BleepingComputer.com: What should be done with the bailout package?

Does it seem to anyone else that over the years, we go from one type of economic solution to another...neither one working well for long? Here's a line of thought I've been stewing over lately:

Since the Great Depression, the political pendulum has gone back and forth; we swing from Classical economic strategy to Keynesian economic strategy. At the moment we are heading toward Keynes again.

To end the Great Depression and spur new economic growth, FDR used many Keynesian elements to craft a recovery plan. These included short-term government deficit spending. The effect is called the Keynesian multiplier; infusing raw funds into things such as public works projects create jobs and increase wages; these wages are spent through out the economy, stimulating more businesses; and so on and so forth. This is the idea behind much of the spending in the current stimulus plan. FDR also put into place new levels of government regulation that had not existed in the "freer," largely unregulated market that had lead to the stock market crash, bank system failure, and had ultimately caused the depression in the first place.

FDR's plan worked...the economy grew far past WW2 into the 50's and 60's. However the party ended as inflation and unemployment rose. Reagan saw the combination of these poor economic indicators...together known as stagflation...as proof that the economy was over-regulated and businesses were being over-taxed. The Classical school tells us business can run itself far better than with government interference. So regulation was removed, taxes lowered.

It worked....the freshly-unbound companies grew, the economy improved. For a while! Eventually we found ourselves in mild recession and began to see the toll society was taking from the cuts in regulation and government funding (ie schools, environmental damage, ect). Then Clinton came along. He tried to balance the two schools of economic thought; modest taxation and modest national debt. Coupled with Congress' moves toward a balanced budget, and the tech boom, (and also reduction in military spending with the recent dissolution of the USSR) the sky was the limit.

Then, with the economy already cooling due to the burst in the tech bubble, Bush came to power and the pendulum began swinging back toward the Classical side. Cutting regulation, cutting taxes across the board; this was his strategy to get the economy going again. How do tax cuts stimulate the economy? According the Classical economic theory, by cutting taxes for companies and the wealthy, you stimulate new growth. New factories and facilities can be constructed; there's more money for entrepreneurship, more research. Why didn't it work out this way?

The problem with the fundamental concepts of both Keynesian and Classical economics is that they were designed for mostly self-sufficient economies. Tax cuts can't help US workers when the money is spent on infrastructure and jobs in China. Cutting taxes for the top 1 % reduces the contribution these individuals make to the inherent costs society incurs in producing the resources (ie roads, educated work force) from which their company's profit...and thus their high compensation...is derived. Furthermore, as higher-paying jobs are sent overseas, the new local facilities that are built tend to require unskilled labor; in other words, job-creation isn't just about job totals...creating new jobs that pay less than the ones we loose is not helpful for our long-term economic outlook.

At the same time, the Keynesian multiplier won't be nearly as effective when much of our internal spending will at some stage be outsourced. But ultimately, the money will have a greater local impact than alternative solution.

So what I am getting at is this: we need a new leap forward in economic theory, one as revolutionary as the steps taken by Adam Smith or John Keynes.

In the mean time, I think the goal should be balance. Modest taxation (not high taxes, but not tax cuts at all costs), modest debt (some debt is ok; too much and you frighten investors and weaken our currency) and as small a deficit as possible (long term; the stimulus package was short-term deficit spending designed to "jump start" the economy).

Honestly, I think there should only be emergency help needed. All this bailout only makes American Consumers more concerned that all these companies will lose their worth and the Government will be the "back-up"

It is really a Paradox, in all?

What is Great for the Rich will not help the Poor?

Just think about if the Poor were given a few Billions by the Government, what would they do with them? Naturally Spend every last cent. Who would Benefit from that?

Think about it?

Every American would. The Government would get Taxes, Jobs would be Created, Rich would get their share as well, because of the extra turnover in their Business.

Too bad the Rich people aren't willing to give away a few billions. Just take a look at the super powered CEO's. We're paying for their greed.

Yep we're certainly paying for the CEO's greed, I don't think anyone outside the UK will have heard about this but one of the worst hit banks in the UK RBS (Royal Bank Of Scotland) is currently 70% owned by the Taxpayer (Basically as near as makes no difference to being nationalised, it could rise to 75% because it is participating in the Governments offer of insurance on future losses for RBS's toxic assets). Under that insurance it is getting about £300 Billion Pound worth of insurance from the Governement it will only lose £25 billion max because it is protected on about 90% of it's toxic assets (Well the toxic assets it put in) the Government will cover the rest, it also got £20 billion back in the first bank bailout.

