- Because a government intervention the financial systems rarely works well.
- Because it fails to acknowledge the fundamental shift that is occurring in our society as we move from being “overleveraged” to using credit responsibly.
- Because Nancy Pelosi likes it.
- Because no one has been able to prove that by buying this garbage from the banks, it will do anything to actually help credit get done.
- Because Barney Frank likes it.
- Because JP Morgan and the FDIC were able to work out a very smooth transition when Washington Mutual closed down last week and it was done without any unusual interventions.
- Because the bailout refuses to consider that not all banks are equal. Those who are most likely not going to make it would get the same government money as those who are perfectly healthy. That’s just not right.
- Because Rep. Peter Hoekstra (R-Michigan) voted against it, and I have a lot of respect for Pete.
- Because the Main Stream Media is preaching an unbelievable amount of panic, distrust and fear and they are doing it with items that are not factual.
- Because the government hasn’t done a good job (because I don’t believe they can) in showing that there’s a connection between buying bad assets from the banks and helping Main St.
- Because Citigroup and the FDIC worked out a “take over” of Wachovia without any significant market disruptions and without any unusual bailout efforts.
Okay, so it was actually 11. The point is, the bailout is not good for our country and not good for our economy. Are banks going to fail? Yep. Do I hope that “my bank” isn’t one of them? Yep. But like Jeff Brown says, we know how the story ends up and we’ll all be fine.
Dave says:
Tom, Thanks for another well thought out post!
I add the following comments to a few of your points:
#1. with the current poorly equipped players in Congress; to much influence from big political contributors make anything done by this group fatally flawed.
#4. right on the mark
#6. the “fix” is on
#7. see #6
#8. Unfortunately this guy has supported “Crusader Rabbit” and needs to be retired for drinking the kool-aid.
#9. Main street media is owned and operated by BIG conglomerates and no longer has the ability to offer any legitimate analysis. NO credibility
#10. You are so right – the government hasn’t done a good job because of the people we (ugh) have elected.
We have to own this one for sure.
#11. Agree
September 30, 2008 — 6:34 am
Gary Frimann says:
You mentioned Nancy Pelosi and Barney Frank were for it. So was our beloved Harvard MBA President, George Bush, as well as another great American, who actually suspended his campaign(!), putting country first, as he did when he was a POW–John McCain! Why didn’t Obama rally just 12 more Democrats to vote for it?
As long as we have only two parties, the whole system will work against us. Nowhere in the Constitution does it say that we have to have only two parties. We need to change everything, as not every issue can be broken down to “for” or “against”. Believe it or not, not everything is blkack or white, as there is a lot of gray. What’s the opposite of gray?
Lie to the pollsters, and keep the politicians guessing- you have no duty to tell them the truth. If the politicians don’t know what or how we are thinking, they would have to put forth their positions and see if we are atrracted to them.
Don’t register for a party. Keep ’em guessing. This way they cannot count on a certain number of votes, nor gerrymander the districts.
The whole system needs to be changed from top to bottom.
Start by lying to pollsters. Once their credibility is ruined, and they are out of business, we’ll get leaders with strong convictions who will work on our behalf. We have one vote, as does a coporate CEO. However, the CEO has much more influence. Try to get McCain or Obama to return your phone call.
Ladies and gentlemen, we may be looking at the first time in our history where the WINNER will be asking for a recount!
September 30, 2008 — 6:54 am
J Boyer Chatham NJ says:
Suze Orman was on CNBC last night basically predicting that if something did not happen that the next thing we would see is the credit card companies ratcheting down everyones limits, in many cases to what the card holder owed. If that becomes the case, then the economy will really start to feel some kinks.
September 30, 2008 — 7:04 am
Tom Vanderwell says:
If that becomes the case, then the economy will really start to feel some kinks.
Has anyone asked the question – should all of these people really have access to that much credit? As a nation, we were like druggies on credit and now we need to get off that. Withdrawal isn’t going to be pretty and it isn’t going to be fun.
Tom
September 30, 2008 — 7:18 am
David Shafer says:
Tom & J. Boyer,
Perhaps it is my lot in life to put facts in circulation, but all this nonsense about the American public having huge amount of credit card debt is nonsense. Here are some facts:
The majority of U.S. households have no credit card debt, according to the Federal Reserve’s latest Survey of Consumer Finances. About a quarter have no credit cards, and an additional 30% or so pay off their balances every month.
