How is the Bailout Failure Affecting You?

Posted by Alex in Money & Finance on September 29, 2008 at 5:09 pm



Photo: freemarketmyass [Flickr], at a protest against the bailout in Chicago

So. Today, the House of Representatives said no to the Mother of All Bailouts™ (with the majority of the Democrats voted for it, and the majority of Republicans voted against it). The Dow dropped like a rock, falling 777 points, making it the worst single-day point loss ever. Democrats blamed Republicans, Republicans blamed Democrats. Oh, and Citigroup gobbled up Wachovia and the Fed pumped $330 billion into the market anyway.

I went to lunch with my lovely wife and had a delicious Korean BBQ meal. I paid cash and left a generous tip to the nice waiter. Then I went back to work, and now, I’m typing up this post.

My point is this: Wall Street may be burning (and the New York economy is undoubtedly going to take a lickin’) but I doubt it’ll take the rest of the country down with it, despite the all doom-and-gloom we’ve been told. Most of the people I talked to don’t have the same sense of urgency that Wall Street and the politicians have, or wanted us to have.

The economy in general has been kind of sucky - business is down (and we’ve made adjustments to cope with it), but that has been the way it is for a long time - well, before the hulaballoo at Wall Street.

I live within my means, own a house we can afford, pay cash for most of my purchases. We save for a rainy day. And I worked my butt off every day for all of this - I don’t think the Wall Street meltdown or a Super Bailout is going to affect us all that much.

But I may be wrong. So let me ask your opinion: what do you think of the bailout failure and what it may mean to you? Are you fearful for your economic future? Is it because of the failure of the bailout or something far more fundamental?

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COMMENT

54 comments to "How is the Bailout Failure Affecting You?"

  1. nach
    September 29th, 2008 at 5:22 pm

    If you’re young and you “save for a rainy day,” you’re likely to be affected as your savings tend to be in more high risk assets such as domestic and international stocks. If you’re older and saving, then maybe you have a significant amount of money in CDs and bonds, gardnering that 1-3% a year. After today, that will be more like 0.5-1% a year. Savings are affected all around.

    That’s not to mention the other things that happen, such as losing your job. That surely puts a damper on your monetary lifestyle.

  2. Alex
    September 29th, 2008 at 5:25 pm

    Well, the bulk of my savings is in cash (and yes, I understand the effect of inflation on the purchasing power of my money - but either way, bailout or financial meltdown will erode the confidence we have in the greenbacks).

    I’m self-employed and don’t do much business on credit. My spending habit hasn’t changed significantly due to the crisis. I’ve always bought only what I need. Well, mostly anyhow :)

  3. sigh
    September 29th, 2008 at 5:27 pm

    I think there’s more panic than necessary. The media is going to blow everything out of proportion in an election year.

    It’s odd that a democrat majority house couldn’t pass it assuming it’s the republicans fault that it failed. Why did so many democrats (40% of them) also vote against it?

  4. CheeseDuck
    September 29th, 2008 at 5:27 pm

    No matter what happens to the market, you’ll always have Neatorama to fall back onto! :D

  5. JenDiggity
    September 29th, 2008 at 5:31 pm

    These past several months I have been waiting for our business to curmble, but, although things have slowed down a bit, business has been chugging along. We’ve been really trying to focus on chiseling away our debt so that if times get rough we won’t owe too much. My big plan for getting through this is to reduce our debt, keep less inventory on hand, cut bills (I just switched to Vonage this afternoon, for example, at a savings of nearly $100 a month over my current phone plan and cut out all extra channels on our satellite for another savings of $25 a month), get out of risky investments (even money market accounts aren’t safe right now, apparently), sock away a few bucks here and there when I can, and just generally try to be more frugal NOW so that it will be less traumatic (hopefully) if the you-know-what hits the fan. Honestly, I’m trying to do everything I really SHOULD have been doing all along. It shouldn’t take something this drastic to make us be less wasteful and frivolous with our money. I don’t know what the future holds, but I’m trying not to panic. I think the worst thing we can do is panic. If we are frugal, but don’t stop spending completely, I think that we (the little people) can get through this.