Last week it announced a £24 billion loss for 2008 of which £16 billion was from the write down of assets from a bank it took over near the end of 2007, The Bank was ABN AMRO (Dutch Bank) which was took over as part of a consortium (Led by RBS) with the Dutch Government, Banco Santander (Spanish Banking Giant) and Fortis (Another Dutch Bank) the parts of the Bank would be spread between each Bank, I'm unsure as to why but RBS took the American operations (Which was especially exposed to the Sub Prime debt in America) of ABN, La Salle Bank and also it's wholesale operations. The person who said RBS should takeover ABN AMRO at the peak of the Market was Sir Fred Goodwin (Or Sir Fred "Shred" Goodwin as he is now by some of the British Press), this Chairman who ran RBS at the time allowed the participation in this takeover and what ever way you look at it, it's a royal cock up.

With that £24 billion loss RBS had the biggest corporate loss in UK History, bit similar to AIG losing $61 Billion (£43 Billion) in the 4th Quarter or just under $100 billion for 2008 as a whole, RBS got an extra £13 billion to stabilise it's balance sheet meaning it has now got £33 Billion in taxpayer money. Anyway to my point the former Chairman Sir Fred Goodwin got asked to leave RBS when it got bailed out the first time, so he accepted and left, now in the last week it has been revealed that he is getting a £703,000 a year pension (He's only 50) originally it was thought to be £650,000 but this has now been found out to be that £703,000 figure I mentioned.

The Public here are rightly unhappy and angered by that payout, a few things to point out why, Firstly he has managed to cause RBS to be basically the weakest bank in the Country and totally messed up for years to come but he is being allowed to take that £703,000 a year pension, Secondly normally a pension is given to someone when they are retired now the Retirement Age in the UK is 65 that means he can't officially retire and take a pension until the day he turns 65 which means unless he has some sort of illness which forces retirement he shouldn't be getting that pension. It is known that if RBS was left to collapse he would have got a pension of £28,000 a year if he had been sacked he would have got £416,000 a year quite a difference.

He won't even give his pension up either which is making the Public even more angry from what I have read, wish I could make a mess up like that and get over £700,000 a year, so just one story of the Bankers greed and how the board agreed to have that pension in his contract is an absolute disgrace. Just in comparison our current Prime Minister Gordon Brown will get around £100,000 a year pension when he retires, he would have got around £50,000 a year if he had not become Prime Minister, 26 years and 8 months is the required service from a Member of Parliament to get some form of a good pension our former Prime Minister Tony Blair will get over £120,000 a year from his pension, Normally any member of parliament will be entitled to double their pension if they become Prime Minister.

So it just shows you that you could be the most important man in the Country i.e. Prime Minister, and get a pension quite small compared to Fred Goodwin.

This post has been edited by woodyblade: 05 March 2009 - 12:37 PM

Thanks for sharing that story. I hadn't heard about it. It seems that half the media in the US talks about how everything is going to crap in the US, and the other half of the media talks about who is to blame. It is my understanding that Russia, Chine, the UK, and countless other countries are in dire straits also, yet we (in the US) do not get to hear much about it.

Word was that the Big 3 Auto makers were getting 70 Million USD yearly.. And I bet most of is Tax Payers.

This could be a good idea in the long term. From Australia.

[quote]Small business, banks at loggerheads08:34 AEST Fri Mar 6 2009ago Mar 06, 2009

Small businesses have complained banks aren't lending enough and that the price is too high, while banks say they are lending more than ever before at fair price, Small Business Minister Craig Emerson says.

Mr Emerson has convened a roundtable to discuss small business access to credit during the global financial crisis, to be held in Melbourne on Friday.

Mr Emerson said small businesses complained that there wasn't enough money available from banks and the cost of available finance was too high.

"On the other hand the banks are saying they are now lending in the order of $20 billion more to small businesses than they were in mid-2007," he told ABC Radio.

"They do concede on the price side that all the reductions in the reserve bank cash rate have not been fully passed through, but then they point out that quite a lot of the money they lend they actually obtain from overseas and the price of that has gone up."

Mr Emerson with all this claim and counter-claim, the best approach was to get the two sides together.

He said he would like to see the banks give assurances that they would provide ample funds for viable small businesses, existing and new, at reasonable cost.

And as the cost of funds decreased, they should do everything possible to pass that on to their small business borrowers.

