What are/should banks/markets do to avoid failure?

Folks keep talking about this impending crisis, and the need for an immediate goernment bailout. What I’m wondering is, what exactly is it like these days in the organizations that are in trouble? Are they just continuing business as usual, assuming there is going to be a bailout? Are they courting potential suitors to try to get bought out on the best terms they can individually arrange? Are they firing employees and having a firesale of assets?

I see that the credit market is tightening up, and that it is now tougher for anyone to borrow money - especially big commercial loans and folks with less than stellar credit. If no government plan is agreed upon, how bad will things be for whom for how long?

Personally, I’d prefer a couple of years of belt tightening over paying my share of a $700 billion bailout.

IANAEconomist, but I think that a lot of noise is being made by people with some media access to make this sound worse for the economy at large than it is–because it really is difficult-if-not-ruinous for a minority. It’s like when someone says we need to abolish the capital gains tax because lots of people own a little bit of capital in their investment portfolios–which they don’t pay tax on–because that someone wants to bolster his bottom line.

(But note that I say “difficult.” As in, someone might not be able to buy out your company, lay you off, & move production to China for another two whole years. Poor baby. But he’s not starving. Nobody’s starving due to this.)

Working Americans should oppose this bailout, as it will become an entitlement & be repeated. And we’re being told that the banks need liquidity to make loans so businesses can make payroll. Excuse me? Does anyone actually make money honestly in this country?

Yes, I took macroeconomics, I understand that X dollars can inflate to several times its original size as it’s lent & relent, thus existing in multiple places at once. But this bill is trying to shore up a level of inflation that was due to an undesirable, unsustainable bubble–& then somehow keep it going with tax monies.

I say no way. You want socialism, do socialized medicine, do public works. DO NOT hand it off to commercial banks, unless perhaps your objective is to socialize them into state-run non-profits or Og knows what. “Corporate welfare” to the investor class isn’t socialism; it isn’t even welfare; it’s just corruption.

Here’s what Lou Dobbs said on the issue and seems reasonable to me:

I’m sorry. My previous answer was off-topic.

I’m not sure what banks should do, other than lend cautiously. “Go-Go Banking,” brought down the S&L structure. Looks like the finance libertarians have done it again!

Stressful, unpleasant.

Yes. All those things.

Likely we will face an ongoing deflationary credit crunch. Rates will be low, but the only people who can get credit will be the people that don’t need it. Mortgages, car loans, credit cards, all borrowing will get very difficult. Commerce will slow. People will lose jobs. This will cause them to default on their current debts and they won’t be able to purchase new things. This will further slow the economy and further tighten credit. The economy will move into recession or maybe even depression. Everybody will suffer. Those with the least means will suffer the most. Homelessness, unemployment, etc. The poor will get fucked. The wealthy and those in essential industries will get buy. It will be very bad if you are in the bottom half of the economy.

Probably you might feel differently if you were in the bottom half of the economy who is going to suffer as a consequence.

Probably you would feel differently if you knew that this 700 billion isn’t like the government buying tanks where the money is spent and gone. The government will be buying interest paying debt at depressed prices and collecting interest until prices come back to a reasonable level. Than they will be selling that debt and getting the money back. It is likely though by no means certain that the government will make a profit. They did the last time they did something like this.

Yeah, but this is the Bush admin. The last time we went to engage in nation-building before Bush, NATO was able to help a cease-fire in the Balkans.
Just because somebody did something superficially similar before doesn’t mean the Bushies won’t turn it into a giant train wreck.

Well, I’m not sure all the Wll Street types advocating bailout are doing so out of the goodness of their hearts from sympathy for the poor…

I think our economy/culture of consumption and waste bought with credit is not something that needs to be propped up. And if it takes some pain to get off that track, I’d welcome it. Of course - nothing is supposed to be difficult these days, or require that ANYONE sacrifice…

I’m pretty cynical of most societal problems being best addressed by a HUGE governmental program. And I suspect that the Wall Street geniuses who created the questionable practices that largely caused this situation are hard at work figuring out how to scam any government proposal - selling their most worthless assets for the most overvalued price. I have little faith in the low-level government employees who will be administering this, being able to hold their own with the financial sharks.

If the poor are going to be hurt and we are going to spend billions of dollars, I’d rather the money go directly to the poor. Perhaps rent subsidies for folks who lose their homes, job retraining, and the like.

And yeah, my opinion IS colored by the fact that I have no mortgage, no debt, a secure job, a secure retirement plan, and a decent amount of savings.

What does difficult really mean? Are we talking FICO scores of over 700 just to qualify for an auto loan, or a return to significant (20%) down payments on homes? I know you are not a soothsayer, but some explanation would be appreciated.


I remember back around '90 representing a couple of S&Ls that were subsequently taken over. I believe the practice at that time was ANYONE could walk into an S&L and get $3-5K for simply signing their name. Then they wondered why the loans weren’t paid back! :rolleyes:

I don’t have a problem with obtaining credit being a tad more difficult that that!

How would they be kicked out of their house? They own it. Kicking them out would be theft. Oh…oh…you mean they’d be forced out of the bank’s house.

I’m against any plan that gives money to people that bought houses they couldn’t afford. They shouldn’t have them in the first place. I’m not paying for someone else’s house. I wouldn’t mind so much if the gov’t bought the mortgage from the bank, though. At least then the stupid people still have to pay up or pack up.

Agreed, however I still deal professionally with the fallout of the government takeover of the S&L’s because believe it or not there are plenty of people who didn’t refinance during the Super Crazy Interest Rate period following 9/11 and who still somehow have mortgages open on their properties owned by the Resolution Trust Company. It’s easier dealing with the VA owned properties than anything like the RTC. Allowing the government to buy mortgage backed securities will result in something like the RTC managing those assets and jumping Jesus on two different pogo sticks that’s the last thing that a slumping real estate market needs.

Nuke it from orbit…it’s the only way to be sure…