From Washington to Sacramento to the seats of power in L.A. city and county government, poltiicians suddenly have awakened to the fact that these are hard times — $700 billion to bail out bankers will do that to you.
Of course, ordinary citizens already knew how bad things are because they go to the grocery story, pay for their own gas and have been scrambling to pay the mortgage for a long time.
But don’t worry. Nearly three months late, the governor signed a record $145 billion state budget, nixing $1 billion out of spending 
for the elderly poor and the poor with children — a budget his own money man
Mike Genest called “not nearly adequate” and Democratic State Controller John Chiang, a Democrat said “was out of balance the
moment it was signed.”
At the county, Chief Executive Officer Bill Fujioka put a
hold on new spending, including projects already approved, in
anticipation of his final budget presentation in a couple of weeks.
“If I can use an analogy of sorts, we need to start storing
our nuts because it’s going to be a very cold winter,” Fujioka said.
At City Hall, the mayor and his colleagues indicated they intended to store theirs to protect the city’s pension funds, debt portfolios, possible future bond expenditures and the impact on capital projects — and crush yours.
“If this continues in the way it has over the last few weeks, then it’s
inevitable that the department’s going to have to look at our water and
power rates,” Councilman Tony Cardenas is quoted as saying in the last graph of the Times story.
A fount of wisdom, Cardenas also puts the finishing touch in the Daily News story: “We should not be using public tax dollars to reward bad behavior.”
The mayor himself took a similar tack: “It’s absolutely ludicrous that anybody would propose a $700-billion
bailout that could go to more than a trillion dollars . . . without
regulation, without accountability.”
It’s enough to make you laugh — or cry, depending on your mood.
Here these people — everyone one of them — has squandered the public’s wealth while achieving precious little for the public benefit.
And now they’re giving the pointed finger to Washington and Wall Street 3,000 miles away and talking about “accountability” and “rewarding bad behavior” and the problems they face borrowing money to cover up the phony budgets they approved.
And they even have the nerve to talk raising water and power rates yet again? For what? to give DWP workers another 6 percent raise next year? Oh, I almost forgot they’ve already written that into contract.
The old saying “Even a stopped clock is right twice a day” applies here. I agree that bailing out companies with government (taxpayers’) money is ludicrous and we should not agree to it. If
the banks hired charlatans to run their businesses they should lose their business. Their stockholders have probably already bailed out but if not, there are risks in Las Vegas and on Wall Street. Another old saying “Win a few, lose a few”. The losers must accept their losses – after all they can deduct them from their taxes. TH
Totally agree with TH. Sadly, if this bailout goes through, we are rapidly becoming the United Socialists of America. Please, let them fail — and maybe they won’t do it again if they have to pay for it. Remember tough love ?!
Villaraigosa and the City Council just won First Prize for hypocrisy and nerve by criticizing the billion — trillion — dollar bailout for billionaires: they’ve been giving hundreds of millions of our tax dollars year after year to the billionaire developers who finance their campaigns.
Walter, I would add that it is not the savings in the banks that is in jeopardy, it is that their profits are threatened by the mortgages that will not be payable (lost jobs, cannot afford, whatever) and now they are trying to get those paid off by the government so that THEY can be fired or retired with MILLIONS. They made bad investments and should take responsibility for their mistakes just as all the rest of us have to do. Actually, they should be held personally responsible for all of this and some of them ought to go to jail as the earlier ones did (Enron). Yes, it is time for some big changes in taking responsibility for what we do. NO MORE EXCUSES.
AND THAT GOES FOR LACITY AND COUNTY AS WELL AS WALL STREET AND SACRAMENTO.
TH: The losers must accept their losses
Pnkfuschia: Please, let them fail
Let them fail? Are you mad? Unless all of your assets are buried in a coffee can in the backyard, you have a stake in the stability of our financial systems — and a ‘let them fail’ strategy risks turning a whole lot of innocent people into bigtime losers.
It’s not just billionaires who get hurt… Teddy: Did you see the faces of people standing online outside of IndyMac a few weeks ago trying to pull their life savings out before it turned into dust? I’m sure they would have loved your trite “losers must accept their losses” jibe.
