I Really Mean NO BAILOUT

In my previous no bailout post, I encouraged you to call your representatives. One of my senators, Dianne Feinstein, sent me a response this afternoon that contained a statement she made on the Senate floor yesterday. She said:

My constituents by the thousands have made their views clear. I believe they are responding to the original 3-page proposal by the Secretary of the Treasury.

Let me be clear, Senator Feinstein. I do oppose Secretary Paulson’s 3-page proposal. But I also oppose any any other taxpayer funded rescue plan. You are misrepresenting your constituents and trying to use us as political capital for furthering your agenda for the rescue plan.

In her statement, Senator Feinstein also said:

Hurricane Ike shut down refineries on the gulf coast 2 weeks ago, and now, today, people are waiting hours in lines for gasoline in the South. Similarly, the collapse of the financial sector would have severe consequences for Americans all across the economic spectrum: for the person who owns the grocery store, the laundry, the bank, the insurance company. Then, if the worst happens, layoffs. And even more than that, somebody shows up for work and finds their business has closed because the owner of that business can’t get credit to buy the goods he hopes to sell that week or that month.

This is classic FUD. It also appears Senator Feinstein doesn’t know how businesses work. The kind of credit you use to purchase goods does not require financial institutions. It is called Net 30 (or some variation) and there is no bank or financial institution involved. It works like this: Suppose you sell computers. You have a Net 30 agreement with the computer manufacturer which allows you to get the computers for 30 days before you have to pay for them. This gives you a chance to sell them before your bill is due.

That Senator Feinstein is married to investment banker Richard C. Blum gives me additional concern that she is seeing this crisis from an investment banker’s point of view – a point of view that sees the current financial mess as such an important problem that it will affect everyone.

So let me be clear, Senator. Do not go through with any financial rescue package. Do not buy or insure “toxic loans” or other difficult to value securities. Do not invest taxpayer dollars in failing businesses (or any other businesses for that matter). Do not provide lines of credit to high risk institutions (or any institutions for that matter).

Reader, I encourage you again to call all your representatives and let them know you oppose any financial rescue plan. It’s time to keep the pressure on.


Stop the Bailout

As if the AIG, Freddie Mac, Fanny Mae, and Bear Sterns bailouts weren’t bad enough, this last week congress has been considering a wide scale financial rescue plan proposed by the executive branch that will require 700 billion taxpayer dollars to fund. Congress is debating what this money will be used for and what kind of oversight they want (the executive branch wants a blank check with little or no oversight, of course). One use of the money could be to buy up “toxic loans” to help cleanup bank balance sheets. It is possible the government will actually make money on this entire deal, but that is far from certain – and it is also beside the point.

The financial institutions that are in crisis have put themselves in that situation over the last 8 years by making loans to unqualified home buyers – a lot of times requiring neither a down payment nor income verification (i.e. liar loans). These lenders loaned money to people at the height of the housing bubble, didn’t make sure they could make their payments, and didn’t give themselves a safety cushion by requiring a 20% or so downpayment. What where they thinking?

The irresponsible borrowers, on the other hand, lied, in many cases, on their stated income loans, bought houses they couldn’t make the payment on once the adjustable rate kicked in, and in some cases bought multiple houses to try to flip. This is risky investing. I don’t expect anyone to pick up my losses in the stock market. Likewise, they shouldn’t expect everyone else to pick up their losses in the real estate market.

So what can you do to stop the government bailout? Make your voice heard. Here are some steps you can take to make your opinion known:

When you call your representatives, you can simply say to the staffer who you talk to “I oppose the financial rescue plan. Please let the senator (or congressperson) know. Thank you.”

Please leave a comment if you have other ideas for opposing this bailout.

AIG Bailout

CNN is reporting on the government bailout of AIG.

What is going on? I feel like I’m living in a Twilight Zone episode where America is a socialist country. What happened to the “private” in private companies? Maybe the Fed and Treasury are confused and believe a publicly traded company means it’s really owned by the government.

The media continues to justify the government’s actions as necessary to prevent a major financial crisis, though in my estimation it is better in the long term to let AIG default on their loans because a major default like this would:

  • Put more pressure for lenders and investors to provide better oversight of the companies they invest in (at least until they forget about this crisis when the next bubble comes along)
  • Limit direct losses and risk to investors and lenders in AIG rather than spreading it out over all taxpayers
  • Stop the current trend of big government bail outs of large corporations (e.g. Freddie Mac, Fannie Mae, Bear Stearns), which will only desensitize the public and establish precedence – both which may make it more common in the future.

More importantly, the government sucks at running pretty much anything besides the military (and even they are infamously wasteful). I don’t see how it is the government’s and our responsibility as taxpayers to prop up large corporations – even if their failures will have effects on the broader economy. Recessions are normal market corrections that need to happen. A lot of companies dug themselves really deep holes and now the market needs a serious correction. The government bailing out a few of the big dogs doesn’t change the fundamentals but rather postpones the inevitable and spreads the losses over all taxpayers. I think welfare programs stink, but this is especially disgusting. For all the clamoring that Republicans did in the 90s to reform welfare with the support of President Clinton (which made welfare better than it was), this is far worse. The $285 billion (estimated for Freddie, Fannie, and AIG) is like loaning 10 million American’s with bad credit $28,500 each to keep them out of foreclosure. We’d rightly be pissed out of our freaking minds if that happened and so we should in this case as well.

I also cannot help pointing out how one sided CNN is. There is no mention of the negative consequences of the government taking ownership of AIG and becoming responsible for their debt, only of how it will help stabilize the world markets. That is first class, one sided reporting. I applaud you CNN for your journalistic integrity. Why should U.S. taxpayers be responsible for saving world markets?

There is a lot of turbulence in the markets – and for good reason. A lot of companies are built on a house of cards and the effects of their bad management and people who invest in these badly managed companies should be allowed to ripple through the market. Why should the government and U.S. taxpayers give a rats ass if world stock markets are down for the next 5-10 years. Why should U.S. taxpayers who don’t even invest in the stock market have their money used to artificially prop it up?

The only thing good that happened is that – just prior to the bailout – AIG stole… er, raised… $20 billion in private money before the government took over, so that should offset tax payer risk somewhat.

I haven’t seen Obama’s or McCain’s opinion on the AIG takeover, but I doubt they are going to say it was a bad idea, based on their general agreement with the Fannie and Freddie takeovers. The Senate and House appear to have the same mob mentality that was rampant on wall street with the housing market (must bail out, must bail out, no other options, must bail out). 534 Manchurian candidates (-1 for Ron Paul).

Fortunately, there is another.