  6. oezicomix
    September 29th, 2008 at 5:38 pm

    i believe “to live within ones means”, as you wrote, alex, to be the secret to both security and a happy life. being a freelance artist i spent the past 10 years on my life in much more financial insecurity than most people i know would be willing to bare, but i think if everybody layed a bit lower on their expanses and focused a bit more on what they really need and what is important in life, there wouldn’t be so much complaint in the first place. and that would probably lead to less insecurity, as well. i find that so many people are wound up in their materialism, that they fret way too much about loosing things that really have no value. in my eyes materialism and all its consequences is one of the worst diseases the western world is suffering from right now. maybe a crisis would make people focus on different values for a change…

  7. Evil Pundit
    September 29th, 2008 at 5:39 pm

    The problem is not with the physical economy. Bakers still bake, factories still produce.

    The problem is with confidence, the mental part of the economy. The value of money is based on confidence that the work you do for a dollar today will buy you a dollar’s worth of goods tomorrow. More so in the case of a credit-based economy such as an advanced capitalist society — much work gets done on the basis of confidence that if someone lends money for a house, that money will return with interest. In turn, this provides work for builders.

    Losing that confidence is what is at risk here. It hasn’t happened on a big scale since the Great Depression, and I hope it won’t happen again.

  8. Brian Lutz
    September 29th, 2008 at 5:46 pm

    Aside from the fact that I’d really like to get away from contract work and into something that doesn’t require me to take three months off every year, I’m in pretty decent shape right now. The only thing I owe money on is my car, which I’m trying to get paid off as soon as possible (I bought it new last year after driving a horrendous beater for ten years,) since I have no credit cards, and I’ve got a reasonable chunk of savings (enough to last me a few months if needed.) As long as I can keep myself employed, I’ll be just fine. If all goes well, maybe house prices will get down to an affordable level by the time I’n in a position to buy one…

  9. reviewstew
    September 29th, 2008 at 5:50 pm

    I’m lucky, in that I have a decent job with great benefits. I’m slowly paying down my post-divorce debt (moving costs plus all new furniture, it adds up!). I also have family to fall back on if things ever had a real emergency.

    Still, things are closer to the bone than I’d like. I wish my debt were gone and I were saving instead. I wish I could eat out more than once or twice a month. All these things are contingent on finding a new, better-paying job, and that’s what I think will be harder to do in the next couple of years. It’s harder for businesses to get loans to expand, which means it’s harder for them to hire more people.

    I do count myself lucky, though. If I were someone who risked money on buying an overvalued house, or if I had needed more credit, I’d be in bad shape today, and very very worried about the future.

  10. kid_icarus
    September 29th, 2008 at 6:07 pm

    i am glad it didn’t pass.

    here is an interesting article:
    http://www.cnn.com/2008/POLITICS/09/29/miron.bailout/index.html

  11. Alex Fear
    September 29th, 2008 at 6:20 pm

    Can someone explain to me how the “bailout” was supposed to be a good thing???!!!

    I hate the republican party as much as the next guy but if McCain sabotaged the deal then he did the right thing for once.

    Sure we’re all gonna take the hit anyway (I work for an American investment bank in London - so I’m near the epicenter job-wise).

    The fact is these jacked up investment wbankers and CEOs are responsible for the housing bubble - due to liar loans and irresponsible lending, including those who took out mortgages they knew they couldn’t afford (but I just gotta get me a house or prices will float away…!).

    This is a market, and market prices reflect demand and supply - look at the history of house prices and you will see that what is happening is normal. Unfortunately it’s going to be a big one because house prices have been artificially high for a long time. Who is responsible for this - yep greedy home-sellers and property flippers trying to make up to 50%-80% profit on the house they bought just a few months or years ago.

    This is called a correction, it had to come. The “bailout” was just going to be pumping more worthless credit into a broken system. You don’t keep feeding in product, you stop the machine and find out what is wrong and fix it.

    The way this should have been fixed all along is by regulation.. but we wouldn’t want to prevent all those rich execs from having their huge bonuses off the backs of the poor now would we?

    Raise inflation and you raise wages and reduce personal debt. Then regulate the loan market. Curtail self-declared mortgages and limit mortgage max loan amount to 3.5x income. That will keep the market sweet and keep prices stable.

