# I Can't Make Up My Mind (Government Bailouts) **URL:** \ **Category:** Great Debates\ **Created:** [November 12, 2008, 12:14am UTC](https://boards.straightdope.com/t/i-cant-make-up-my-mind-government-bailouts/472271 "2008-11-12T00:14:40Z")\ **Posts on this page:** 10\ **Page:** 2
**Author:** ![wmfellows](https://avatars.discourse-cdn.com/v4/letter/w/c2a13f/32.png) [@wmfellows](https://boards.straightdope.com/u/wmfellows)\ **Post date:** [November 14, 2008, 8:24pm UTC](https://boards.straightdope.com/t/i-cant-make-up-my-mind-government-bailouts/472271/21 "2008-11-14T20:24:08Z")
> [@autz](#): > > So now the bailout has changed… [http://www.msnbc.msn.com/id/27677764/](http://www.msnbc.msn.com/id/27677764/) > > Without asking Congress or the American people, Paulson just decided to spend the money in a totally different way than was promised when the money was given. > > "The government has abandoned the original centerpiece of its $700 billion rescue effort for the financial system and will not use the money to purchase troubled bank assets. > > Treasury Secretary Henry Paulson said Wednesday that the administration will continue to use $250 billion of the program to purchase stock in banks as a way to bolster their balance sheets and encourage them to resume more normal lending. He also announced that the administration was looking at a major expansion of the program into the markets that provide support for credit card debt, auto loans and student loans." > This is getting totally absurd. No more money on this stupid bailout! While I am sure that being outraged is very enjoyable, you might wish to check your facts as such, before wailing about your Treasury minister’s policy. As it happens, the man is opting for what your Congress **insisted** on including in the act that was passed. It would be passingly strange for said Minister to ask your Congress for permission to use the very tool and option that they pushed for. And in fact the tool and option - injection of equity - that most observers felt was more appropriate. The real problem is it would seem that almost none of the population has but the dimmest understanding of the actions being taken, and thus reacts blindly to incomplete information based on fundamental misapprehension. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [November 14, 2008, 9:40pm UTC](https://boards.straightdope.com/t/i-cant-make-up-my-mind-government-bailouts/472271/22 "2008-11-14T21:40:32Z")
> [@wmfellows](#): > > Ah, buying mortgage securities gets you fuck all for equity position in a bank. Encouraging lending is via reinforcing the balance sheet. It is far **simpler** to do so directly, via an equity or near equity position, buying hard to value securities in a reverse auction, with the cash going into the bank as revenue. > > In EITHER instance, money is fungible, and unless one exercises management rights, one has little say on the lending decisions. > > Until banks are stabilised there will be little lending. That was the point of the bailout, and that was why I thought it was a good idea. But it looks like stabilizing the banks hasn’t led to more lending - though I think they have realized that they are not going to get any more money authorized by Congress unless they start lending again. An equity position by the government I thought was to make it possible for the taxpayers to benefit from a recovered banking system. The government having voting rights brings up an awful lot of problems. Treasury and Congress have a lot of influence without having voting stock. Do we really want the Secretary of the Treasury having a major voice in who is elected to the boards of these banks? That is a lot closer to socialism than anything Obama ever proposed. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [November 14, 2008, 9:55pm UTC](https://boards.straightdope.com/t/i-cant-make-up-my-mind-government-bailouts/472271/23 "2008-11-14T21:55:42Z")
> [@wmfellows](#): > > While I am sure that being outraged is very enjoyable, you might wish to check your facts as such, before wailing about your Treasury minister’s policy. > > As it happens, the man is opting for what your Congress **insisted** on including in the act that was passed. It would be passingly strange for said Minister to ask your Congress for permission to use the very tool and option that they pushed for. > > And in fact the tool and option - injection of equity - that most observers felt was more appropriate. > > The real problem is it would seem that almost none of the population has but the dimmest understanding of the actions being taken, and thus reacts blindly to incomplete information based on fundamental misapprehension. Where does it say he asked permission? Informed, yes, since Congress only gave half the money requested, and he’s clearly not going to get the other half unless they are kept informed. The original proposal, remember, was three pages and proposed no oversight. What was actually passed was a lot better, but still gave the Secretary (not Minister on this side of the pond) a lot of flexibility. I haven’t seen a survey of economists that would establish a consensus, but a lot of them said that the way to go was to stop the decline in housing prices. Once this happens, it would be easier to price mortgage backed securities. I’m not saying that recapitalizing the banks wasn’t necessary, but why would they risk their new and better balance sheet to loan into markets still considered risky? The reason given on Marketplace for Paulson shifting strategies, by the way, was that he still hadn’t figured out a way to price the mortgage backed securities. In the big rush to approve the package, little details like that (which were brought up) never got closed on. ---
