A Bailout for All Our Bad Decisions?

[Woodmonkey]

I am worried for our country -- not so much because of the tumult in the financial markets but because of the federal government's response and its implications.

It seems that each new crisis is met with a new answer from the government. After Hurricane Katrina, the federal government assumed roles traditionally handled by state and local governments. After the Sept. 11, 2001, attacks, the government federalized 25,000 workers through the Transportation Security Administration. The example of security-focused countries such as Israel, which elects to have that function handled by the private sector, did not matter. Now, our federal government is likely to commit three-quarters of a trillion dollars -- more than last year's Pentagon budget -- to a bailout based on what happened in the credit markets last week.

An ever-expanding scope of federal commitment and power is not what made this country great. Expanded power in one place comes at a cost in other places. American cornerstones such as individual initiative and an entrepreneurial spirit -- born in free and open societies with private property rights and the rule of law -- have never fit particularly well within the context of an ever-growing federal government.

For 200 years, the "business model" in our country has rested on a simple fact: that while one may reap rewards from taking risks, one should also be prepared to face the consequences of those risks. Some of the proposed actions with regard to the credit market turn that business model on its head -- absolving those who took too much risk, or bought too much house, from the weight of their own choices. If Congress passes the proposed bailout, we will be destined to have far greater problems in time, leaving those who are prudent in their finances to foot the bill for those who are not.

I am not writing to criticize Treasury Secretary Henry Paulson. I respect his business judgment greatly, and his unenviable task is to find a short-term solution to problems grown by government over the long term. Whether his proposals are right or wrong is less the issue than the question of where we are, as a society, in terms of having government in the business of protecting people from their own financial decisions.

Last week's events were rooted in distressed mortgage securities whose optimistic values were facilitated by quasi-governmental entities Fannie Mae and Freddie Mac. The investment banking capital write-downs were turbocharged by the Sarbanes-Oxley Act, which did what too many laws do -- it fixed yesterday's problem. The amazing expansion of credit was fueled by a Federal Reserve offering an easy-money policy that led us right into a credit bubble. All this was made worse by the government enabling some people's tendency to want more house than they can afford.

With that bubble popped, we will now go through a major financial de-leveraging. It will be painful. Yet to preserve what has made this country great, we need to be on guard against Washington offering endless cures to our ills.

Many of the "cures" that are soon to be offered will have one thing in common -- telling us what others did wrong. Instead of listening to these, each of us as taxpayers must admonish those in Washington to get their own financial house in order. Washington is the master of creative and unsustainable finance, with $50 trillion in unfunded promises.

We will be told of bailouts that "won't cost anything." We should caution policymakers that this has never been the history of bailouts, and remind them of Milton Friedman's suggestion that the capitalist system never works without loss. Investment titans recently featured in Vanity Fair trading $60 million beach homes should never be sheltered from this old-fashioned concept.

We will be told of "temporary" funds and programs. We should remind our leaders of Ronald Reagan's words that the closest thing to eternal life is a government program.

We will be told "trust us" on pricing assets, and we should not -- because no matter how pure one's intentions, no one watches your money like you do. This makes transparency and open bidding incredibly important.

If we do these things right, we will weather the very rough patch ahead and be better for it as a country. If we do not, there will be more parallels between our nation and Edward Gibbon's "The Decline and Fall of the Roman Empire" than we would like to imagine. The difference lies in each of our hands.

Mark Sanford, a Republican, is governor of South Carolina. He represented South Carolina for three terms in the U.S. House and was formerly employed by Goldman Sachs.

The Source

[ptco911]

WaMu was seized by the FDIC and ended up being bought by Morgan Stanley. It was the largest bank collapse in US history. Yet the CEO (17 days on the job) got a $20 million golden parachute. My opinion let the banks fail. The government has no business buying up all of the bad loans. This is doing nothing but perpetuating socialism in this country.

[leobold1]

Originally Posted by ptco911

WaMu was seized by the FDIC and ended up being bought by Morgan Stanley. It was the largest bank collapse in US history. Yet the CEO (17 days on the job) got a $20 million golden parachute. My opinion let the banks fail. The government has no business buying up all of the bad loans. This is doing nothing but perpetuating socialism in this country.

Actually, it was JP Morgan. I've already gotten e-mails from them hoping I won't pull my money out, as if the few bucks I have there will make that much of a difference.