    Don’t pretend to be thick and believe that the “bailout” was the Obi Wan Kenobi to our Princess Leia economies. We need a recession and the sooner the better.. we also need basic education in schools about the principles of economics… I can’t believe so many people can be so stupid.

  12. Byrd Brain
    September 29th, 2008 at 6:30 pm

    But Alex Fear, what if the next guy doesn’t hate the Republican party? Or at least not very much?

  13. bl0ss0m
    September 29th, 2008 at 6:47 pm

    I think the major problem you may need to look at is the National dept, as far as I am aware from my admitted limited knowledge the American government is already far far in dept, mostly to China. Now while this is a seperate issue to Wallstreet, this is perhaps not the best time for the already indepted government to be giving cash bailouts. The reason they have to is to try and stabalise the economy and the dollar which is taking a bit hit. That’s the real problem. It goes far beyond Wall Street, far beyond New York and far beyond America. Start tighting your belts ladies and gentlemen, the crunch is coming

  14. lunacy
    September 29th, 2008 at 6:56 pm

    If they “majority” of Democrats had voted for it, it would have passed.

    The Dems HAVE the majority in the house.

    Here’s the talley.

    140 Democrats voted YES
    95 Democrates voted NO

    65 Republicans voted YES
    133 Republicans voted NO

    TOTAL = 205 YES, 228 NO

    See here to see who voted what.
    http://clerk.house.gov/evs/2008/roll674.xml

  15. Alex
    September 29th, 2008 at 6:58 pm

    Um, lunacy, should we point out that the majority of Democrats did vote for it? Or perhaps I’m missing your point?

  16. opinionated
    September 29th, 2008 at 7:06 pm

    hmm… interesting how this blog describes an almost nonchalance about this just hours after my cousin and I (a year apart and both recently graduated) also discussed how we didn’t feel the news frenzy panic in our day to day lives. Neither of us are stock-savvy or own property so we don’t have major investments that can be at risk right now. There has been some hardships on my part…I work in the art field and art is one of those “luxury items” that are first to go at the sign of economic hardships (referencing to the recession rumors at the beginning of the year) but I knew long before I graduated that this is not a profession for financially faint of heart, but I still manage to eat out and have adventures occasionally. Like you said, it’s all about living within your means.

    And I’ve seen firsthand the ugly side of sensationalistic media and how very different it looks from the real world…they hardly ever speak lies but they rarely ever give just the bare truth. Always take with a grain of salt.

  17. Mayra
    September 29th, 2008 at 7:07 pm

    All i could be scared about is that student loans may be harder to get. I’m a college student and I commute, and I’m on a full-ride scholarship so I don’t owe any money to anyone. However my parents have to pay a house mortgage, two cars, and several other small loans, so it’s them i’m worried about. I think this won’t affect middle and lower class people, but the majority of wealthy people who have invested a lot of money in the market.

  18. Christophe
    September 29th, 2008 at 7:11 pm

    Mmmmm…. Korean BBQ… Yummy….

    uuh.. what was the question?

  19. Debra W
    September 29th, 2008 at 7:32 pm

    I think the people who are going to be hit the hardest are the wealthiest top percent and that’s why we are hearing so much about it and so much panic.

  20. Dave
    September 29th, 2008 at 7:46 pm

    @sigh has it right; if this bill was as wonderful a thing as the so-called House leadership proclaimed, then it should’ve been able to pass with no problem. Don’t the Dems have the majority in both the House and Senate? They even had a green light from Bush, but they still couldn’t get enough Dems to vote for it.

    The why is easy enough; the reps who voted against it are afraid of voter backlash. I haven’t seen a roll call on it, but would be willing to bet that every one of the No votes came from someone up for reelection either this year or in two years. They’ve all had their phones ringing off the hook the last week, and they know where their bread is buttered.

    Add to that the fact that many in the House were unhappy that if it had passed, the Senate vote would likely have been delayed until Wed. or Thursday so they could get a feel for how it went over… Yeah, they’re still politicians.