Of the households that do owe money on credit cards, the median balance was $2,200 — meaning half owe more, half less.
Only 8.3% of households owe $9,000 or more on their cards.
So we see once again the media not getting the story straight. For those 8.3% of households with $9K or more on credit cards, it might be an issue or it might not be depending on income and circumstances. But 8.3% that might have credit card problems hardly makes it ubiquitous!
September 30, 2008 — 7:34 am
chris e says:
“Because JP Morgan and the FDIC were able to work out a very smooth transition when Washington Mutual closed down last week and it was done without any unusual interventions”.
THIS IS THE ANSWER FOLKS.
You need no sophistication,no experts,just a calculator.Think if every bank was sitting down with their borrowers working out their loans instead of foreclosing,would there be a problem today?
It is very interesting that a bank prefers to be bought out for pennies on the dollar by a bigger bank, than work out a deal with their borrowers.
Every one concerns about the investors.Here is my question:If the institution they invested in has no concern for them why we should?
September 30, 2008 — 8:14 am
J Boyer Chatham NJ says:
David, though I don’t dispute your numbers, I think that if the additional strain of taking away credit cards from up to 50% of consumers is put on the economy, it will only deepen and lengthen any recession we go into. Is that what we really need, a long deep recession with lots of pain, job loss, …
Personally I think the answer to that is no.
September 30, 2008 — 9:41 am
Jeff Brown says:
Another little known fact — but you’ll have to give me some leeway on the exact number.
25-35% of American home owners own their homes free and clear.
You may start breathing again.
September 30, 2008 — 10:01 am
David Shafer says:
Jeff, 33% of owner occupied homes have no mortgage.
J. Boyer, Suzie Orman is not a credible source in my book. She is/was a stock broker who knows nothing about finance! (Sorry you hit a nerve on that one!) But why would the credit card companies ratchet down my limit when I pay off at the end of the month and have 800 credit scores? Additionally, currently they crank up the interest rate for folks who run into difficulty and have their scores drop. This is highly profitable. Their models include folks who declare bankruptcy to avoid paybacks unlike the mortgage folks who never accepted the idea that they would not get their money from real estate secured credit. The risk is in the interest rate. Now if the models need to be adjusted for current events then they are more likely to adjust the interest rate up (as they already do for folks dropping credit scores).
Of course, I could be wrong and the banks are in panic mode willing to destroy their hefty margins from credit cards????
Frankly, I think one of the reasons that Wachovia and WAMU were bought (other than the deposits and the cheap cost) is their profitable credit card businesses!
September 30, 2008 — 11:07 am
Teri L says:
I’ll add mine: Because the government has very little self-control.
Once they wrap their claws around this, the likelihood of them ever letting go is slim to none which means that this bailout, or similar bailouts, could go on indefinitely. Not only do I not want to eat this shit sandwich, I’m even more adamant that my kids not have to eat this same shit sandwich a decade or so from now!
September 30, 2008 — 11:15 am
Stan Ethridge says:
September madness……(sad but funny at the same time)
http://www.techcrunch.com/wp-content/uploads/2008/09/septembermadnessb.jpg
September 30, 2008 — 11:22 am
David Shafer says:
For another viewpoint on this check out this post at accrued interest, a great blog on bonds and interest rates:
http://accruedint.blogspot.com/2008/09/why-main-street-should-support-this.html
September 30, 2008 — 11:40 am
Keahi Pelayo says:
You are dead on with #3 and #5.
Aloha,
Keahi
September 30, 2008 — 12:08 pm
Todd says:
12. We, the long suffering taxpayers, have to pay $10,000 per household to save companies run by billionaires who refuse to time share one Lear jet so they can each keep their own private ones.
September 30, 2008 — 12:08 pm
Debbie Summers says:
I have to agree with you… These banks need to learn a lesson and bailing them out teaches them that they can continue “business as usuall”…
September 30, 2008 — 12:39 pm
Peter DuPont says:
Tom,
You contradict yourself in your top 11 reasons.
1. Government intervention does work (it sucks they have to intervene). FDIC is government intervention, FHA is government intervention, VA is government intervention. Do you only sell portfolio products from Fifth Third Bank?
