I seen Freddie Mac reported 2 billion in losses, and other companies reporting rather large losses in the mortgage, credit industries. If the richest Americans wanted to stop this downward spiral with there own money could they? If Buffet and Gates together are worth close to 100 billion could they start investing it in the troubled areas even if that means they take a huge loss, just to stabilize it?
What about helping the sinking dollar if the richest people say “my money is worthless if the dollar tanks so I’ll try to help it” could they?
Major economic workings are foreign to me so use little words if possible to explain
Even if they could, saving the mortgage companies and banks would amount to saving a bunch of rich people from the consequences of their own bad decisions. That strikes me as a spectacularly stupid use of wealth.
I think Gates could stop the blood bath over bad loans. All he has to do is buy a bank and declare that there are not going to be any foreclosures, that all loans are going to be renegotiated. Then all the other bankers will feel ashamed and follow suit.
Money men are sheep.
Agree with ultrafilter. Giving people money creates incentives for them to do whatever results in them getting the money. So if Gates, Buffett, etc. start giving money to industries that create collapsing pyramid schemes, we would expect to see more schemes. Not a good idea.
The wealthy could possibly play a role if we (meaning government, society) figure out what needs to be done to turn things around. For example, philanthropy or a wealth tax could perhaps provide money to incent people/companies to refinance mortgages on a more sound footing.
The wealthy can also contribute to a minimum safety net for the poor that prevents things like children going without food or living on the street.
That said, if the banks and mortgage companies are going to get a bailout, most of us would rather see it come from the wealthy than from the middle class.
Part of the issue is that the 100 Billion dollars isn’t just sitting in a bank somewhere. The vast majority of it is invested somewhere. And if it was suddenly removed from where it is, that part of the economy would suffer. And it would likely totally destabilize things if word got out(which it would) that Buffett is jumping in and out of things.
That being said. Most of their investments are probably focused in areas to make money. If they did decide to change every dollar to an altrustic investment, and not worry about losses, then it would probably have some overall benefit. How much exactly would be really hard to calculate, and is the type of things Economic Ph.d theses are done on, and usually come up with different answers.
He would have to sell the stock. People aren’t defaulting on mortgages because they’ve decided to explore the alternative lifestyle of homelessness. They either don’t have the money to pay off their mortgages or they’ve realized their homes are not worth the money they still owe; neither of these conditions would change because of any announcement Gates would make. The owners would still default and the banks would then tell Gates to honor his pledge and pay up. Gates would end up exchanging a sizable chunk of Microsoft stock for a lot of over-priced real estate.
I doubt that would happen but it sounds good. That’s another question, if Mortgage Company JoeLoans has 10,000 mortgages loaned out using balloon payments, high interest rates whatever the problem we’re facing today is about. Wouldn’t it be better for JoeLoans to renegotiate the loans rather than having them go into foreclosure.
Instead of 50,000$ made on the loan JoeLoans only breaks even or makes 1,000$, better than foreclosure and not getting back the loaned money at all right?? Or am I missing something important here?
What you’re missing is that JoeLoans knows that the default rate of Class D borrowers isn’t going to allow JoeLoans to remain solvent if they lend that money at 6%.
They can lend it at 9%, but not at 6%. At some point, it becomes more economical to foreclose, eat the loss, and move on. The problem is that JoeLoans was as starry eyed as the original borrower in imagining prices would always increase.
Furthermore, the Wall St. investors were as Starry Eyed as JoeLoans when they bought a bunch of loans from Joe.
The whole thing came from retardation all the way up the chain.
As to your original question. . .“lending 100 billion” is what the Fed is for, not Buffett and Gates.
One way they’ve been trying to help is by ruining the dollar. For instance, on a micro-level, if I have a fixed mortgage that I pay $1000 a month on, then as long as that remains my largest expense, I’m kind of rooting for inflation. As long as my wages are tied to inflation (which they are, as are a lot of peoples), then my mortgage is that much cheaper.
The problem is that by cheapening the dollar, we’re paying more for oil, food, clothes, etc. You just can’t have it both ways. But, if some jackass making $45,000 a year bought a $600,000 home, that mortgage is their biggest expense by far.
My final point. . .by NOT putting in $100 Billion, they’re helping the economy. The economy goes through downturns, recessions, depressions, etc. Always has. Always will.
You see it as an economy that needs saving. I see it as an economy correcting itself.
It is a popular opinion amongst economist circles that the sheer size of the currently looming correction is a direct result of Greenspan “saving” the economy far too many times in the past 10-15 years.
Well the dollar is what worries me the most, stock market corrections, real estate coming back down to earth IMHO was needed. But I didn’t realize the Fed was and is lowering our dollar to correct the housing markets problems. I’m glad you told me that.
An antecedent of the current crisis was the Panic of 1907, which was resolved by the intervention of J.P. Morgan. I read somewhere that the Federal Reserve Act (and the resulting Federal Reserve System) was passed so that the US wouldn’t have to rely on one rich man in future crises.
But I think the economy today is too large for Bill Gates and Warren Buffett to be able to resolve things themselves.
This is correct, IMHO. The U.S. economy is worth about $13.2 trillion, according to the CIA World Factbook. While the total wealth of $108 billion amassed by Gates and Buffett (per this year’s Forbes billionaires list) is an unimaginably large amount of money to most people, it’s still a very small percentage of the economy’s total value.
Wow, so even the top 100 richest are worth less than 1 trillion combined I imagine. There has to be a tipping point though where others will follow suit if only to save there own fortune isn’t there.
Once again, in economics there is no free lunch. Most of their wealth is tied up in Microsoft and Berkshire Hathaway. If they decided to use that wealth to bail out those affected by the sub-prime lending fiasco, it has to come at the expense of their very profitable and successful companies. In a sense it’s like your dad selling his successful business to bail out his idiot sons gambling debts.
By the way, I recently read an article recently that said Buffett is going to be re-insuring bond insurers. He’s got 50 Billion in cash sitting around, and there’s “blood in the streets”.
Just like he got into the insurance business after the worst hurricane season ever, and everyone was panicking.
Wikipedia says that the top 100 are worth $3.9 trillion in total. But even if they could sell all their assets at face value, they couldn’t stop the current downturn for a couple reasons:
On a large scale, the economy is one of the most complicated systems out there. It’s almost impossible to predict how any change would affect it, and throwing money in at random is a good way to waste money.
One of the few things we know for sure about the macroeconomy is that it exhibits cyclical behavior, and it really looks like we were about due for a downturn anyway.
But if the dollar goes to far down wouldn’t other countries stop using it, in turn causing the “wheelbarrow full of dollars” for a loaf of bread thing? Couldn’t China and other nations that buy are debt think its a good time to get out of it?
I know it’s a world economy but the Euro and Yen seem to be holding there own don’t they?
Unless we become Zimbabwean, no. Losing another 50% against the Euro wouldn’t be good, but it would be the end of times either. Just think, India and China would ship their jobs to the USA. Then they can bitch about losing their jobs overseas.