    As for the impact of what happened today, most people reading this won’t feel it much right away. I expect to see my 401k investments drop substantially, and will hope they rebound to cover the loss. If not, I may need to delay retirement a few years beyond what I planned. Who knows? But right now, I still have a job, four vehicles that are paid for, less than 10 years to go on my mortgage, two kids in college, and two more to go. Even if my employer goes belly up (slim chance of that even now) I have knowledge and abilities that can earn a living for my family in the worst of times.

    So no, I’m not overly worried about it. Not happy about it, but I won’t lose any sleep either.

  21. astrodex
    September 29th, 2008 at 7:49 pm

    I think I’ll feel better about the whole thing after some Hot Asian Buns.

  22. gregback99
    September 29th, 2008 at 7:49 pm

    Uh… The depression was so gnarly people - it wasn’t just some mediocre times - that job you are working at - Kiss it goodbye.

    The potential downside here is collapse - doesn’t sound so bad? Find an old person that lived through the depression. Which is part of the problem, there aren’t many left.

    Is this at stake? It sure seems that leaders from both sides of the aisle think most definitely.

    I am not sure - It sounds like a scam - but look at it this way…

    We are already 10T in the whole - what is another T if it can prevent collapse, stabilize the markets - and hopefully get things back on track.

  23. Fernando
    September 29th, 2008 at 7:50 pm

    You are not feeling affected now because everything that goes on at wall street doesnt affect us emmidiately. We are barely feeling the effects of the beggining of when the wallstreet started suffering months ago. unfortunetly we are only in the beginning of recession.

  24. Jenny
    September 29th, 2008 at 7:51 pm

    For people like you who, A) have a job and B) own property, it will be comparatively safe for you to ride this out. For people like me, fresh college grads who are struggling to make a way for ourselves in the mire and muck, its a horrible time to be alive. This goes for anyone who’s unemployed, doesn’t own property, and/or has an overabundance of debt.

  25. Jim
    September 29th, 2008 at 8:15 pm

    I watched the votes live on the 700 Billion bail out and I have to say what an absolute sham it was.

    What’s the point in having time limits for voting when your going carry on for 10-15 minutes trying to force people who voted NO to change their mind.

    USA needs to get their government in line.

  26. rintrah
    September 29th, 2008 at 8:17 pm

    This guy makes a really good case for why the bailout was a terrible idea in the first place:

    http://www.cnn.com/2008/POLITICS/09/29/miron.bailout/index.html

    However, just because you avert one bad decision doesn’t mean that others aren’t being made simultaneously. Regardless of the congressional decision not to give the Fed and the Treasury new authority, the Federal Reserve nevertheless used its current authority to add $630 billion to the world’s money supply. In other words, people won’t be paying for it consciously; they’ll be paying for it through inflation:

    http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a9MTZEgukPLY

    @oezicomix: Hey, I’m a freelance artist too!

  27. Will Gam
    September 29th, 2008 at 8:43 pm

    I am furious about all of this, because of all the bone-headed things I have seen Congress do, the giveaways for the farmers, the foreign aid to Iraq and so many other places, the hundreds of billions spent for weapons systems that the generals and admirals don’t even want and the money spent on FNM and FRE and AIG, this was the one plan that might have been a real win for the American people.

    And now it is gone. Disgraceful. And trillions will now be lost in the credit markets, the stock market and in housing net worth.

    Maybe the purists and puritans believe that this is right. But for everyone who has ever saved a dime and worked hard and invested in a home or a stock, this is a disaster of unimaginable proportions that it will take as long as the Great Depression did for us to get over.

  28. Kristine
    September 29th, 2008 at 8:44 pm

    I’ve already felt the effects- my paycheck was withheld until the small company I work for managed to get a payment from a client. The owner also has money on the market and has been effected. Which then effects the rest of the foodchain in the office. I eventually got paid but it was scary for a few days. I think there’s a reason all those depression era people started keeping their cash in their mattresses and it had nothing to do with them being bad at saving money. But I figure it will work out.

  29. samm
    September 29th, 2008 at 9:01 pm

    I have definitely been affected or should I say a chunk of my savings have been. The market decline and the bleak economic outlook has cost me $20K at this point in time. You might as well play roulette because investing is not what is used to be. I hope Warren Buffet’s strategy still applies….