Capitalism means more failure than success. How many start-up companies fail in the first year? In any industry?

But, we never hear about them. We hear the government say how the economy is strong, and we've heard that for decades. How much of that was a pipe dream and how much of it was putting a good face on a disaster in the making?

If Bush had told us the truth and nothing but the truth (and Clinton, Bush Sr, Reagan, Carter, Ford, all the way back to Washington) would this have happened in 2005 or 2006...or even before that?

We'll never know.

I've made this prediction on other boards, and now I'm making it here.

You can go to your bank Monday and you'll find two things. First is new and long term members of a bank going in and demanding to see the paperwork on it before they open or continue their account.

Second is, the banks will have them, and they'll look rosy and healthy. You could have done the same at WaMu Tuesday and seen the same thing.

I don't think there will be any bank runs, but there will be a lot more people who get hard checks going to a check cashing store to get their money.

[BrianK]

I don't understand why anyone would use a bank for anything. I thought that having to keep $500.00 dead money in a checking account was stupid. There are places to put money to work [gain decent compounded interest monthly] that have no cost checking features. That and insured accounts.

Previous NAV 9.89
Previous NAV Date 09/24/2008
Dividend Rate 0.0436
Dividend Pay Date 09/02/2008
Ex. Dividend Date 08/29/2008
30-Day Yield % 6.06%
Offer Price (POP) 9.85
Load % 0.00%


All brokerage accounts at ***** Brokerage Services LLC are carried by National Financial Services LLC, a separately registered broker/dealer and a ***** Investments company. The Securities Investor Protection Corporation (SIPC) protects customer accounts up to $500,000, with a limit of $100,000 for cash balances. Money market funds are not considered cash balances and are protected up to the $500,000 limit.

Naturally I've taken out the name of the brokerage service since I don't want this to seem like advertising for them.

Banks don't typically pay a dividend on checking accounts & for sure not a yield of .0436% on the balance. What really amazed me was banks wanted me to put $500.00 aside in their bank to have a checking account. NO THANKS.

I noticed in the article that the author mentioned the lack of financial thinking it takes to be debt free. I agree that our gov. shouldn't be bailing out those that bought more than they had the money to pay for. That sector of the public might learn a valuable lesson if they are allowed to lose what they couldn't afford. I think bailing out the credit abusers is the wrong thing to do.

At the rate this country is racking up debt the Mexican Peso will have more value than the dollar. We could wind up being a needy 3rd. world country if credit is paid for by dollars that don't yet exist.

[leobold1]

We could wind up being a needy 3rd. world country if credit is paid for by dollars that don't yet exist.

The main problem is that the credit issued is paid by dollars that don't exist, except on a computer screen.

[leobold1]

Bailout bill, once 3 pages, swells in length - Yahoo! News

Bailout bill, once 3 pages, swells in length

By The Associated Press
22 minutes ago

A week ago, it totaled just three pages — the White House's request for $700 billion to rescue tottering financial institutions by buying their devalued mortgage-related assets.

By Monday, after an intense weekend of negotiations, the draft of the bailout legislation before Congress had swelled to 42 pages.

By Friday, after almost a week of marathon talks between Treasury Secretary Henry Paulson and key lawmakers in both parties, the working version was up to 102 pages.

It likely will grow even longer as negotiators continue to tweak the proposal this weekend, adding and subtracting key elements.

Rep. Barney Frank, D-Mass., the House Financial Services Committee's chairman, was optimistic Friday that a final agreement could be reached by Sunday.

[Scrappy]

Originally Posted by leobold1

Capitalism means more failure than success. How many start-up companies fail in the first year? In any industry?

Historically in the first year over 84% die in the first year over all without support. Who cares, one man's idealistic dream. That's what we should not discuss here. I'm sorry or you if you don't like what I'm about to say, that is your problem, when we bail out these financial institutions, people should be jailed if not executed who decided to lend to those who could not afford it. On a personal level, no man who cannot afford his payment because he cannot afford it, should have a sheriff take him and his family, and the deputies throw their belonging out on the road and the intrinsic value of the home returned to the lender. That's the fiduciary trust that all must have. All is laid to waste if no trust.

Yea, this may seem hard, but inflated economies are the pride of men. Not of God.