The bailout plan currently being debated can be criticized on all sorts of substantive terms, from the pricing of the assets to how the government gets paid back (e.g., whether all other payouts are subordinated to the government’s claim on being paid back first).
And bailing out these failing institutions is not without substantive consequence. A strong argument can be made that the expectation of government bailout creates an implicit moral hazard (the condition under which a party insulated from risk behaves differently from the way it would behave if it were fully exposed to the risk) that leads to riskier behavior in the future.
A lot of very smart people will tell you that the bailout of the S&L industry in the early 90s planted the moral-hazard seeds that led to the sub-prime mortgage crisis that triggered the mess we’re in today.
So, by all means, argue the nature and conditions of the bailout. But do so on the substantive merits, rather than knee-jerk “let ‘em fail” rhetoric. And if on those merits you reject the bailout as inappropriate, define your plan for stabilizing the financial markets before the carnage spreads any further to your bank account or mine. Have you checked your asset value lately? I’ve lost 30% of the equity value in my home in the past 90 days, and 25% of the cash value of my 401(k). From my vantage point, and presumably yours and those of most non-billionaires like us, a little stability would be welcome.
Throwing up your hands, stomping your little feet and saying “let ‘em fail” is naive and foolish. And just plain dumb. When they start failing, then what? What’s your plan? If our major financial institutions crash and burn, you won’t be just punishing billionaires. Middle-class depositors and mortgage holders will get hurt, and badly.
Remember Lincoln Savings and Loan? Sure, Charlie Keating went to jail and lost his personal fortune. We showed that bastard. But along the way, a whole lot regular people lost their life savings and their retirement nest eggs.
They’re the kind of “losers” you would so blithely throw under the bus now with the admonition to “accept their losses.”
And again, unless your assets are in gold bullion buried in a coffee can in the backyard, you’ll find yourself under the bus with them — no doubt squawking “wait a minute, when I said ‘losers must accept their losses’ I didn’t mean me“.
I’m not dismissing your frustration and anger. There’s a lot of blame to go around, a lot of recrimination to work through, and maybe more than a few bastards who should be punished along the way.
But letting major financial institutions fail is not an answer to this crisis, unless you’re willing to pull the rubble down around your own head and have us all start over again from scratch.
Friends, when the govvernment owns everything including your tax money which is supposed to pay for government not rescue people from any
overpending they do, you are in a socialist world! That is the difference between socialism and capitalism (and capitalism is not a dirty word – look it up). The minute we bail those companies out and take control, we own them. Do you think there are enough people in D.C. who understand how to run a bank? I know there are not. Look at the ones who went to Harvard and Yale who helped generate the current problem.
Okay, you say? The rest of the world is socialist and they are getting along just fine.
Yeah, but, if we would stop sending them our hard-earned bucks, they would not be so happy.
Why do we have military bases all over the world?
We are not at war. Because the old guys who made that decision after WWII thought we should be nice, pay our share of the war debt and in addition help our friends and enemies get back an economy. And if you bother, you will check your 2008 Almanac and see that the Iraq war does not come close to the amount it takes to have those bases all over the world. Look under Military.
I can hear you saying to yourself, “she thinks she is so smart” No, I do not. I have a passion for America and it includes knowing what is going on. I have lived through the Depression ((don’t jump out the window like some of those people did, through WW II, through 52 years and three days of marriage and am now a Matriarch (Harold is not here with me anymore).
And I am still interested and active and willing to take you on, pinkfuschia, who ever you are. I read your last entry and you have no idea what you are talking about. TH
Sorry, pinkfuchsia, forgive this old lady for my slight confusiom, my diatribe was directed at the person who addressed both of us. I am glad someone else knows what I am talking about. And that is definitely you! Teddy
You are indeed confused, and it’s more than slight.
Let me try to simplify this for you:
1) Our financial systems are on the verge of an unprecedented collapse.
2) Your suggestion that we forego a bailout and instead “let them fail” is moronic.
