The Rescue Package amounts to roughly $200,000 per person in USA. Correction!

[teartracks]

Hi everyone,

The 'Rescue Package" amounts to roughly $200,000 per person in the USA.  I've been ruminating on what I would have done with my $200,000 cut of the governments 'rescue package'  had they just  mailed me a check.  Is it possible that creating a  'trickle up' economy would have been a more effective way to distribute those billions than the golden parachutes given out on Wall Street?   

By the way, I wasn't for the rescue package.  I don't claim to understand the intricacies of the economic ills.  The only cure I know would be to outlaw greed, and of course, everyone knows that morality, goodwill, reciprocity, the Golden Rule can't be legislated.

tt

[Overcomer]

YES!!  My h got laid off for two months.....not enough work..............so we get $375 each week....a far cry from that $200,000......

[mudpuppy]

Actually TT, $700 billion (baillout) divided by 300 million (population of USA) equals about $2,300 per person. If you toss in the extra few hundred billion for Fannie Mae, Freddie Mac etc you might stretch it to $3-3500 per person.
OTOH they have said so far they only need half the $700 billion allocated and many of the capital injections will have a return down the road so it is possible what they have done so far will have a relatively small final price tag. Plus it is funded with relatively short maturity bonds so the impact should be here and gone within the next couple of years.
Now, the unfunded liabilities of the social security system alone are $12 trillion dollars. For Medicare it is even worse at somewhere around $30 trillion and they stretch as far as the eye can see.

BTW, greed is only part of the equation. Unintended consequences and stupidity seem to me to be just as culpable. The government decided low income families would be helped by home ownership and so laws were passed encouraging such loans. In fact if banks couldn't prove they had made the requisite number of loans they were prevented from merging or expanding. To make the requisite number of loans they had to lend to people who otherwise wouldn't qualify, hence the subprime mortgage market along with no doc loans, negative amortization loans etc. As real estate values escalated due primarily to the Fed pumping too much liquidity into an already expanding economy these loans' inherent risks were perceived to be smaller than they were. But some risk was recognized so instruments to hedge that risk were created. These were called MBSs (packages of the mortgages themselves) and CDSs (a form of insurance for the lenders). Unfortunately the premium on the CDSs did not match the real risk and they along with the MBSs divorced loan originators from the risk of the loan. This was greatly exacerbated by Fannie and Freddie which acted as facilitators of the MBSs. So a perfect storm of rising values, abundant liquididty, bad regulations and yes greed culminated in our present fine mess.
The risk of a major problem was recognized by some and calls were made to reign in the supply of credit and for better oversight of Fannie and Freddie but all parties involved had reason to see, hear and speak no evil, just as always occurs in a bubble.

mud

[Ami]

You are so right,Mud. On top of that,I hate to see people looking at Obama as the new messiah. It is scary.               Ami

[gjazz]

I agree that greed, unintended consequences and stupidity are all part of the equation.  For me, though, the word greed isn't quite right to describe the behavior I saw on Wall Street during my years in NYC.  I only knew a few people who worked there and I've been gone for ten years now, so I'm speaking of the past.  But I was always struck by how differently they viewed the value of a dollar--the mental devaluation, if you will.  $1,000 to me was a lot of money.  To them it was chump change.  I remember one man who gleefully spent a few thousand of his $800,000 end-of-year bonus on drinks for the whole bar all one night.  He'd worked for Bear Stearns for one year.  He was 26 years old or so, a junior staffer, the first to admit his signing bonus a year earlier, plus salary, commissions and annual bonus, added up to a number far beyond what he'd actually earned.  It didn't matter.  The point was the company wanted him to stay and build a career there, so they overpaid him tremendously.  A year later he was off to another firm, another signing bonus.  This went on all the time.  It was a frenzied money grab.  I understand paying traders commissions.  But there's a reason the insiders saw themselves as smart cookies going for the easy buck, and saw the small investors as schmucks. 

[gjazz]

Conscience?

