Thread: Bailout Bunk: We've Been Had

Bailout Bunk: We've Been Had

Wednesday, November 12, 2008 11:07 AM

By: Edward I. Koch

The I more think about it, the more I believe we were had when the federal government proposed that $700 billion bailout to primarily deal with the liquidity crisis.

At the time, nobody seemed to know what to do. When Secretary of the Treasury Henry Paulson and Federal Reserve Chairman Ben Bernanke jointly proposed the bailout in an attempt to avoid a repeat of the Great Depression, nearly everyone threw up their hands and concluded there was no alternative.

At first, some members of Congress — both Republicans and Democrats — balked at the huge bailout package. They said at the very least there should be some minimal safeguards since the legislation was drawn to give the secretary of the Treasury what appeared to be total power to determine how the bailout would be structured.

These concerns were addressed to some extent in the revised bailout bill which, among other things, staggered the bailout payments and provided for some congressional lending oversight for half of the $700 billion rescue package. Congress apparently assured that having waited and then passing the legislation on the second time it was presented to the House, it was in fact improved and would prevent our being ripped off by Wall Street for a second time.

We were told over and over by the experts in the news media and government that the real problem was in fact liquidity — banks were just not willing to lend, even to creditworthy applicants. I decided to write a letter to both Treasury Secretary Paulson and Federal Reserve Chairman Bernanke stating my concerns about the use of the federal guarantees and loans.

The letters follow:

October 9, 2008

Henry M. Paulson, Jr.
Secretary
Department of the Treasury
1500 Pennsylvania Avenue, N.W.
Washington, D.C. 20551

Ben S. Bernanke
Chairman
Federal Reserve System
20th & Constitution Avenue, N.W.
Washington, D.C. 20220

Gentlemen:

As you have pointed out, the meltdown occurring in the United States is taking place in large part because of a lack of available liquidity, meaning that lenders — commercial banks in the lead — are not lending to applicants seeking to borrow in order to purchase housing, cars and other big ticket items that the economy relies on to flourish, as well as denying loans to small businesses and local governments seeking to borrow to pay their bills with municipal bond markets largely closed to them.

One of the purposes of the $700 billion recently made available as a result of legislation enacted by the Congress is to give additional liquidity to commercial banking institutions so that they can once again perform their leading raison d’etre — lending money.

The major reason for lack of liquidity — availability of loans — is fear, as you have stated, fear that the money will not be repaid either by individuals, governments or institutions, e.g., other banks.

Again, as you have stated, another reason offered by the banks for not lending monies is that much of their assets are now labeled “toxic.â€

They say the problem is these hefty pensions and such and high pay because of unions. I know in this state we are paying taxes out the ying yang and the majority isn't for better service or anything....it's to cover pensions. I never had a job with pensions, haven't known anyone for ions who has........except some state employees. Employees who already make top dollar and then continue to pay the same thing while people working for less or using 401K's stand to loose everything trying to put something away. I personally don't understand it or exactly how it works. I thought it was originally ment to compensate low wages......but 200.000 a year isn't exactly what I consider "low" wages. So atleast from what I've heard....they are raking it in for not doing anything all that extra special than anyone else. Heck if you land a job in Chicago, you're fine for life after 3 years and can jump to the top with less than one year in a higher paid position. But we're paying full pensions for criminals, fired people, you name it. Anyone I knew who had it usually had to put alot of years in to qualify and then they started firing people just days before their qualification was complete to get out of it.

If you get a pension, do you also pay social security? I just know people can't work for dirt and have no options while we pay others for pensions that are outrageous while we're starving. I mean the vast majority of the cost of our cars are to cover pensions.......not for what it costs to make it and even pay the people now to build them. I know it was an agreement they made.....but it's something we can't afford to continue. Not in a "global" economy. With all our jobs going, no one's going to be able to buy their cars even if they bail them out. I remember when cars were a few thousand......not 25 to 45 thousand and counting. Wasn't it Ford who said he wanted to make a car his own employees could afford?

Great points, CB! But as on CNBC all day today, they have been arguing about whether to bail the auto industry or let 3-4 million Americans lose their jobs. Loss of more jobs would mean that we are in total economic collapse, since an estimated 10 million are already unemployed in this country, as there are no statistics on those folks who have given up and are no longer looking.
Folks who have managed to save up some money and invest in income-producing stocks and bonds, but have no employment have to pay taxes on any income like dividends and interest from that nest egg, doesn't matter how old and feeble you are.
And on a lighter note, the three anchors on CNBC's Squawk Box decided to form their own bank to get some of the bailout: winning name was Squawkovia Bank.

Michigan has been in a recession for years now. The rest of the country is just getting a small taste of what Michigan has been been living for a long time. Bailing out the car companies would help Michigan to some extent. The governor has taxed the hell out of Michigan and she's wanting to impose more gas tax, state tax, and increase the registeration fees on all cars.

The Democrats are largely responsible for the mess in Michigan as well as the cause for the rest of the country going into a recession. For one I think it wouldn't hurt for the government to bail out Michigan's auto industry to some degree. It would save jobs that are needed in Michigan, it's about all that's left there. Not to mention all the sub contractors that will be effected by not bailing out the big three. This will effect alot more states than just Michigan.

Why should only the fat cats on wall street be the only ones to be bailed out. They haven't felt any pinch in their pay checks as the rest of American's have. This is our money their passing out to the ones that caused the mess!!!!!

Now that a democratic president is coming to power, wait till the country is controlled by this team of thugs. You may be living in a recession as long as Michigan has.

"So how can we tell the difference between a recession and a depression? A good rule of thumb for determining the difference between a recession and a depression is to look at the changes in GNP. A depression is any economic downturn where real GDP declines by more than 10 percent. A recession is an economic downturn that is less severe.

By this yardstick, the last depression in the United States was from May 1937 to June 1938, where real GDP declined by 18.2 percent. If we use this method then the Great Depression of the 1930s can be seen as two separate events: an incredibly severe depression lasting from August 1929 to March 1933 where real GDP declined by almost 33 percent, a period of recovery, then another less severe depression of 1937-38. The United States hasn’t had anything even close to a depression in the post-war period.

The worst recession in the last 70 years was from November 1973 to March 1975, where real GDP fell by 4.9 percent."

From: http://economics.about.com/cs/businessc ... ions_2.htm


So who wants to bet this will be the worst "recession" since 1938, and might even end up being a depression?