  30. Courtney
    September 29th, 2008 at 9:21 pm

    I guess now we’ll all be working till the day we die.

  31. From Atlanta
    September 29th, 2008 at 9:28 pm

    I’d just be happy to get some gasoline down here in Atlanta. Did you know that we are sitting in lines upwards to an hour to fill our tanks. I’m too young to remember gas shortages and gas rationing, but I’m feeling what everyone has told me about that era. We don’t have gas. Whole gas stations have been shut down for a week with empty tanks. What is worse, is that the major media outlets are not reporting on it. It must not be that important. I want to know when we’ll get gas again. The news media is focusing on the election and the economy; the local effects of the recent economic downturn aren’t being reported. In brief, there is no way to know how individual Americans are being effected. We know for sure that a lot of people are with out homes as evidenced by the high level of foreclosures. Many people were laid off recently, so many Americans are without jobs too.
    We won’t know the true effect for quite a while.

  32. sigh
    September 29th, 2008 at 9:30 pm

    The federal reserve is already pumping money into the economy even if it doesn’t get the 700 billion.

    Plus we survived the internet bubble bursting around the same time as 9/11. There’s too many safeguards now for the economy to collapse like in 1929. We might have a recession, but the economy will recover.

  33. Matty
    September 29th, 2008 at 9:35 pm

    Well, if there is a silver lining to this thing, I think it is that its motivating people to become more knowledgeable about economics and more responsible with their personal finances. I’ve been devouring every thing I can find about this crisis out of pure intellectual curiosity. Economics is endlessly fascinating, such a delicate balance resting on complex interrelations and yet…such an inexact science, subject to the vagaries and capriciousness of human behavior and perception.

    Personally, this crisis is having a measurable effect on my career goals. I am fortunate enough to have scholarship offers to several law schools. As of a few months ago, I was relatively convinced that I wanted to turn down these offers and pursue a career in the creative arts. Now…I just don’t think I can justify that. I hope to still pursue the arts during my spare time, and who knows where the future will take me, but that law degree from a top school will be more of a commodity in an unstable economic climate. Ultimately it will be more valuable for my long term goal to support a wife and family, which supersedes any personal career goals I may have.

    I’m a little disappointed, but I can live with my choice. The people who really need our sympathy and support are those who worked their whole lives, saved wisely, and never spent beyond their means, who are nevertheless seeing their retirement accounts and especially college saving funds for their kids being wiped out. Imagine working your whole life to be able to give your children better opportunities than you had, and then not being able to send them to college because the market has collapsed. This thing is real, and affecting real people in tragic ways. I don’t think it is at the absolute breaking-point crisis level yet (though it might escalate to that if some plan to inject liquidity into the credit market and prevent a freeze is not enacted) but don’t think this is just affecting greedy wall street execs and irresponsible people who took out risky subprime mortgages–even responsible people who did nothing wrong are being affected.

  34. Ann
    September 29th, 2008 at 9:57 pm

    Alex, I don’t think you should be so naive. You are lucky that you live within your means and don’t have much stock. How many Americans are like you? This may not affect you right away, but you will feel it. People are already cutting down on spending. What does that mean? Companies will have to downsize or shut down altogether. More unemployment (which, to think of it, may be good for you as more people sit at home browsing the web). More people without health insurance. Foreclosed homes and empty storefronts and even lower property values. Good bye Korean BBQ. With less people working and spending, where is the government going to get the funds they need to support things like education or the mentally ill or jails, etc. You are not insulated.

  35. NicoNico
    September 29th, 2008 at 10:56 pm

    In some ways, I’m lucky as hell, and other ways I’m screwed. I inherited my dad’s money, where most of it was in the stock market. It was all taken out before any of this happened, so I banked on that. He had an IRA that was partially invested in the market (my dad was a risk taker), but I cashed that as well because I didn’t like the bank it was under. Needless to say, I’m breathing a sigh of relief.