"Banks themselves point out that it's a more risky environment with what's happening around the world than it was a couple of years ago," he said.

"They say they are keen to take on new customers' viable small businesses."

Mr Emerson said the change appeared to be that banks were now extremely risk averse, and that was affecting the amount of credit and the cost.

He said he could provide a clearing house service through his own office.

Businesses could email their accounts of how they were treated when they sought finance, and their stories would be referred to bank management, not just to the branch that dealt with.

"And I am happy to do that," he said.[/quote]

[url="http://news.ninemsn.com.au/article.aspx?id=764408"]http://news.ninemsn.com.au/article.aspx?id=764408[/url]


Nice to see the Government step in and try to get it resolved on Ground level?

wow thats a really good idea! Too bad the average american consumer will lose faith in large corporations of US Gov. took control.

This letter was sent to the Wall Street Journal on August 8, 2008 by Alisa Wilson, Ph.D. Of Beverly Hills , CA . in response to the Wall Street Journal article titled "Where's The Outrage?" that appeared July 31,2008.



Really. I can tell you where the outrage is. The outrage is here, in this middle-aged, well-educated, upper-middle class woman. The outrage is here, but I have no representation, no voice. The outrage is here, but no one is listening for who am I?

I am not a billionaire like George Soros that can fund an entire political movement.

I am not a celebrity like Barbra Streisand that can garner the attention of the press to promote political candidates.

I am not a film maker like Michael Moore or Al Gore that can deliver misleading movies to the public.

The outrage is here, but unlike those with money or power, I don't know how to reach those who feel similarly in order to effect change.

Why am I outraged? I am outraged that my country, the United States of America , is in a state of moral and ethical decline. There is no right or wrong anymore, just what's fair.

Is it fair that millions of Americans who overreached and borrowed more than they could afford are now being bailed out by the government and lending institutions to stave off foreclosure? Why shouldn't these people be made to pay the consequences for their poor judgment?

When my husband and I purchased our home, we were careful to purchase only what we could afford. Believe me, there are much larger, much nicer homes that I would have loved to have purchased. But, taking responsibility for my behavior and my life, I went with the house that we could afford, not the house that we could not afford. The notion of personal responsibility has all but died in our country.

I am outraged, that the country that welcomed my mother as an immigrant from Hitler's Nazi Germany and required that she and her family learn English now allows itself to be overrun with illegal immigrants and worse, caters to those illegal immigrants.

I am outraged that my hard-earned taxes help support those here illegally. That the Los Angeles Public School District is in such disarray that I felt it incumbent to send my child to private school, that every time I go to the ATM, I see "do you want to continue in English or Spanish?", that every time I call the bank, the phone company , or similar business, I hear "press 1 for English or press 2 for Spanish". WHY? This is America , our common language is English and attempts to promote a bi- or multi-lingual society are sure to fail and to marginalize those who cannot communicate in English.

I am outraged at our country's weakness in the face of new threats on American traditions from Muslims. Just this week, Tyson's Food negotiated with its union to permit Muslims to have Eid-al-Fitr as a holiday instead of Labor Day. What am I missing? Yes, there is a large Somali Muslim population working at the Tyson's plant in Tennessee ..
Tennessee , last I checked, is still part of the United States ... If Muslims want to live and work here they should be required to live and work by our American Laws and not impose their will on our long history.


In the same week, Random House announced that they had indefinitely delayed the publication of The Jewel of Medina, by Sherry Jones, a book about the life of Mohammed's wife, Aisha due to fear of retribution and violence by Muslims. When did we become a nation ruled by fear of what other immigrant groups want? It makes me so sad to see large corporations cave rather than stand proudly on the principles that built this country.

I am outraged because appeasement has never worked as a political policy, yet appeasing Mahmoud Ahmadinejad is exactly what we are trying to do. An excellent article, also published recently in the Wall Street Journal, went through over 20 years of history and why talking with Iran has been and will continue to be ineffective. Yet talk, with a madman no less, we continue to do. Have we so lost our moral compass and its ability to detect evil that we will not go in and destroy Iran's nuclear program? Would we rather wait for another Holocaust for the Jews - one which they would be unlikely to survive? When does it end?