2. Please prove the fundamental shift in our society to a debt society.
3. that is your personal view.
4. Do you remember the S&L crisis? The government took the garbage from the S&L and it helped.
5. again personal view. I’ll agree he received a lot of lobbying money from FNMA and Freddie
6. Govenrment intervention helped this merger.
7. The FDIC is telling you through their actions what banks they think are strong or weak.
8. again personal
9.All news on both sides is preaching.
10. study the S&L bail out.
11. Again government intervention works. Do you think Citigroup would have purchased Wachovia without any urging fromt the FDIC or would they have waited until Wachovia went bankrupt?
September 30, 2008 — 1:06 pm
Joe Hayden says:
I just received the urgent email from the NAR stating now is not the time to assign blame, but the time to act and pass the bailout. Made me sick. IE Please, don’t think, don’t question, don’t protest, just get the money flowing again and maybe one day we will fix this mess. Very sad to see this attitude…
I suggest reading “Creature from Jekyll Island” for anyone interested in some insight into our banking system and how the present times are obvious results of previous policies. Only real fix is to remove the central bank, return the money supply to something supported by value, and dramatically improve the eduction system so adults and children alike understand how to operate in such a system.
JMHO
September 30, 2008 — 1:08 pm
Joe Hayden says:
Peter, just to jump in here…
Our society fundamentally IS a debt society. Our cash money supply is created by the government giving a paper credit to offset a promissory debt. A majority of our National Debt provides our cash. In fact, should this debt be paid off, we would not have any cash money in the system as it is presently run. Read up on it. Of course, this is a terrible way to run an economy if you are a typical citizen, but it has great benefits to the government and the central bank. Makes the most insidious hidden tax of all, inflation, possible and easy to hide.
September 30, 2008 — 1:15 pm
A Catt says:
I too am saddened by NAR’s Response. I’m surprised that they see it in our best interest to ‘finance’ our own bad decisions. I mean, isn’t that what got us in this mess the first time?
September 30, 2008 — 1:55 pm
Teri L says:
A purely churlish reason:
It’s kinda fun to watch the Hank, Frank, and Nancy Show foam at the mouth.
Sad I know. Off to say my Hail Mary’s…
September 30, 2008 — 2:00 pm
David Shafer says:
Couple more links to folks on the situation.
First federal reserve board in Atlanta
http://www.frbatlanta.org/invoke.cfm?objectid=B3C99FE6-5056-9F12-127F4982E2794934&method=display
Then Time
http://www.time.com/time/business/article/0,8599,1845818,00.html?cnn=yes
Bottom line this is really not cut and dried and folks who think they will feel no pain might be mistaken.
Personally, I am very ambivalent about the situation and am curiously watching the politicians!
September 30, 2008 — 2:18 pm
Dallas Real Estate Guy says:
Tom – You should send this into Dave Letterman. But he WILL NOT like #3 (though I agree with you on it).
September 30, 2008 — 3:11 pm
Tampa Real Estate Team says:
Great 10 reason. If you just wrote down #3 that would answer it all for me.
September 30, 2008 — 3:14 pm
J.T. Foxx says:
THe problem is that congress can’t run anything and America needs to be run like a business. The government can’t run social security, can’t manage Katrina, can’t run FHA and BArney Franks is a moron. SO how will we expect the government will run billions of bad debt and a bad housing market. THe answer is simple, let wall street fail and you will see people like Warren Buffet buy out the assets. By offering this bailout we are encouraging bad behavior. America is in foreclosure and it is a great time for investor. Don’t let anyone steal your destiny away. Take action.
Love this blog and if you have a chance please check out mine at http://www.jtfoxxblog.com
J.T. Foxx
Active Real Estate Investor &
National Syndicated Radio Personality
September 30, 2008 — 9:30 pm
Michael Cook says:
Tom,
I would just like to say thank you for creating a great forum for different ideas. This post and the comments have shown a such a variety of veiwpoints and that is very refreshing.
I do have a question for the let the banks fail people. What about the tens to hundreds of thousands of people that will be out of a job? What about the credit markets? Perhaps some of the doom and gloom is overblown, but two days ago LIBOR was at 6.875% For those of you who may not understand that stat, it means that banks are now not willing to lend to each other. Imagine how eager they are to lend to you if they dont want to lend to each other.