    On the other hand, I’m worried about the job market in a few years. I’m in college studying for a job in computers and the last thing I need is to have to find a job in a poor job market. While I could freelance to keep afloat, it delays my future monetary plans by quite a bit. Also, I have to take out loans every year to pay for school (that money I took out of those stocks already went to pay for school - go figure) and, with my bad credit (I am also disabled, so the inability to work really hampers my credit power) it could be impossible to find a loan. I’ll have to wait and see what happens. Hopefully they’ll straighten this out before I’m out of school, but if not, I’ll be living with my family for a little while longer.

  36. Alex
    September 29th, 2008 at 11:06 pm

    @Ann - yes, that’s the doom and gloom scenario that is being presented. My point is that I don’t believe that’ll happen. And neither do regular folks that I talk to every day.

    That seems to be the problem with the passage of the bill: regular people are opposed to the bailout because they see it as a lifeline for Wall Street and not Main Street.

    @Fernando - “You are not feeling affected now because everything that goes on at wall street doesnt affect us emmidiately. We are barely feeling the effects of the beggining of when the wallstreet started suffering months ago. unfortunetly we are only in the beginning of recession.”

    I don’t think so. The economy has been pretty bad - the collapse of the housing market was felt pretty immediately by regular people. It has finally caught up with Wall Street after a few months.

  37. Terry
    September 29th, 2008 at 11:29 pm

    Return of the Susso schemes from the Great Depression for Australia maybe? It was a scheme where the unemployed (29% of the population) worked for food vouchers consisting of bread and potato’s.

    “We’re on the susso now,

    We can’t afford a cow,

    We live in a tent,

    We pay no rent,

    We’re on the susso now.”

  38. donna
    September 29th, 2008 at 11:56 pm

    We’re down $60K today.

    Ah well, it’s only money and we can’t touch it for 15 years anyway.

    For my 19 and 23 yo’s sake, though, I’m glad the bailout failed. And it’s almost worth it to see the smug bastards on Wall Street suffer.

    Still, hard to watch our retirement savings all going to hell. Makes me sad we’ve actually lived within our means and bothered to save and invest. Should’ve just spent all the money on stuff we didn’t need like everyone else, I guess. ;^)

  39. Bunk Strutts
    September 30th, 2008 at 1:07 am

    Meh. The dems coulda passed it with their own majority, and to blame the repubs is a whiny excuse. I’d prefer that the feds stay out of the mortgage business altogether. The economy will fix itself faster and more efficiently without the “help” of Congress… who caused the mess in the first place.

    Ride it out. A 7% drop doesn’t mean very much in the long haul.

  40. Pol x
    September 30th, 2008 at 4:03 am

    @ nach #1

    you wrote

    “If you’re young and you “save for a rainy day,” you’re likely to be affected as your savings tend to be in more high risk assets such as domestic and international stocks.”

    No I think most peoples savings are in SAVINGS accounts.

    The money you are talking about is investments, which is quite a different matter.

    Over the last 15 years I have seeen people think themselves awfully clever for putting their superannuation to “work” in the market.

    Not a one of them has a pot to p*ss in now.

    The market ate all their pensions despit, but more likely because, they were being administered by get rich quick financial industry simpletons who were at no point interested in anything besides feathering their own nests.

    I am debt free with money in the bank, the only way the CC will affect me is if all the folks in the world suddenly stop buying Video games.

    As for the bail out…I’m glad it didn’t happen, as the Reps were just going to hand over the money to the bum clowns of wall street who were goig to administer them with that now well recognised ability of theirs.

    Oh and charge you for the privelidge.

    Also the money would never have been paid back. They’d have just fouled the process in the courts for a decade or so until they got the right puppet in the White house who would cancel the debt.

    Don’t think so? 25 years in court and Exxon have been absolved of their debt over the fines for the Valdez.

  41. SenorMysterioso
    September 30th, 2008 at 5:35 am

    ::snicker snicker “hot asian buns”

    I dont think I will feel much effect from any of this. I have enough money to buy anything I need and can save enough for most things I want. Not that I am anticipating it but Ive been poor before and most of us have been broke before and got by just fine.

    My gf was freaking out about the market drop until I asked her how much stock she owns - none

    Instead of the bail out, take that $700bl and split it up between every tax paying American. I think getting enough money to keep your house from going into foreclosure, pay off medical bills, go to college etc. would be a much better “economic stimulus” than a $300 check.