[Hopalong]

Dear Universe:

I am most receptive and willing to receive a Rescue Package.

love,
Hops

[gjazz]

Me too.  Hey, maybe they do have consciences.  Easy enough to find out.  Every year we all read some heartwarming little tale about a former child terror now made good, who sends the local druggist a hundred bucks or so to cover the Milky Ways and Starburst he made off with as a kid.  The same strategy could clear the consciences of those with fleets of Bentleys, Lears, that third vacation home in Aspen excuse me Florida, diamonds so large they have names.  Give it back.  No questions asked.  You can be anonymous. 

Anyone care to set odds?

[mudpuppy]

I think greed is greed no matter what a person's tax bracket or viewpoint.

The person who took on a mortgage they knew they couldn't pay after lying to the bank about their income because they thought they could flip the house is just as greedy as the loan facilitator who made the loan knowing he'd sell it to Fannie Mae to take on the risk. And Fannie and its managers, by illegally jacking around their earnings so they's get huge bonuses, were in turn  just as greedy as Barney Frank and Chris Dodd who threw a fit when it was proposed that Fannie and Freddie be reigned in and who not coincidentally received rather large campaign donations from them and, in the case of Dodd, a sweetheart loan from the largest mortgage broker in the country, a company he supoosedly oversaw.
Greed is universal and eternal but it is usually somewhat contained by risk. Fannie and Freddie and the implicit backing of the suckers (oops I mean taxpayers) they provided took the risk out of the market so there was no constraint on the stupidity of the greed.

I wonder what the effect would be if a 'trickle up economy' where the bail out/rescue package $ were thrown to grassroots households rather than what has been done so far?

The effect would be a short blip up and then back to the problem at hand which is not that any individuals have too much or too little money. If we could permanently enrich ourselves by just issuing a trillion dollars of bonds and giving the money to ourselves then it seems we would have done so already. However it is no different than borrowing $100,000 on your credit cards to 'trickle up' your own balance sheet; eventually the piper comes a calling to be paid.
The problem we have is a bubble in a particular asset was created, primarily by bad government policy, specifically the Fed. Had Fannie and Freddie not existed with their quasi government guarantee and had the masters of the universe on Wall Street not believed they could make risk disappear with CDS insurance schemes and putting bad mortgages in a blender with good ones the bubble would have popped fairly quietly and we would all have gone on with our lives a little poorer but a little wiser. Instead the government first enabled and created the bubble and refused to reign in the natural reactions of the market to its creation and then the government popped it and now pretends it can fix it.
Its not too dissimilar to having the mafia come by and break all your windows and then get to pay them to replace them and a weekly fee not to break them anymore.

P.S. The census bureau reckons there are presently about 305 million citizens in the USA.

mud

[gjazz]

I'd certainly never argue that greed is not greed, or that it does not exist at all levels of the socioeconomic scale.   I not participate in the mortgage lunacy, but there's evidence of it all over this town, like everywhere.   For awhile there, a wine country retreat was simply a must-have in certain circles, and properties became so astronomically overvalued people paid a million-five for houses now worth, oh, say $750,000.  My neighbors, for instance.  They don't mind so much.  For one thing, she inherited lots of cash, and for another they intend to live there long-term and raise a family.  The people who used those loans to buy lots of properties intending to spruce them up a bit and make a quick killing, like a realtor I know--they mind very much.  But that's the gambling life for you.

[mudpuppy]

How would you cure the current crisis?

Short term the only cure is the market. And market cures are painful when there have been excesses. Prices of real estate must return to the historical norm which reflects what people can afford. Here in CA it's getting close. Sales are up because the price is down fifty percent in many areas. Prices will probably overshoot on the downside but that is the price of a bubble.
The credit markets needed to be unfrozen so I was not against the original bailout but anything that interferes with the market putting the correct price on these assets is only going to prolong and probably worsen the misery.