3) Your inability to recognize that this would be catastrophic not just to the “charlatans” who got us into this mess, but to ordinary people like you and me, is naive bordering on ignorant.
4) And your anti-socialist diatribe is just plain dumb.
But don’t take my word for it. Here’s what Warren Buffett, one of the most successful capitalists in history (and a guy who put his money where his mouth is today), said in an interview this morning about the proposed bailout:
“Last week, we were at the brink of something that would have made anything that’s happened in financial history pale,” Buffett told CNBC television. “I’m not saying the Paulson plan will eliminate the problems but it’s absolutely necessary, in my view, to avoid going off the precipice.”
Urging Congress to act swiftly, Buffett said Wall Street’s troubles were inseparable from the finances of everyday U.S. consumers.
“The economy is a bit like a bath tub – you can’t have cold water at the front and hot water at the back,” he said. “This is sort of an economic Pearl Harbor we’re going through. I think most of [Congress] will get it and they’ll do what’s right for the country. The government will do the rational thing and act properly to pass the Paulson plan.”
As one of the oppressed taxpayers in this country who is about to be screwed once again by the greediness, avarice, and criiminal activities of our elected officials, I would like to suggest that:
1.) Before we are forced to acquiesce to the 770B bail-out (brought on by the sub-prime debacle), I would like a “MEA CULPA” from every crook who was either directly or indirectly involved in aiding and abetting millions of unqualified home ‘buyers’ to bring down the US economy! That would include people like Tony Villar, who is directly involved because of his importing of millions of illegals to LA, and the sanctuary city status we are forced to endure!
2.) After the “MEA CULPA”…I would like to have a public stoning of all these criminals…at high noon on the steps of City Hall!
3.) And then, I would like to see them all hauled off in handcuffs ala Ken Lay!
Only in this way, do I feel that I am getting something in return for all of the money these crooks have taken from me and my grandchildren!
I sure appreciate the lesson – yes, I do. Thank you. Someday let us discuss this again. You will, I think, concede that we just happen to be talking about apples and oranges. You are thinking about us odinary people. Believe me, savings deposits are insured to $100,000. And
if your savings are more than that (congratulations) you can open as many accounts as you need to be sure of every dime being insured. Those people who took out their money did not have to do that.
The same is true if you own shares in a company. The price of the shares may go down but you just hang on to them, and when everything normalizes, the price will go up again. The Dow was 8200 points in 2002, and now it is fluctuating around 10,500. Nothing goes straight up. It has been as high as almost 15,000.
I have been discussing businesses who lend money to people for any purchase (car, house,college, vacation, time-share, etc..) the point here is that they have to be in a job, a position to qualify for credit because they are going to have to pay it back plus interest for the time they owe the money. This is where this whole went haywire,. Slick sales people sold things to people who were unqualified. And the company lost a lot of money on bad loans, now they want to be bailed out. Excuse me, doesn’t that mean that those foreclosures mean that those loan payments are not coming in and they are left with a lot of homes, cars etc., they have re-possessed. They have a problem, but they are not sick and homeless. That is what you are trying to sell me and I just do not buy it.
When we are born we do not have a stitch on and we have no credit. If we think before we spend, when we die, we might be able to afford a coffin. In between it is really up to us. If we want to be homeless, we can find a place to camp out like the guy under the bridge here on
Valley Circle Blvd. He had his jug of wine and was spending the weekend there. The policeman I called to check on what seemed to be a deserted truck (I was afaid a hiker was hurt and up in the hills and might need help) explained what was going on. I just shrugged and said, well he’s ok and camping out – thanks for letting me know. I don’t think I am an expert on how you live your life, so I have no suggestions. Does that make me trite? I do not think so,. T.
Savings deposits are ensured to $100,000
So that kind of ‘socialism’ is OK with you?
The price of the shares may go down but you just hang on to them, and when everything normalizes, the price will go up again.
Wow. So simple! Except when things don’t normalize, and the price doesn’t go up again. Holding any Lehman shares today, Teddy?
I have been discussing businesses who lend money to people for any purchase.
