The Bailout

Written on Tuesday, September 23rd, 2008 at 9:45 pm | by Nick

$700 billion, this is the potential minimum cost with which The Bush Administration headed by Hank Paulson is asking the American people. And I agree with Senator Obama, and maybe even Senator McCain, that indeed this must be done with an oversight that is needed with such a huge sum amount of money. Look at this way, this amount is equivalent to the GDP of Taiwan itself.

In any case, this should not be done with haste.

I understand that Americans are angry, but I also see the need for a properly executed bailout plan. It is quick, it is efficient, and it will bring stability to a drunk market full of speculators and gamblers. If allowed to fester, and if done the micro way, of helping individual mortgages, the economy will surely be in even more in a hole. And so, I have to admit, a bailout plan seems sound.

But, as you may know, we must at all cost, be vigilant, for this is a Bush Administration that seems to pride itself in wanton unregulated, secretive, unilateral actions, at the cost of “freedom of information” and at the cost of getting the input of others outside of its circle.

Hank Paulson may be a great and intelligent man, but I wouldn’t trust $700 billion on one single entity alone, not even Warren Buffett. Okey, maybe Warren Buffett is the exception.

I want to air out a point of contention, to those who say that this was not expected, well to a certain degree it wasn’t, at least in scale. But I know quite a few independent Financial Advisers and analysts, and the key word here is “independent”, and these were the responsible ones, not tied down to big conglomerates and financial institutions, who saw that gambling on the finances of hard working Americans would eventually catch up with Wallstreet. And believe me many in Wallstreet definitely knew about the risk, but since everyone was doing it, they did not want to be left behind, while many mortgage companies and financial institutions were reaping record profits.. I mean, it’s plain and simple greed, but also not wanting to be left behind.

In the end, the question of the day is will this plan work, the American economy, at around 17 trillion can definitely absorb this, and many are already saying that because 50% of the mortgages contained within the bad ones are very much solid, and that even with foreclosure, we still have the inherent value of these houses, the American people may even just get out of this with a big profit in its hand.

But without oversight for this monumental bailout plan, we may never know. There must be consequences for the actions that are about to be taken and the actions that have been taken.

Today (Eastern Time here in The U.S.) Hank Paulson along with key economic figures will be at The Congress to explain themselves as to the merit and the details of this bailout plan. Let’s see if Congress doesn’t overly politicize this move, use political leverage to gain something for themselves, act with much prudence, and finally bring a sense of confidence that many are needing.

Impact on The Philippines? Well, the global economy reacts much to the American economy, especially financial institutions who have a wide reach all over the world. It will hit us, if not already. The oil crisis became a food crisis, the energy crisis became a bane on our own existence and continues to do so, and surely probably the greatest fallout in the U.S. market since the great depression will have a tremendous impact on our own economy.

Am I a bearer of good news or what?

Joke of the day: from Jay Leno.. “Don’t worry, if my joke bombs tonight, the Federal Government will bail me out”

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About The Author: Nick is a passionate Filipino, and a political junkie. His personal blog is at Tingog - The Voice of The Filipino. He is the founder and Editor not Chief of FilipinoVoices.com. He has been blogging since 2006.

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12 Responses to “The Bailout”

  1. Blackshama on September 24th, 2008 1:39 am

    I spoke with a Protestant minister with a DBA from a US university and we discussed the bailout issue in my office. We reached a consensus that while the Fed, Paulson, Bernanke and co. may be doing the right thing (this needs to be seen), the issue has really become of morals and ethics.

    Everyone in the biz knows this would happen and like Nero,they fiddled while the Wall Street burned. The biz also expected Uncle Sam to have the fire extinguisher.

    We think Congress will have little choice but to endorse the bailout plan.

    As for all the crises we have,the root cause is really environmental.

  2. Dean Jorge Bocobo on September 24th, 2008 9:09 am

    INFLATION. That is the whirlwind we will reap with the Paulson Plan and could sink the value of OFW repatriations. Philippines would be hit by a double whammy as food and fuel and electricity skyrocket and OFW contributions plummet in value.