**Author:** ![wmfellows](https://avatars.discourse-cdn.com/v4/letter/w/c2a13f/32.png) [@wmfellows](https://boards.straightdope.com/u/wmfellows)\ **Post date:** [November 14, 2008, 10:17pm UTC](https://boards.straightdope.com/t/i-cant-make-up-my-mind-government-bailouts/472271/24 "2008-11-14T22:17:00Z")
> [@Voyager](#): > > That was the point of the bailout, and that was why I thought it was a good idea. But it looks like stabilizing the banks hasn’t led to more lending - though I think they have realized that they are not going to get any more money authorized by Congress unless they start lending again. An equity position by the government I thought was to make it possible for the taxpayers to benefit from a recovered banking system. The government having voting rights brings up an awful lot of problems. Treasury and Congress have a lot of influence without having voting stock. Do we really want the Secretary of the Treasury having a major voice in who is elected to the boards of these banks? That is a lot closer to socialism than anything Obama ever proposed. Well, in an economic downturn one is not likely to see lending growth regardless. The real question is the banking system globally stabilizing, has a complete collapse of lending been averted. I am not up on American figures, but the gross data do suggest stabilisation. While sloppy ignorant journalists may be expecting a magic wand effect, for banks there is going to be a process - getting the actual money, stabilising the business and provisioning against upcoming losses, then figuring out where to lend. Insofar as your program is what, a month old, it strikes me as magical thinking to think one is going to see credit expansion. The real question is, is the Commerical Paper market coming back to a reasonable level, are trade credits becoming available again, etc. Reading the UK financial press, my impression is that the answer is yes, there does appear to be stabilisation. That is the start. ---
**Author:** ![wmfellows](https://avatars.discourse-cdn.com/v4/letter/w/c2a13f/32.png) [@wmfellows](https://boards.straightdope.com/u/wmfellows)\ **Post date:** [November 14, 2008, 10:22pm UTC](https://boards.straightdope.com/t/i-cant-make-up-my-mind-government-bailouts/472271/25 "2008-11-14T22:22:12Z")
> [@Voyager](#): > > Where does it say he asked permission? … > > I haven’t seen a survey of economists that would establish a consensus, but a lot of them said that the way to go was to stop the decline in housing prices. Once this happens, it would be easier to price mortgage backed securities. I’m not saying that recapitalizing the banks wasn’t necessary, but why would they risk their new and better balance sheet to loan into markets still considered risky?. Uno: I didn’t say he bloody asked, it was that gonzo person wailing on incoherently. I was responding to say it would be very strange for your Minister/Secretary to ask for permission for opting for the very thing that the Congress inserted over his initial objections… Pricing the MBS was something virtually every analyst thought was going to be impossible or likely to go badly wrong, while having a view on the pricing of the bank equity is far, far easier. That Gonza fellow seems to have the strange impression that your man just made this up. As for housing prices, bloody hell no, artificially reinflating housing prices hasn’t been recommended by any proper economists anywhere. Stabilising and trying to avoid mass foreclosures, yes, stopping the repricing however would be stunningly bad economics. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [November 14, 2008, 10:38pm UTC](https://boards.straightdope.com/t/i-cant-make-up-my-mind-government-bailouts/472271/26 "2008-11-14T22:38:39Z")
> [@wmfellows](#): > > Well, in an economic downturn one is not likely to see lending growth regardless. > The real question is the banking system globally stabilizing, has a complete collapse of lending been averted. > > I am not up on American figures, but the gross data do suggest stabilisation. While sloppy ignorant journalists may be expecting a magic wand effect, for banks there is going to be a process - getting the actual money, stabilising the business and provisioning against upcoming losses, then figuring out where to lend. > > Insofar as your program is what, a month old, it strikes me as magical thinking to think one is going to see credit expansion. > > The real question is, is the Commerical Paper market coming back to a reasonable level, are trade credits becoming available again, etc. Reading the UK financial press, my impression is that the answer is yes, there does appear to be stabilisation. > > That is the start. There has indeed been stabilisation, which is a start. No banks have gone under for quite some time. But the problem is not that the poor economy is reducing the amount of debt required, but that the liquidity crisis has hurt the economy. Inter-bank lending interest rates (overnight loans) are still relatively high, especially compared to the rates the Fed sets. Credit card companies are cutting credit limits like mad. Part of the automakers’ problem is the difficulty the consumer without the best credit has in getting loans. It’s been difficult for governments to get tax anticipation loans, or for retailers to get loans for inventory. It does seem a bit less frozen than a month ago, but still bad. This has led to layoffs, and they have led to a drop in consumption because everyone is scared. It is good that Americans are finally spending less than they earn - but it has happened so quickly that it is threatening a spiral into depression. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [November 14, 2008, 10:46pm UTC](https://boards.straightdope.com/t/i-cant-make-up-my-mind-government-bailouts/472271/27 "2008-11-14T22:46:36Z")