Me too. If you let all of those lending institutions fail, the results will be catastrophic for all of us.
This is where this whole went haywire,. Slick sales people sold things to people who were unqualified.
Actually, it started with a variety of actions by Congress designed to encourage lending to lower-income people and make the dream of home ownership more accessible to more Americans. A worth goal, perhaps, but fraught with risk.
In that environment, subprime loans went from 2% of total loans in 2002 to 30% of total loans in 2006. That enormous increase swept in a lot of people who shouldn’t have been borrowing, but this wasn’t a scheme concocted by slick sales people. It was an initiative designed with good intentions but poor risk management.
The lenders spread the risk out by packaging the loans as CDOs, or Collateralized Debt Obligations, sold to investment banking firms. These CDOs were rated AAA by the rating agencies, so the banks buying them did little or no diligence on the underlying assets — which eventually started defaulting.
Meanwhile, GAAP accounting rules were moving this year toward tougher mark-to-market standards — forcing massive writeoffs by the investment banks and financial institutions on the defaulting CDOs.
That created a huge liquidity crisis. The financial institutions went looking for capital tto shore up liquditiy — and initially found a reliable capital source from sovereign wealth funds. Earlier this year, Citigroup was bailed out by a $7B infusion from the Abu Dhabi investment authority.
But political controversy swirled almost immediately about foreign capital “buying up US institutions,” and the sovereign wealth funds back off. That renewed the liqudity crisis, which has deepened as these financial institutions cope with a market in which the cost of money substantially exceeds their cost of lending it. They began toppling. Bear Stearns and Lehman went bankrupt. Merrill fell into a forced sale. Goldman made a deal with Warrent Buffett that stands to make Buffett a much, much richer man…
Point is, while there is plenty of blame to go around here, boiling it down to some slick salesment scheming to sell loans to unqualified borrowers is kind of like howling at the moon. Other than making you feel good, it’s meaningless.
And the company lost a lot of money on bad loans, now they want to be bailed out. Excuse me, doesn’t that mean that those foreclosures mean that those loan payments are not coming in and they are left with a lot of homes, cars etc., they have re-possessed. They have a problem, but they are not sick and homeless. That is what you are trying to sell me and I just do not buy it.
Cripes, I don’t know where to begin here. Let’s start with the fact that CDOs are investments in the cash flows of the assets, rather than a direct investment in the underlying collateral…. Never mind. I fear we are, indeed, talking past one another here. I’m trying to tell you this is calculus and you keep wanting to argue that 2+2=4.
When we are born we do not have a stitch on and we have no credit. If we think before we spend, when we die, we might be able to afford a coffin. In between it is really up to us.
Exactly. That’s why I choose to seek a solution, flawed though it may be, rather than saying “Screw ‘em all. Let ‘em fail.” Trust me, if you let ‘em fail this will touch you, too.
If we want to be homeless, we can find a place to camp out like the guy under the bridge here on Valley Circle Boulevard. He had his jug of wine and was spending the weekend there. The policeman I called to check on what seemed to be a deserted truck (I was afaid a hiker was hurt and up in the hills and might need help) explained what was going on. I just shrugged and said, well he’s ok and camping out – thanks for letting me know.
Huh? Are you having a senior moment, or is this somehow relevant to the central point we’re debating?
I don’t think I am an expert on how you live your life, so I have no suggestions.
That’s belied by your comment that started this thread, in which you take a position that we should let the system crumble and tell all the “losers” tough luck — you need to “accept your losses.
To that, I’ll repeat the point I made in my first comment: Letting major financial institutions fail is not an answer to this crisis, unless you’re willing to pull the rubble down around your own head and have us all start over again from scratch. I’m not willing to do that.
Does that make me trite? I do not think so,.
Your comments — “every stopped clock is right twice a day”… “win a few, lose a few”… “losers must accept their losses” etc — are the very definition of trite.
That doesn’t make you a bad person, and in fact I appreciate your outrage and moral certainty. I just don’t agree with your simplistic views of what’s broken, how it got broken, and whether and how we ought to fix it…
Uncle!