    BTW, a chorus of responsible voices is arising that wants to reject the Bailout as delivered. It’s a three page blank check to a former shortselling chief of Goldman Sachs, the uhmm, bank holding company. After nationalizing the mortgage and insurance industries, we are all socialists now, thanks to Comrade Paulson.

  3. The Wall Street crash: A failure of thinking | Filipino Voices on September 24th, 2008 9:24 am

    […] examined from a more sensible angle, the rise and crash (… and rise and crash, ad infinitum) of financial markets is no different from any other […]

  4. Bencard on September 24th, 2008 9:49 am

    the bailout dilemma is a classic case of damn if you do and damn if you don’t. sounds familiar? neither the democrats nor the republicans has a satisfactory answer. it was primarily caused by aberration of the free enterprise system that was hijacked by unfettered greed. leave it to humans to fuck up themselves. now the pendulum will swing to more and stricter regulations. but then, who will regulate the regulators?

  5. cocoy on September 24th, 2008 10:39 am

    This i think is a case of what we’ve learned from the Great Depression. It was a failure to act by Government back then and this time around we’ve the opportunity to do the opposite. The Fed i think is clearly aware of the repercussions of too much bailing out.

    Hence, Lehman was allowed to die but AIG— with a strong presence globally was basically allowed a graceful bankruptcy. AIG was basically a chapter 11 without the wrapping. So there was a heavy price on that.

    The companies fell— no question about it. The Fed just made the fall easier. Though the market is still in turmoil, the alternative would have been far worst. Maybe Great Depression worst. The US Economy is a very sick beast, no question about that. And not just the US, Japan, China, Britain, Australia and everyone else for that matter is feeling a bad case of the flu. But it isn’t like the Fed is giving a free ride. They just made the fall a bit easier for the ordinary folk, me thinks.

    @bencard there will be regulations i’m sure. how deep is the question. i hope not too deep. i hate regulation. i think the market has done the killing stroke in this one. No deep extensive regulation will be required. Who will regulate the regulators? isn’t that the eternal question: Quis custodiet ipsos custodes?

  6. cvj on September 24th, 2008 3:57 pm

    Cocoy, what’s happening is the consequence of too much liberalization and too much competition. Now the very same capitalists who celebrate the free market come running to government [aka the taxpayers] to bail them out. They cannot say that they were not warned and that this was bound to happen.

    Who will regulate the regulators? isn’t that the eternal question: Quis custodiet ipsos custodes? - Cocoy

    Not in the case of the Philippine Middle Class. Over here, such questions are drowned out by declarations that “…we are prepared to lose our freedoms and our rights just to move this country forward….”. Remember?

  7. cocoy on September 24th, 2008 7:41 pm

    cvj, the US Government doesn’t have to bail anybody out. you miss the point. it is distasteful to me to bail these institutions out but the alternative would be a global financial crisis that would make the poor in countries like the Philippines even poorer. That was the lesson of the Great Depression: Failure to act.

    Who said there hasn’t been any consequences for these institutions? AIG? it was practically dissolved. All the US Government has done is to make a “smoother” fall. AIG’s assets are to be sold off. It is basically a chapter 11 in all but name. In fact, Bernanke isn’t offering any charity. The US Government is bound to make money off this.

    Morgan and Goldman? The Buffett table just made a lot of money investing in GS.

    Fortune passes everywhere.

    It would have been easier for the Fed to cut rates. it has not. it signals that they’re not interested in quick solutions but to right the mistakes of the financial sector. Is Wall Street different? oh yeah. This is game changing business.

    Again, cvj with respect to the Philippines. you don’t see the bigger picture. we go back again. the answer isn’t to right a wrong with another wrong through revolution, through “people power”.

    The answer is to take the bitter pill.

    how many times have i written that just because we need to wait for 2010 to change governments, doesn’t mean the mistake that can’t be corrected then. You’ve no idea i suppose what money can buy in the Philippines these days and Gloria and her ilk have that in spades.

    How many times have i blogged here on FV and on my own that the answer to right all the wrongs this country has is to give ordinary citizens greater political power by becoming political parties, by righting wrongs from within the system? Politicians have no interest in changing the system that they’ve already “gamed/pwned/owned”.

    We can not have quick solutions.