> [@wmfellows](#): > > Uno: I didn’t say he bloody asked, it was that gonzo person wailing on incoherently. I was responding to say it would be very strange for your Minister/Secretary to ask for permission for opting for the very thing that the Congress inserted over his initial objections… Pricing the MBS was something virtually every analyst thought was going to be impossible or likely to go badly wrong, while having a view on the pricing of the bank equity is far, far easier. That Gonza fellow seems to have the strange impression that your man just made this up. My bad. You are correct that this mess is too complicated for lots of people to get. > [@](#): > > As for housing prices, bloody hell no, artificially reinflating housing prices hasn’t been recommended by any proper economists anywhere. Stabilising and trying to avoid mass foreclosures, yes, stopping the repricing however would be stunningly bad economics. No one wants to reinflate prices, only slow down the foreclosure rate which is a downward drag on prices, putting tons of houses in inventory, forcing anyone trying to sell a house not in trouble to compete against the banks, and forcing even more borrowers underwater, even those without bad loans. Where I live there is a bimodal distribution of sales prices, with a lot of sales of the smaller houses bought recently by those getting bad loans done by banks and very cheap, and a set of larger houses in better neighborhoods which have lost very little in value. We have very few foreclosures near us, and some houses are actually going for \> listing price, but the days on market seems to be pretty high. The agents don’t send out that information any more, so I judge by the amount of time for sale signs are up. ---
**Author:** ![foolsguinea](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/foolsguinea/32/14751_2.png) [@foolsguinea](https://boards.straightdope.com/u/foolsguinea)\ **Post date:** [November 14, 2008, 11:42pm UTC](https://boards.straightdope.com/t/i-cant-make-up-my-mind-government-bailouts/472271/28 "2008-11-14T23:42:17Z")
Ask the ghost of Preston Tucker. ---
**Author:** ![msmith537](https://avatars.discourse-cdn.com/v4/letter/m/d9b06d/32.png) [@msmith537](https://boards.straightdope.com/u/msmith537)\ **Post date:** [November 14, 2008, 11:55pm UTC](https://boards.straightdope.com/t/i-cant-make-up-my-mind-government-bailouts/472271/29 "2008-11-14T23:55:33Z")
> [@wmfellows](#): > > AIG did not “cause the crisis” - they’re an insurer, not a lender. You might rationally blame Bear Stearns or the I-Banks in New York, but AIG? They aren’t residential mortgage lenders either. They are investment banks. They were the ones who bought up all those CDOs. Maybe we should also blame the rating agencies. > [@wmfellows](#): > > Well, the irrational hatred and fear of the financial intermediaries will likely trump proper analysis. I’ll agree with you there. It’s a little hard to have a rational discussion here since you get a dozen people with nothing but “da Wall Street fat cats and CEOs are ripin’ everyone off!” Don’t get me wrong. A lot of those guys are crooks and assholes. But no one or group of companies caused this mess. Also, not everyone who works at a bank or insurance company brings home $200,000 a year or million dollar bonuses. That guy in the mailroom and the admins are even more fucked than the bankers they work for. ---
**Author:** ![wmfellows](https://avatars.discourse-cdn.com/v4/letter/w/c2a13f/32.png) [@wmfellows](https://boards.straightdope.com/u/wmfellows)\ **Post date:** [November 15, 2008, 11:45am UTC](https://boards.straightdope.com/t/i-cant-make-up-my-mind-government-bailouts/472271/30 "2008-11-15T11:45:56Z")
> [@msmith537](#): > > They aren’t residential mortgage lenders either. They are investment banks. They were the ones who bought up all those CDOs. Maybe we should also blame the rating agencies. I know but of the targets of rage above, they made more sense than the ranting about AIG. > [@](#): > > I’ll agree with you there. It’s a little hard to have a rational discussion here since you get a dozen people with nothing but “da Wall Street fat cats and CEOs are ripin’ everyone off!” Yes, yes indeed, and utterly unable to distinguish between parties. I find it truly bizarre that posters were upset (evidently in utter ignorance) about Paulson changing direction and doing what your Congress advised him to do. Should be bloody happy. > [@](#): > > Don’t get me wrong. A lot of those guys are crooks and assholes. But no one or group of companies caused this mess. Also, not everyone who works at a bank or insurance company brings home $200,000 a year or million dollar bonuses. That guy in the mailroom and the admins are even more fucked than the bankers they work for. Yes, and the ordinary non-Investment Bank, the ordinary regional lending bank or even the ordinary lending divisions of your big banks are not at fault either. The mortgage processing, break down standards, and I think yes, indeed, the population taking out nutty loans with the idea of flipping. The Populist clap trap about these people being merely victims doesn’t wash for me. [Previous page](https://boards.straightdope.com/t/i-cant-make-up-my-mind-government-bailouts/472271.md?page=1)