Monday, November 24, 2008

Government bailouts are all the rage

Here we are again. I'm afraid it won't be the last time. The U.S. government has guaranteed $306 billion worth of Citgroup's troubled mortgages and toxic assets and injected another $20 billion into the fast falling bank. That's in addition to the $25 billion it threw in last month, all of which consequently, has disappeared.

Once again we are told that the bank is "too big to fail" and that it "had to be done" and that it will "restore market confidence". So far this philosophy hasn't worked.

I'm no banker but if you gave the money directly to homeowners and helped them pay their mortgages wouldn't the "toxic asset" then become healthy? Wouldn't the banks then in turn also become healthier? Tell me if I'm wrong. Like I said, I'm no banker.

Behind each troubled mortgage or toxic asset there are thousands of families with no homes or in danger of losing their homes. Yes, they shouldn't have taken loans they couldn't afford and the banks and mortgage lenders shouldn't have lent them the money. Both parties are to blame, but only one party - the banks- are being forgiven, and bailed out. It's backwards.

Both Democrats and Republicans, with the support of corporate America, are drowning us with the "banks can't fail" mantra. We are continuously warned of the dire consequences we would face if this was allowed to happen. Meanwhile people and families are being allowed to fail all over the country. The truth we are aware of but don’t want to talk about and very rarely see shoved so blatantly in our face is that the government prefers corporations over people. And remember corporations aren't actually living, sentient beings. They are a creation.

I think if polled, the American people would say that people are more important than corporations. Am I even allowed to write that? Our government has it all screwed up. Corporations should be allowed to fail, especially when they have made horrible decisions, but people should be saved.

Maybe the global behemoth banks have enjoyed their heyday. It's time to get back to the basics. People over profit.


thegil said...

I think you may be contradicting yourself a bit.

You say that corporations should be allowed to fail, but that the governement should care about "people over profit".

Do corporations not employ people?
Citigroup employs 375,000 people. If the automakers were allowed to fail, over 2,000,000 people would be out of work when you take into account the distributors and autopart businesses that would also go under. Giving money directly to homeowners would not mean much if they didn't have a job.

How exactly would putting millions of people out of work help class, hunger and poverty in this country? I think you may be missing the boat on this one. I think your logic is backwards.

Mr. Stein said...

So you think the government is bailing out the banks to protect the employees? Citigroup just announced they'll be laying of 50,000 people. Do you think they'll decide to keep them now? Also, I never said we shouldn't help the auto industry, I just said we should fire the management and move the companies in a different direction. Oh, and by the way, banks employ way to many people anyway for what they actually contribute to our world.

So, what other company do you want to bail out? Why not bail them all out?

And then there's this wide held belief among people who work in corporations that we should somehow thank them for providing us labor?

In my view, we should break all these big financial institutions up so that "too big to fail" will be a thing of the past.

thegil said...

I don't know what other company should be bailed out. They government has started something that is going to be hard to pull the plug on. Where do you draw the line?

-But please offer me a sensible alternative. Rest assured, there will be another stimulus package that will probably give everyone $1,000-2,000. Hooray! Problem solved! I'm sure the 70 year old man who was thinking about retiring next year, but can't because his 401K just lost half its value will be grateful.

You want to help the auto industry, but screw banks..?
Why? Is it income? Is it that people working at banks make more money on average? That's irrelevant. The executives in both industries have had a crucial role in their downfall (whether it was turning a blind eye to the mechanisms behind large profits, or making a crappy product lacking innovation and low-cost assembly). It is not a secret that we make terrible cars in the U.S. and have done so for years. Where's the outrage?

What sickens you so much about banks getting money to stay afloat?
Didn't the auto industry get into the situation they did because of poor management too.

"And then there's this wide held belief among people who work in corporations that we should somehow thank them for providing us labor?"-- I don't know where you’re going with this..

GM and Ford are corporations.

And breaking banks up will not end corruption in management. I think you have a view that the bigger a business (corporation) the more evil it is.. but why is your hate reserved for one industry over another. Do you think bank executives thought their actions would bring them to the verge of bankruptcy? Do you think people who bought homes they could not afford wanted to go into foreclosure blowing up their credit for years to come?

You asked ... "So you think the government is bailing out the banks to protect the employees?"..I think the government is bailing out companies to keep them in existence.

Companies cut employees when profits suffer just like auto companies close plants.

I do agree with you that it is sad that Citigroup was given $25B only to get more, but for a different reason. What incentive is there for a giant institution to streamline if they are working with a safety net? That's not capitalism.

Mr. Stein said...

You have alot of interesting insight.

You are right, both banks and the auto industry executives have made major mistakes and, in my opinion, should be fired. I think the reasons why people take out their anger on banks over the car industry is because every American needs a bank to live the American dream. When that dream gets harder and harder year after year, people start to cast blame. Car companies make cars, they bring you from one place to the other, simple product. Banks help you buy a home, car, send your kid to school, make investments, prepare for retirement. And, contrary to American car companies over the past five years, banks have been profitable. That is why people are in an outrage over bailing out banks and are wondering why when the shit hits the fan,taxpayers clean up the mess.

Sensible alternatives: How about if we bail out a bank, we do what the UK did and we actually get a potentially good return on our investment , preffered shares and voting rights?

What alternatives do you have?

I don't believe the bigger the corporation the more evil, but I do believe that no single corporation should be so big that it can't be allowed to fail, just like I would never put all my money in one stock, or all my eggs in one basket:-) And yes, GM is big, but if they failed, you'd still be able to buy a car. But if AIG fell or if Citigroup fell, would you be able to get a loan? I think we need to reconsider the age old question: Does size matter?:-)

Man we need to have a beer! What would you do if you were Hank Paulson?

thegil said...

My alternative..
They set up some type of clear criteria for companies in need and stop telling the American people after the fact about the taxpayer money they just used. A small group of people should not have the right to give the go ahead on billions without some type of due diligence.

In the short term it seems like you can get a better return on investment at a casino than in the market. Maybe that's also an alternative to investigate.

If I was Hank Paulson, I would be asking myself every day why I took this terrible job.

And a beer would be nice.
Tell me when to pick you up from Newark Airport. Have a happy Thanksgiving!!