  42. Camilla
    September 30th, 2008 at 9:00 am

    People seem to forget that “majority” does not mean “every single one”.

    The majority - more than 50% - of the democrats voted for it. The majority - again more than 50% - of repubs voted against it.

    Or do people really think of political parties as one big entity instead of several individuals?

  43. Jeremy
    September 30th, 2008 at 9:34 am

    I don’t get why bankruptcy is not an option for these companies?

  44. just a guy
    September 30th, 2008 at 10:13 am

    I, too, am curious about the ‘hot asian buns’ pic.

  45. Colt Seaver
    September 30th, 2008 at 11:00 am

    Bulgogi. Yom nom nom.

  46. Troy Z
    September 30th, 2008 at 12:41 pm

    I do have a question regarding the 401(k)s and Mutual Fund investments that are likely to be scheduled to take a hit: When the decision is made to invest in them, is there something in the prospectus that guarantees their increase in value, and if so, what is the mechanism for that?

  47. Kurt
    September 30th, 2008 at 1:09 pm

    This isn’t a government problem only. The majority of Americans are living on borrowed money. It doesn’t take a genius to figure out that paying off debt with credit is idiotic. My sister had 7 credit cards and as soon as another one popped through the letterbox, magically a new pair of shoes would appear or at best one credit card would be paid off with another. Before she knew it she was $60 000 in debt. Lord knows how? Its the same principle on wall street. Make no mistake, everybody in the world is feeling this. You shat in your bed, now you have to lie in it, until the sun comes up and its going to feel like the longest night. The bailout is being presented as a cure, some believe all it will do is prolong the pain. Unfortunately nobody knows how long this will last. But last it most certainly will.

  48. Lee Smith
    September 30th, 2008 at 1:52 pm

    I am a Realtor and a real estate investor in Indiana, and banks loaned incredibly bad amounts of money on houses. The bailout was/is a bad idea. These banks made bad loans to people who never should have been in a home to begin with.

    Actually, all sorts of people are to blame for this. Mortgage brokers/lenders pulled the wool over investor eyes. Brokers/lenders found and exploited loop holes in the system to get more people pseudo-qualified for loans.. Insurance companies(freddie mac, fannie mae, FHA, etc) knew these loop holes were being exploited, but didnt do anything to curtail them.. Brokers/lenders weren’t very clear with buyers about terms of loans. Buyers weren’t doing due dilligence, or paying attention to the loans they were taking out. Investors weren’t paying attention to what they were buying… blah blah blah the loop is endless..

    We are in an entitlement generation.. Most people seem to think they are entitled to own a home, a bunch of cars, and have 2.3 kids. You can have that stuff, but you have to EARN that stuff as well.

    I saw a house that was worth 30k in great shape, and the seller owes 80k on it.

    I have seen people with 335k ARM loans that are now at 10% interest. a 1% increase in a 150k loan is an extra $100 p/month in mtg payment.. This 335k loan guys’ payment is now up over $600 p/month from when he got the loan in 2005.

    I once made a 95k offer on a house, which was 5k below what the loan amount was. The bank turned me down, because the loan was federally insured via FHA. The banks hands were tied. They knew the house was only worth what I was offering, but that federal insurance was stopping them from accepting my offer. Why should they accept my 95k offer when they can get 100k from FHA. I bought the house 6 months later as a bank foreclosure for 85k(I was top offer at 85k). They probably spent 25-50k foreclosing on that house, and they lost an additional 10k over my initial offer.

    8000 short sale listings in my local MLS(multiple listing service) last year, and only 300 of those sold… That tells you that they would rather sell it to the insurer than sell it for what it’s worth…

    These people don’t need a bailout, they need some brains!

  49. Alex
    September 30th, 2008 at 1:54 pm

    @Troy Z: “When the decision is made to invest in them, is there something in the prospectus that guarantees their increase in value, and if so, what is the mechanism for that?”

    There is no guarantee that your investment gain value. In fact, whenever you invest, the investment company makes you sign that you know your investment is not FDIC insured and may lose value.