As if the battle for good and evil isn't enough, now come the Environmentalists who are so afraid of global warming that they want to put a Bag tax on grocery bags in California; to eliminate Mylar balloons; to establish something as insidious as the recycle police in San Francisco. I do my share for the environment: I recycle, I use water wisely, I installed an energy efficient air conditioning unit.
But when and where does the lunacy stop?Ahmadinejad wants to wipe Israel off the map, the California economy is being overrun by illegal immigrants, and the United States of America no longer knows right from wrong, good from evil. So what does California do? Tax grocery bags.

So, America , although I can tell you where the outrage is, this one middle-aged, well-educated, upper middle class woman is powerless to do anything about it. I don't even feel like my vote counts because I am so outnumbered by those who disagree with me.

Alisa Wilson, Ph.D.
Beverly Hills , California

[quote]Too bad the average american consumer will lose faith in large corporations of US Gov. took control.[/quote]

Not me I already lost faith in both.

Case in point GM ...General motors the soon to be defunct US automaker. Is losing 85 Million USD per day it's open. Times that by apprximately 265 work days a year = about a 22 billion dollar loss per annum. Throwing 8oo million at it by the Gov't is futile. The taxpayers save 85 million a day if they close down. No I don't like the notion, but obviously the company is so poorly run it can't be saved with money. The Gov't considers this proper and intelligent use of money.

Citi Bank the largest bank in the world closed today at a 1.02,was as low as 97¢. A drop of 55 dollars or 98% in 6 months. In Oct. 2008 they got Citi got $25 billion. The government's (yours and my money)rescue plan of $306 billion worth of troubled assets from Citi's $2 trillion balance sheet. The bank, though, has roughly another trillion dollars in assets that aren't on its balance sheet but kept in entities somewhat removed from the company. These assets could be problematic if the economy grows worse and it is.

Common stockholders can say goodbye to their dividend, which was 16 cents last quarter. To make sure the government's money (the PEOPLE'S money)isn't simply passing through the company and into other hands, the deal prohibits Citi from paying dividends of more than a penny per share for three years. Now there's incentive.

Gary Crittenden Citi CFO's Total Compensation for 2007 =$19,369,506.00. He earned that for driving the company and tens of thousand shareholders into the ground.
During a CNBC interview I watched last Friday. Mark Haines asks
[quote]HAINES: ARE YOU PERSONALLY BUYING ANY OF YOUR COMPANY'S STOCK?

CRITTENDEN: YOU KNOW, MARK, I OWN A SUBSTANTIAL STAKE IN THE COMPANY'S STOCK AND I HAVEN'T BOUGHT IN ANY IN THE LAST COUPLE OF YEARS.[/quote]
[url="http://www.cnbc.com/id/29469516/?__source=aol%7Cheadline%7Cother%7Ctext%7C&par=aol"]http://www.cnbc.com/id/29469516/?__source=...%7C&par=aol[/url]
I bolded the noteable portion. By the way CITI was at 1.50 that day. So if a man and Chief Finance Officer doesn't buy shares in Citi at the steal, bargain basement price of $1.50 to ride it back to glory heck why would I. Even better just $200 worth at a buck fitty and sell when you double at 3 in afew quick month's with this magnificently run organization. BUT nooooo !! I guess it's too risky for him. But the US /Obama wizards think it's worth 350 BILLION. So now we the people are 36% owners of the big turd. So if it goes belly up with another 1 dollar loss we lose it all ....
I have no faith in either.

This post has been edited by boopme: 05 March 2009 - 10:20 PM

Large corporations have a lot to risk, and if they don't make the gains, they get greedy and complain!

Well, Citi reached below $1 today. CNBC said you could use the money that you use ATM with to buy Citi.. I found that amusing.

And throwing billions of dollars at large corp. CEO's only increase the Greed count. Have you seen any of those CEO using that money wisely? No.
Thats why there was a show called American Greed. All of the big corporation CEO's want is $$$$$$$$$$$$$$$ and lots of it.

They even said, when the big 3 came, they came in PRIVATE JETS, EACH WORTH ABOUT $100 million dollars. Guess where they got that money? Taxpayers.

Well, now we know why we are so doomed. Thank you American Greed and large corporation CEO's!

BTW: News says GM Might file Chapter 11. If so, we are really doomed. 300k people without jobs, and probably 1.5M+ affected. Dow Jones will drop below 6000. It's already at a 12 year low. What else do they want?

Our Icon, the Holden is owned by GM.

All heck is breaking loose, here, with their Cut backs to Holden's Production, causing lose of Jobs, Mate.

America is not the only Country suffering.

The WHOLE WORLD is suffering, as it is basically a world riot for economic goods!