Anon. 2:54 pm
We need to “SHAKE THE PLUM TREE”!!!
With all due respect, what’s wrong with letting the ‘bad’ guys pay for their crimes? Why should law abiding citizens be forced to pay for the sins of the slick willy’s of the world?
Paulson and Bernanke have done a good job of instilling fear into the heart of Congress and the public-at-large; but there are still millions of us who want to purge the system! We don’t know if they are crying ‘wolf’, or if, in fact, their really will be a catastrophic credit crunch. Are the credit markets REALLY frozen? How do we know? Paulson and Bernanke are NOT telling us ANYTHING! They want complete immunity and the ability to do whatever they feel like doing…with TOTAL impunity! No oversight and no administative interference! WHY THE SECRECY?????????????? WHAT ARE THEY HIDING??????????????
I am SICK of the politics of fear perpetrated by the Bush administration for the past 8 years! I am MORE than willing to play ‘CHICKEN’ with the FEDS! Bring it on…NO BAILOUT! IMHO, they are faking us out! Screw ‘em! NO BAILOUT!
5:21:
Bear Stearns and Lehman Brothers are bankrupt, Merrill Lynch is being sold off for parts, AIG is teetering on the brink of insolvency, billions of dollars in real estate and market value has been lost, and you think they are ‘faking us out’???
With all due respect (emphasis on ‘due’) to your well reasoned argument and the impressive array of facts that you present to underpin it, I’ve gotta tell you I’m still more inclined to buy Warren Buffett’s analysis:
“Last week, we were at the brink of something that would have made anything that’s happened in financial history pale,” Buffett told CNBC television. “I’m not saying the Paulson plan will eliminate the problems but it’s absolutely necessary, in my view, to avoid going off the precipice.”
Urging Congress to act swiftly, Buffett said Wall Street’s troubles were inseparable from the finances of everyday U.S. consumers.
“The economy is a bit like a bath tub – you can’t have cold water at the front and hot water at the back,” he said. “This is sort of an economic Pearl Harbor we’re going through. I think most of [Congress] will get it and they’ll do what’s right for the country. The government will do the rational thing and act properly to pass the Paulson plan.”
I suppose I’m the crazy one. I keep hoping to draw out some level of reasoned analysis and discourse from y’all out there in “I’m mad as hell and I’m not going to take it any more” land, but y’all seem to prefer to just bay at the moon.
Good luck with that…
5:45 p.m.
Maybe I’m just ‘baying at the moon’, but this is my ‘reasoned analysis and discourse’…hope it meets your expectations. If not, my sincerest apologies! And, btw, I AM ‘mad as hell’!
IMHO, we need a good, deep recession for a few months or even years to allow the free market determine the economic future. Bail-outs do nothing more than prolong the torture, and continue to disguise the underlying weaknesses in our financial system.
And, who knows…a recession might force millions of people who are not here legally…to LEAVE! This alone would be a huge boost to our economy!
The foxes are going to be guarding the hen house, and the $750B bailout will undoubtedly be used to benefit THEM!
Just read that the auto industry was given a 25B bailout…separate from the $750 pending bailout!
Next, get ready for the credit card co. bailout! Where is it all going to stop??? Who is paying for all of it???
And lastly, bailouts are certainly not an incentive for the crooks on Wall St and the Feds to end their greedy, criminal ways!
“Cripes, I don’t know where to begin here. Let’s start with the fact that CDOs are investments in the cash flows of the assets, rather than a direct investment in the underlying collateral…. Never mind. I fear we are, indeed, talking past one another here. I’m trying to tell you this is calculus and you keep wanting to argue that 2+2=4.”
**************************
Let’s not lay all the blame on poor people not being able to pay back loans, Fannie and Freddie were privately run and not enough oversight. It was also Wall Street inventing ways to profit from the short lived housing boom. These “creative” investment in non tangilbe assets should be outlawed. And the average American wants to know that Wall Street CEO personal assets aren’t being bailed out. If you are struggling to make a payment on your one modest home you sure as hell don’t want to bail out millionaires who own mansions.