For the real estate agents out there, I really do not think you have seen the kind of bad market that would result in banks not having the money or willingness to lend. There is no question that some people will make billions off this bill not passing, but most people would feel a lot of pain. Far more than just banks and there employees.
If you are saying let banks fail, at the very least give us some other options or what you see as being the result of allowing banks to fail. There will certainly be fall out from both decisions, so if we take door number 2, what happens next?
October 1, 2008 — 8:17 am
Tom Vanderwell says:
I wrote this on the plane this morning – I hope it copies into WordPress from Word okay…..
Tom, Thanks for another well thought out post!
Me: Thank you for the kind words.
Gary,
Ladies and gentlemen, we may be looking at the first time in our history where the WINNER will be asking for a recount!
Me: While that comment made me laugh out loud, I have to admit that many of my acquaintances have said the same thing. Why in the world would anyone want to be president? I think there are two most logical reasons (and I’m not going to assign them to either candidate: 1) Power 2) A feeling that you are the person that the government needs at that point to serve the needs of the country.
Think if every bank was sitting down with their borrowers working out their loans instead of foreclosing,would there be a problem today?
Me: Chris E – your idea presupposes two things that I don’t believe are true in today’s market: 1. That every homeowner who currently is in financial trouble deserves and is able to be “saved.”
2. That, in spite of the very complex way that these loans have been sliced and diced and sold in tranches, the servicer has the authority to agree to a loan modification. I don’t believe they do without getting the approval of 30 different investors. A problem that they aren’t able to solve.
Teri – I’m not hungry for that type of sandwich either.
• Peter DuPont
Tom,
You contradict yourself in your top 11 reasons.
1. Government intervention does work (it sucks they have to intervene). FDIC is government intervention, FHA is government intervention, VA is government intervention. Do you only sell portfolio products from Fifth Third Bank?
Me: Nope. Peter, you misread me. I don’t have a problem with all government programs. FDIC is not a bailout program, it’s an insurance program. The banks pay in to it and that way we can comfortably get away from using the Mattress S & L and can know that our money is safe. FHA and VA were designed not to reduce the risks and pain for problems in the society. They were government programs designed to: 1) Increase the ability of veterans returning from WWII to be able to buy a home. 2) Open up avenues for first time home buyers when there weren’t any others out there. I don’t recall FHA having the huge delinquency problems that the rest of the market does (but I’m sure someone will correct me if they have the data.)
2. Please prove the fundamental shift in our society to a debt society.
Me: Once again, you don’t see what I’m saying. We’ve been feeding at the trough of easy credit for too long and we are switching from a society where credit is too easy to a society where credit needs to be used responsibly.
3. that is your personal view.
Me: You’re absolutely right. That’s why my name is on the top of the post. 🙂
4. Do you remember the S&L crisis? The government took the garbage from the S&L and it helped.
Me: Yes, they did, but there were a couple of big differences, in my book (and with saying that, I have to admit, I was in high school then, so I wasn’t involved. The differences: 1) The Government, through the RTC, took over the assets from failed institutions (AFTER THEY FAILED) and 2). The government didn’t take over troubled assets from any institutions that were still doing fine. This bill will violate both of those rules. It will take bad loans from organizations that could make it without the assistance and it will take the bad loans from banks before they go under.
5. again personal view. I’ll agree he received a lot of lobbying money from FNMA and Freddie
Me: Yep, personal opinion. Don’t get me started on the lobbying from Fannie and Freddie, that was downright criminal.
6. Govenrment intervention helped this merger.
Me: Calling it a merger isn’t technically true. From what I understand, both WaMu and Wachovia were shut down by the FDIC and then portions of them were immediately sold to JP Morgan and to Citibank. The FDIC ended up keeping responsibility for some of the losses in each case.
Me: This is exactly the model that I think the government needs to use going forward. If a bank is in trouble, work out an arrangement where the FDIC shuts them down, absorbs part of the losses and the healthy part of that bank get a second chance at life under a new bank.
David Shafer
Bottom line this is really not cut and dried and folks who think they will feel no pain might be mistaken.
