout" of anyone and it is NOT a "fix" for the stock market. It is a mechanism to free up the capital that we all use from businesses to ATM machines to car loans to credit cards. Many good businesses are now unable to get credit to meet payroll or buy materials to fill orders. Sonic, Pilgrims Pride, the list is growing. When they can't get credit to make payroll or products that is when the their stock drops. When banks can't sell loan packages (exchanging loans for cash) so they can then issue more consumer/biz loans, then consumer/biz buying stops which then stops more business which then stops the economy. So, the Paulson plan addresses the very ROOT of the problem – the capital markets – and not the symptoms (like stock market, business failures). JPMorgan just bought the assets of WaMu. In time, JPM will make a large profit on that buy - that's why they did it – sound business reasons. Paulson proposes to buy the rest of those type of assets (no bank can absorb the amount outstanding) and as the govt can sit on them while they regain pricing value. The Govt will make money – just like JPM will, the capital markets need the temporary cleansing so we can get paychecks and fill orders. Yep, the stock market will also be happy because business is happy. See, everything flows from those capital markets. BTW, when the yield on Treasuries goes negative (people willing to PAY to put money into the safety of the Govt) things are beyond dire.

RVDude,

You are much more knowledgeable in this area than I. I agree that this situation is extremely complicated.

But please explain to me how taking bad loans off of corporations' books is not a bailout for those companies that might fail otherwise. If I understand this correctly, our government is giving them cash to replace the bad loans. :)

Say I made a loan to a neighbor for $1,000 and he couldn't pay me back because he lost his job. Tell you what. You give me a thousand dollars and I'll assign you the loan. That sounds like a bailout for me. And you can get your $1,000 plus interest when my neighbor gets a new job - if he gets a new job. Now, do you really want to make that deal?

Now maybe you would want to do that deal if you gave me $500 in return for the potential to get $1,000 plus interest. Do you know if the plan calls for buying these assets at a discount and if so how much discount? That might make the deal more palatable.

I understand that our government is trying to free up capital to free up lending. But tell me what prevents the lenders from making bad loans again. Tell me what prevents the corporations from over-borrowing. Tell me what prevents our government from throwing another few hundred billion at the problem when this happens again. Tell me what guarantee we have that the government can sell these bad loans later - what is going to change to make these loans "good" for re-sale.

And if the idea is to free up capital, why do we have to put that capital in the hands of companies that mismanaged it in the first place? Aren't there numerous other ways to do it?

I simply don't trust the motives of the plan, and I haven't been convinced that it is absolutely necessary.

But, I'm open for an education. :)


If the government takes on these bad mortgage debts, just how will they make money? I think the demographics are against it, just like they are against funding for Social Security. There is a huge bulge in a graph of population by age - the baby boomers (of whom I am one), with smaller numbers of people in the younger generations. Just who is going to buy all these homes? I'm afraid that even without this current crisis we were in for a long slow decline in home values anyway. I've watched the value of our retirement portfolio (401k and an IRA) shrink to the point now where our own RV Dreams are fading away, and I am one of the ones who definitely doesn't have the time to make up the difference. What's so distressing is to see this happen even when you 'played by the rules'. Perhaps the people who made the rules in the first place really didn't know what they were doing...? What really galls me is how stockholders can be so stupid as to allow corporate boards to OK these massive golden parachutes for failed CEOs... Where I work, there are pay-for-performance programs with annual performance reviews... who reviews the performance of CEOs? And why aren't their any negative consequences for poor performance, just as there would be for me?

Heck, one way I could more than make up for my losses is to become another failed CEO.... it wouldn't even take a whole year. And then I'd be sitting pretty, under the current system at least... I mean think about it. How long would it take to spend a $70 million total package so that you had nothing to show for it at the end that couldn't be converted back to some amount of cash if you needed it?

Howard:

Your post has stimulated a lot of great debate but you over-simplify the problem.

The financial institutions that are at risk are not the ones that made the bad loans. They simply created a market for them by packaging and securitizing them for investors--something that the federal government encouraged because it made home ownership possible for more Americans. They purchased these mortgages believing that the federal government was overseeing the loan originators as required by law. Our government created this problem, not Merrill Lynch, AIG, Bear Sterns or any of the others through bad regulation and lack of oversight. Now, they need to fix it.

I'm not certain what the solution is, but I do know that a lot more is at risk than just stock prices. Our entire financial system is on the brink of collapse.

Having read some comments have left me shocked. Does anyone really TRUST the morons we have in congress to actually make us any money with this bailout transaction? Someone tell me ANY government agency that actually works for us the taxpayer. Remember folks were the employer and as far as I can see we did a really bad job hiring these employees.

I'm so glad to see us debating these very important issues. It's healthy.

And I'm going to keep it going. I still haven't seen enough proof that we are in for an economical collapse if this plan does not go through. Plus I've seen lots of different definitions of "collapse" some of which aren't so bad.

What I've seen is panic creating more panic. However, assuming I were to give in and say some type of "rescue plan" is necessary, why aren't we seeing many other alternatives. As some have said, this is an extremely complicated issue, so why are there only one or two plans on the table? Don't underestimate the political aspects of getting a bill passed fast so the congress can go home and campaign before their seat goes up for grabs in November.

And I still see just as many "experts" that say the economy will work its way out of this without a rescue IF we stop feeding the fear. Also, I've heard folks supporting the plan say that they have no idea if it will work, but we have to do it for psychological reasons to stabilize the ecomomy.

For those "experts" that say the plan is absolutely necessary, those experts that supposedly know way more about capital markets than all of us, where were they PRIOR to the current situation? If anyone should have seen this coming, it should have been them. So why weren't they shouting from the rooftops vehemently? I have my opinion on that. :)

No matter what I think, a bailout bill is going to get passed. It'll probably be good for Linda & I, at least in the short-term. And I sure hope I don't have to say "I told you we would be doing this again" in a few years, but I'm afraid that opportunity will arise. :)

The last thing I'll say in this comment is I'm glad we don't have kids or grandkids. I certainly wouldn't want to be in their shoes once the baby boomers all retire and the current level of tax revenue is gone.

Whew! My brain hurts now. We may not be able to control how our congressional friends vote on this but we can control the future of our congressional friends. Are you registered to vote? If not, then shut up until you are and you actually vote. If you are, then I'll see you at the polls in November!

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