Long term, the Fed has to stop attempting to produce optimum employment and smoothing out any and every potential burp in the economy. Its only job is to provide a sound and stable currency. It cannot do that while manipulating the economy. That manipulation is what gave us the Nasdaq bubble in the nineties, the real estate bubble of 2003-2006 and the commodities bubble of 2007-2008. Foreign central banks and irresponsible government fiscal policies gave us the Asian, Russian and Mexican currency meltdowns of the 90's.
The government itself needs to quit using tax policy and regulations for social engineering. The regulators job should be to make for a level playing field and to curb crazy excesses and congress needs to quit interfering when the regulators try to do just that.
Markets work and they work very well. However for every market there need to be rules and the rules should simply be that the market is fair and free of fraud and manipulation. That is relatively easy to do. It's when the rules are tilted to make sure every person owns a house whether they can afford it or not or accounting methods have to be so arcane to meet regulations that no one understands them anymore. When that happens markets get distorted, market participants start trying to buy influence to get favorable regulations and regulators end up running down rabbit trails rather than keeping their eye on the ball and we end up in just this kind of mess.
 Unfortunately the solution usually forwarded by government is of course that, even though it was the primary cause of the problem or at best made a short, small problem long and large, there just wasn't enough government in the first place and a doubling of its budget will make everything rosy again.

mud

[Hopalong]

Dear Universe,

Thank you very much for the credit card offer of 0% on balance transfers. It is beyond kind. I am a little worried about the 30+% interest should I be one nanosecond late with a payment, however I am sure that's ungrateful.

I am still most receptive to the idea of a bailout.

Did you keep the slip of paper with my address?

Sincerely,
Hops

[Hopalong]

Dear TT...
I got no idea about the actual bailout except if they do it, the auto CEOs should be rickshaw drivers for the rest of their days.

I heard at dinner (the host is experienced in international busness at high levels) one opinion: he feels that at least one of them should be allowed to go bankrupt. Because they make 19 million cars a year, and on average, we only need 12 million. Or something. 

I resent their stubborn refusal to build the electric car 20 years ago. They actually DESTROYED the few they did make, because they were making so much more profit on the SUVs. Grrrr. Now, when they eventually do perfect the hydrogen-cell vehicle (that spews water vapor only), we'll all be driving tiny cans with casters, when if they'd spent their energy and drive on innovation in the intervening years, we'd be driving all-self-generating-electric SUVs!

Morons. Greedy morons. But I don't know what's actually best for the country or the economy, in terms of bailouts. Hell of a situation Obama's inheriting, but I have faith things can be good ahead. After a long bumpy ride.

Meanwhile, TT, I'm just amusing myself by emailing the universe. Who knows? Some evangelical faiths believe you can pray your way to prosperity, so I'm practicing.

XXOO,
Hops

[mudpuppy]

Hops,

It wasn't that they made more of a profit on SUVs than electric cars it was that they lost a fortune on electric cars. They cost an arm and a leg and had no range or cargo room. There was no market for them and they lost money on every one they sold.
The Chevy Volt coming in 2010, an all electric car, will be sold at a loss because all electric cars, even with new technology, still cannot compete economically with gas ones.
If these guys are as greedy as folks assume wouldn't one of them have produced this mythical super car by now and retired with billions in his pocket? The technology simply does not exist yet to build all these fantastical green alternative vehicles.

The reason they're going broke is quite simple; their labor costs are about $75 per hour.
The non union American plants of Toyota, Nissan, Honda, BMW etc have labor costs of about $45 per hour.
This results in a competitive disadvantage for the big three of about 15% per average car. No one can compete with that disadvantage. That is why they all need to go bankrupt, so they can reorganize and get the UAW off their backs to survive. They cannot survive in their current form. There will be no jobs, union or otherwise, at any of them if they don't change their labor costs.
Overseas, where Ford and GM have equal labor costs with their competitors, they are healthy, profitable and in many cases dominant.
The unfortunate fact is the manufacturing jobs we all bemoan losing over the last several decades have virtually all been in industries dominated by unions. Steel, tires, textiles, electronics etc. Some industries have left never to return. Some like steel have shed their unions or the unions have sensibly adapted to lower wages and become competitive again.

I notice that most of the people who tell us we live in one big global village and that people in the undeveloped world desrve a chance at prosperity are also often the ones who do their best to keep artificially high paying jobs here shielded from the rest of the globe and protest when some of those impossible to sustain wages and jobs are sent out to the rest of the globe to lift it out of poverty.

mud

[Ami]

Dear Mud
 Your comments make me feel like I am NOT going insane in a world which seems to want something for nothing. The something they will get for nothing will be a hell they never expected.    Ami