Bailout? Or Start Bailing? 16 comments
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It looks as if we have a bailout plan in place. We’ll be seeing lots of positive information about it as the government sales job swings into high gear. I’ve read it and am unimpressed.
For instance, the headline may read “Executive Pay and Golden Parachutes Capped” but the fine print says, “so everyone is willing to take our money, EXISTING agreements will be honored.” Only NEW golden parachutes will be subject to caps. Hmmmm... name a listed company that doesn’t already provide a golden parachute. The former heads of Fannie and Freddie got (“only”) $11 mm and $9 mm, respectively.
Markets are way ahead in Asia tonight. With the uncertainty lifted, markets in the US may also open strongly. I don’t know if the euphoria will last a day or a quarter but the reality is that nothing has changed. By bucking the tide and not rushing in to buy-buy-buy-buy the QQQQ, we may suffer by comparison. But looking out more than 12 weeks, I believe sanity will return and our calculated anti-inflation investments in gold, energy, natural resources and infrastructure will provide the best safety in a declining market environment.
As Benjamin Graham said 59 years ago in The Intelligent Investor, "In the short run, the market is a voting machine, but in the long run it is a weighing machine."
Disclosure: Long GDX, SLV, GG, MIDSX, TGLDX, XOM, TEX, CAT
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This article has 16 comments:
On the other hand, it could mean that the world is losing confidence in the United States. In a world of fiat currencies we live on confidence; if it goes, nothing is left. If the Senate & House fail to pass the bail-out bill, the consequences will not be pretty.
So we are neatly poised at a point from where we could break out, consolidate over a long period of time and then move on. Alternatively, we could break down and stare into a deep abyss; the likes of which have likely never been seen before.
We put the question to the House!
Escape from Cleveland
Escape from New York
Escape from L A.
All momopolies and cartels always bring on their own collapses.
Cities started out as fortresses and service delivery spots on planet earth. They also hosted manufacturing activities. The work force was resident in the cities and walked to work up till 1910..
We are sitting in front of internet modules which are ending the values of cities, They are now collapsing and their cost of operation is now so high that they will keep in collapsing until they become what the above movies suggest.
Commutation collape goes with city collapse. Fuel price collapse goes with commutation collape.
Government revenue collapse and debt default explosion go with city collapse. City real estate becomes worthless as does real estate near cities.
No central or periferal government can stop the collapses but all will go broke in the attempt.
The US Government is now broke and the US $ is lost. Look at US Government revenues and expenses and outatanding debt. Can it survive as a financial entity? No.
What is the dollar worth if the USA government goes broke? .
Good Luck.
.
Shiv,
Now do you understand why people turn to gold as an alternative to fiat currencies? What else is available that all countries recognize, is easily portable and dividable, and most importantly, has been used throughout history?
paultaut also makes a good point. If the government is offering to 'help' you in some manner, your first thought should be to guard your wallet. Think about how much shareholders and bondholders of AIG and WM were 'helped' when their investments were wiped out by government actions taken when they weren't able to do anything but watch.
If possible you might also conisder keeping enough cash in your hands to pay your bills for a month or two in case the government decides to 'help' you by closing all the banks like they did in the 30's.
"Even as policy makers worked on details of a $700 billion bailout of the financial industry, Wall Street began looking for ways to profit from it.
"Financial firms were lobbying to have all manner of troubled investments covered, not just those related to mortgages.
"At the same time, investment firms were jockeying to oversee all the assets that Treasury plans to take off the books of financial institutions, a role that could earn them hundreds of millions of dollars a year in fees.
"Nobody wants to be left out of Treasury's proposal to buy up bad assets of financial institutions."
Unbelievable. Wall Street and its backers created this mess and now they are going to clean up like bandits. Even Rudy Giuliani is lobbying for his firm to be hired (and paid) to "consult" in the bailout.
This so-called "collapse" was triggered by the massive defaulting and foreclosures going on with people's home mortgages. Do you know why so many Americans are losing their homes? To hear the Republicans describe it, it's because too many working class idiots were given mortgages that they really couldn't afford. Here's the truth: The number one cause of people declaring bankruptcy is because of medical bills. Let me state this simply: If we had had universal health coverage, this mortgage "crisis" may never have happened.
This bailout's mission is to protect the obscene amount of wealth that has been accumulated in the last eight years. It's to protect the top shareholders who own and control corporate America. It's to make sure their yachts and mansions and "way of life" go uninterrupted while the rest of America suffers and struggles to pay the bills. Let the rich suffer for once. Let them pay for the bailout. We are spending 400 million dollars a day on the war in Iraq. Let them end the war immediately and save us all another half-trillion dollars!
They talk about how they will prevent golden parachutes. It says NOTHING about what these executives and fat cats will make in SALARY. According to Rep. Brad Sherman of California, these top managers will continue to receive million-dollar-a-month paychecks under this new bill. There is no direct ownership given to the American people for the money being handed over. Foreign banks and investors will be allowed to receive billion-dollar handouts. A large chunk of this $700 billion is going to be given directly to Chinese and Middle Eastern banks. There is NO guarantee of ever seeing that money again.
Wall Street this weekend said either turn over the $700 billion or the first thing we'll start blowing up are the pension funds and 401(k)s of your middle class constituents. That's what we're dealing with. Make no mistake.
All one has to do is ask themselves, if I had a choice (..and you do) which would I do: invest in the stock market, banks (deposits), bonds (giggle), or buy (AND TAKE PHYSICAL POSSESSION OF) GOLD and SILVER?
If you can't figure that one out, you DESERVE to be called SHEEPLE! I lost my savings/retirement, EVERYTHING, to the market in 2000. Eight years later, now, I am going to be far better off (financially) owning ONLY gold and silver. Wise up, people!