  50. Troy Z
    September 30th, 2008 at 2:29 pm

    @Alex: “There is no guarantee that your investment gain value. In fact, whenever you invest, the investment company makes you sign that you know your investment is not FDIC insured and may lose value.”

    That’s what I suspected. So the rationale for using our taxpayer money for a bailout of these acknowledged risks is…. what, exactly? Anyone?

    The lastest codewords I’ve heard used now are along the lines of “an infusion of confidence” in the market. Well, shoot, I’ll bequeath you all confidence. I’ll give the markets a friendly chuck on the chin and tell them to buck up, little camper. Tell them grey skies gonna clear up. Sing Hallelujah c’mon get happy. But do not expect the American public to pay dime one for so much as a motivational poster to put on the wall when there was a bill proposed with explicitly no oversight on $700 billion to ameliorate private debt on admitted risk that most of us prudently refused to buy into the the first place.

  51. Jeremy Hillary
    September 30th, 2008 at 3:01 pm

    Everyone knew the housing bubble couldn’t last, that it wasn’t “real”, that it was all just way too easy. We all had that feeling. We all knew. We all thought, “This is too good to be true.” Well, we were right.

    So how did we get here?

    Subprime mortgages? Bad debt? Easy money? Where did they come from?

    Democrats in their own words Covering up the Fannie Mae, Freddie Mac Scam (C-span footage)
    http://www.youtube.com/watch?v=_MGT_cSi7Rs

    Fannie Mae CEO calling Obama and the Dems the “Family” and “Conscience” of Fannie Mae (C-span footage)
    http://www.youtube.com/watch?v=usvG-s_Ssb0

    Time Warner who contributed over $300,000 to Barack Obama’s campaign has already tried to force a takedown of the following video that just over the weekend had jumped from 200,000 to over 1,000,000 hits. But people are reposting it and reposting it.

    Burning down the house: What Caused Our Economic Crisis?
    http://www.youtube.com/watch?v=TxgSubmiGt8

    As for those out there who would be thrilled to see Wall St. go belly up, please think deeper. Wall st. IS Main St. There are a lot of jobs, a lot of families, a lot of homes, a lot of lives at stake in this disaster, this well-engineered disaster, and not just white-collar ones. These companies finance other companies, manufacturing companies, even green companies. Lehman Bros. was a big backer of Al Gore’s green projects. If you look more closely at who were financed by, and who in turn financed these Big Bad Wolves of Wall St., you’ll find lots of companies from both camps, and many - if not most - who couldn’t give a damn about Hatfield-McCoy politics, who will suffer tremendously from all this.

    And for what? So the Dems could champion “affordable housing” without getting their political hands dirty by raising taxes. Subprime mortgages and easy credit was their Camelot. They forced lenders to issue subprime loans to people who couldn’t afford to pay, and they championed easy credit to anyone who wanted them but mostly to those financially ill-equipped to play the money game.

    For years, the Dems have consistently propped up Fannie Mae and Freddie Mac as “The Untouchables”. They’re still propping it up and will keep propping it up until the blood becomes just too overwhelming to ignore.

  52. floyd landis
    September 30th, 2008 at 3:16 pm

    The President is selling fear again. This time we aren’t buying. Hey W, go pound sand up your ass.

  53. Jeremy Hillary
    September 30th, 2008 at 3:28 pm

    One more thing.

    The people who will be hit the hardest right away, and for a long time to come, are the pensioners, the ones who just retired, are retiring, or are retiring soon. A huge chunk of their savings, their future, the comfort they had hoped for for so long, just went up in smoke.

    These are the people who had been stuffing cash into the system for years, the people who had been keeping the system going. These are the people who thought the bubble would be their “rainy day”.

    Well, this is their bubble. This is their “rainy day”. And it’s blowing through like a hurricane off the Gulf of Mexico.

    For those who are still earning and saving, feel for them.

    Tomorrow, it will be you.

  54. Jeremy Hillary
    September 30th, 2008 at 11:26 pm

    The original version of this video has been reposted.

    Burning down the house: What Caused Our Economic Crisis?
    http://www.youtube.com/watch?v=F0Dy1jAXnIw


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