Me: I’m with you on that one. I don’t think there is a chance that we won’t feel pain out of this situation. It’s going to be very painful but it would be worse, in my opinion, if this type of bailout passes.
J.T. Foxx September 30th, 2008 9:30 pm
THe problem is that congress can’t run anything and America needs to be run like a business.
Me: Well said, JT
October 1, 2008 — 12:59 pm
Tom Vanderwell says:
What about the tens to hundreds of thousands of people that will be out of a job?
Michael – it’s good to remember them. I was telling Jeff Brown the other day that 454,000 manufacturing jobs have disappeared in Michigan in the last 8 years. It sucks when economies change and when they have to transform into something else. I do agree that something (job retraining programs? an extension of unemployment benefits?) should be done to help those people, but a systematic bailout of the entire industry to keep it at a larger size than can be supported doesn’t make sense, does it?
For those of you who may not understand that stat, it means that banks are now not willing to lend to each other. Imagine how eager they are to lend to you if they dont want to lend to each other.
Me: I’d like to argue (from personal experience at my bank) that we’re actually more eager to lend to customers because with customers, we can verify income, verify equity or downpayment, verify credit (all novel concepts) but lending to other banks, we can’t verify that. The LIBOR market is frozen up because very few banks really know how close the other banks are to going under.
I’m a firm believer that not only will the mortgage industry be smaller 6 months, 12 months, 24 months from now, the entire banking world will be smaller. So what do we do with the “bad banks?” Here’s my thought:
1. Resurrect the RTC – from what I have heard, the US government didn’t lose any money in the RTC.
2. When a bank is getting close to failing, the FDIC steps in and works out a failure/merger that is similar to the WaMu and Wachovia plans.
3. In order to unfreeze the LIBOR market, maybe they can put a clause in where if Citibank loans $5 billion to National City and National City goes under before they paid it back, the FDIC (or the RTC) guarantees a return of the principal (not the interest on the loan) and not immediately?
The government will insure that Fannie and Freddie don’t “seize up” because that would be truly catastrophic to the real estate market. But the banking industry has grown to an unsustainable size and that has to change.
Tom
October 1, 2008 — 1:12 pm
Marc Rasmussen says:
I am mixed about this. I don’t like the whole idea but this country needs access to money. I am still not convinced that the bailout will free up a bunch of cash. If the bailout does happen it would raise some consumer confidence for whatever that is worth.
October 1, 2008 — 6:30 pm
Tom Vanderwell says:
Maybe Jim Cramer is right?
Check out http://straighttalkaboutmortgages.com/2008/10/02/maybe-jim-cramer-is-right/
What do you think?
Tom
October 1, 2008 — 9:27 pm
David Shafer says:
Tom, are you are becoming ambivalent over the decision???? Because that is where I have been for a while now. Just too much of the economy tied up in this to just say its ok to “let em all fail.” But, fundamentally don’t like the bailout plan!
October 2, 2008 — 5:21 am
Tom Vanderwell says:
I’d say that I’m not ambivalent in the plan, I still don’t like the plan, but what Jim Cramer pointed out was that even he doesn’t like the plan but the stakes are too high to just say, “Nope, not going to do it.”
Does that make sense?
Tom
October 2, 2008 — 6:11 am
Sunny Isle Condo Specialists says:
I think your concern is one that many of us are aware of, and as you stated above we have seen no “usual interventions”. It will be interesting to see what happens next.
October 2, 2008 — 8:26 am
David Shafer says:
Find Warren Buffett’s hour interview with Charlie Rose here: http://bigpicture.typepad.com/
About three articles down. Talks about the bailout last night!
October 2, 2008 — 2:20 pm
Sue says:
Looks like the bailout is in and people pulling their money out of the market is up.
October 3, 2008 — 10:24 pm
Boise Homes says:
Ultimately the taxpayers, you and I, are going to have to flip the bill for this bailout in one form or another. Because the rich got even more greedy this country and possibly global markets are in a downward spiral. The people running these organizations were the cream of the crop, you would think, and now look where we are at. Many of them bailed themselves out and took hefty packages and quit their jobs so they would not have to deal with the fallout.
Personnally I think what has ocurred borderlines criminal and there should be much more than a bailout. The bailout may help the US but what about the rest of the World?
October 7, 2008 — 6:42 pm