Looks like gold and silver should be buys as the dollar is weakening.
wot planet r u on ?
for Reviving the Economy
Stan Muse
smuse@us.ibm.com
The Federal Reserve is out of Federal Funds rate options and now the Congress is about to pass legislation which will be the largest bailout bill in the history of the world. Fannie Mae and Freddie Mac are now penny stocks with perhaps over 1000 bank failures yet to come. The American taxpayer will be told that they and their children will be writing big checks to rescue the Wall Street crooks and congressmen that caused all the problems, while receiving nothing in return.
Anyone who has been following recent congressional hearings knows by now that this is unacceptable to Main Street, the voters who will be firing their congressmen for turning the USA into a socialist country. It is also widely believed that this bailout bill may not be embraced by Wall Street because of its onerous terms even if passed. Finally, it will not provide sufficient liquidity for improving the rest of the economy.
A much more effective and fairer way to end our economic crisis is easily attainable. To state it simply, all Congress has to do is to pass a Mortgage Investment bill which allows individuals a one-time option to use some of the funds in their IRAs to pay off their mortgage balance in full, without any penalty, interest, or taxes for doing so. In return, individuals choosing to exercise this option give up their mortgage interest tax deduction for life. This bill could be passed quickly and independently of any other economy-related legislation currently being debated, or included in the current bill. Individuals choosing this option would need sufficient IRA funds to pay mortgage balance in full. The actual payment to the individual’s mortgage company would be done by the IRA managing institution to avoid fraud.
As one senator recently stated, ‘for most people their home is their IRA’. For many others, their 401-K plans hold many trillions of dollars, much of which by now is parked in money market funds or T-bills as mine is. If these IRA funds could be released to pay off mortgages, we could possibly avert, or at least significantly shorten, the economic recession we now find ourselves in. In fact, no other bailout legislation may even be necessary, although more regulatory legislation is certainly needed.
I asked Allan Meltzer, Arthur Segel, and Ellen Zentner to review this proposal and received some positive responses. Ellen said it seemed to be fool-proof and better than a reverse mortgage. In fact, it is a no-brainer for the homeowner with a large 401-K balance, and for the government. The only people who might object, as Ellen stated, are the bankers who want to keep homeowners dependant on them, especially those in the upper-income group. But even the bankers can not want the government to own a large stake in their business for a multitude of reasons.
It makes sense to allow people to use their IRA money, which they earned, to invest in the best and safest investment they could ever make, their home. Presumably they will need a place to live in retirement on a fixed income. It makes no sense for someone with more than enough IRA funds to cover their mortgage balance to loose their home because they lost their job and can not pay their mortgage. It also makes sense because it is not some form of government bailout which rewards the bad behavior of mortgage companies and unqualified borrowers. Instead, it rewards the good behavior of those who have saved and invested in the economy
If only 5 million people chose this option, for an average of only $200,000 each, the result would be $1 Trillion in paid-off mortgages, providing liquidity to the mortgage industry. By executing the option, an individual’s annual mortgage payment would become disposable income to put back into the economy or back into IRA accounts. To the individual, the effect is the same as lowering taxes. If only 5 Million people were able to put back $20,000 per year into the economy, the result would be a $100 Billion per year stimulus package for many years to come.
In my case, with $800K in IRAs and a secure pension, I would increase disposable income by $1600 per month while reducing the IRA balance by only $160K, but saving over $120K in future interest payments. I could retire, which I can not afford to now, and leave my six figure job to someone else. I could also quickly replenish the IRA money used to pay off my mortgage with the extra income.
Adding a further provision to delay receiving Social Security payments for a year in order to exercise the option would be a baby step towards privatization of Social Security. Anyone financially able to exercise the option should be able to delay the payments. For every 5 million people choosing the option, approximately $100 Billion would remain in the Social Security fund. This could fix our problems with Social Security for good.
Some of the benefits of this plan would be to:
• Immediately increase an individual’s or married couple’s disposable income by tens of thousands of dollars each year while enabling them to become debt free
• Save homeowners hundreds of thousands of dollars in mortgage interest payments
• Encourage individual IRA savings by many who have never saved
• Allow many people to retire earlier than they otherwise could
• Create demand for housing, reducing inventory, and stopping the decline in home prices
• Stimulate the overall economy, creating and saving jobs
• Not cost the government anything, and actually Increase federal, state, and local tax revenues by eliminating individual mortgage interest tax deductions, without raising tax rates
• Force the banks to sell their good loan assets to cover their bad loan losses, instead of forcing the taxpayer to buy their worst loans, and increase liquidity for new loans to those who need them
• Allow the free market economy to work through the crisis rather than resorting to socialism
• Not increase the national debt nor the money supply as a bailout would do and contribute to inflation
• Allow the individual home owner to the freedom to become their own banker with the money they earn, reducing America’s dependence on bankers, and changing America from renters and borrowers to homeowners and savers
The merits of this simple plan, the Mortgage Investment bill, for saving the economy, instead of trillions of dollars for a Wall Street bailout which will socialize the finance industry, are obvious and would benefit everyone involved. The individual gets more disposable income and a chance to live debt free, the capital markets get needed liquidity, the government collects more taxes and collects them sooner at the expense of the bankers, the housing market gets more demand, and the general economy gets a much needed boost for the next few years.
Democrats should like this plan because they can claim that it lets the wealthy pay for this mess. Republicans should like it because it increases disposable income, which has the same effect the same lowering taxes. The average voter should like it because it addresses all segments of the economy with a huge economic stimulus package, not just Wall Street, and costs nothing while helping to pay off the national debt and potentially fixing Social Security.