    We did that with Erap and we got Gloria. Sadly, Gloria is the bitter pill and as things are going— I don’t think people get it.

    who guards the guardians? thats why there is a thing called democracy and a thing called elections.

  8. cvj on September 24th, 2008 9:10 pm

    Cocoy (at 7:41 pm), how do you reconcile your first sentence…

    …the US Government doesn’t have to bail anybody out.

    …with the next one…

    …but the alternative would be a global financial crisis that would make the poor in countries like the Philippines even poorer…

    …?

    BTW, the main lesson of the Great Depression is the need to avoid financial speculation in the first place. This is precisely the lesson that was forgotten which is why the financial system is in the mess it is in. Wall Street (and like-minded supporters of financial deregulation) put too much faith in market forces. If they hadn’t done so, then the US Government would not have needed to step in to try to clean up after them.

    In fact, Bernanke isn’t offering any charity. The US Government is bound to make money off this. - Cocoy

    How can you be so sure? This is the same sort of hubris that the confidence men in Wall Street displayed.

  9. The Ca t on September 27th, 2008 9:24 pm

    The US Government is bound to make money off this.

    i doubt it. the terms of the bail-out if it did not
    change yet was issuance of preferred in exhange of the bail-out. True, the government is not coming as a creditor but as investor.

    but looking at the nature of the preferred shareholders, these are the types who may have preference as to assets i.e. in case of dissolution, they will be the first to be paid after the creditors OR preference as to dividends… i.e they will be paid firt of the dividends due them before the common stockholders.

    BUT this type of share has no voice in the management. it is not a voting stock. THEREFORE with its huge exposure in the financial institutions on the read, it can not participate on issues that may be vita to their survival or demise.

    if the same people who brought these companies down to the WALL STREET gutter will still be at the helm, the bail out will just be a very expensive band aid solution. Government will never make money. milk yes, because it will be a milking
    cow in the pasture where the shepherds have just changed their garments from those of the wolves from the private companies to sheeps when they transferred to government service.

  10. leytenian on October 5th, 2008 6:58 am

    The democrats coerced the bank to make subprime mortgages during the Clinton administration-The Community Reinvestment Act. In order to make loans and homes more affordable for lower income borrowers the unusual loan products were developed. Interest only, Option ARM, and the low teaser rate products were answers to helping people who did not otherwise qualify get a home, as REQUIRED by CRA. These low standards for qualification were applied to everyone who wanted a mortgage.

    The Clinton Administration rewrote the CRA to REQUIRE loans be made to low credit quality borrowers. And engaged FANNIE and FREEdie to buy these loans. It sets numerical targets for lending by location, race, and ethnicity. CRA often required lending to uncreditworthy persons to get a satisfactory CRA rating, and it did indeed cause Freddie and Fannie to take on huge amounts of dreck.

    Barack Obama has been talking a big game over the past week about his concerns for Main Street, but he actually played a key roles in an organization that contributed significantly to the financial crisis. Google search ACORN and the role of Obama as an ACORN organizer in Chicago.

    In 2008, economist Stan Liebowitz wrote that the CRA encouraged a loosening of lending standards throughout the banking industry despite warnings of default. Banks were allowed to loan to consumers who were not credit worthy with “no verification of income or assets; little consideration of the applicant’s ability to make payments; no down payment.” According to Liebowitz, the chief executive of Countrywide said that in order to approve minority applications, “lenders have had to stretch the rules a bit”

    http://www.quezon.ph/1967/a-colossal-game-of-chicken/#comment-961273

  11. leytenian on October 5th, 2008 7:02 am

    Why Majority of Pinoys in the US favor Obama and Democratic protectionism’s policy that is against outsourcing of jobs…

    The Bailout:
    “The issue jumps from politics to politician when one considers the “Community Organizer” role Barack Obama is so proud of. It is no secret Obama worked for ACORN in Chicago where part of his work was suing financial institutions to force CRA compliance. It is no secret he continues to support the goals and strategies of ACORN. This would put Obama neck deep in creating the problem he is now asking America to send him to Washington to fix.

    I’m reminded of the old saying about putting the fox in charge of the henhouse. Obama’s association with ACORN and specifically with lawsuits involving CRA compliance in Chicago taint him sufficiently in my mind to disqualify him as a candidate to lead this nation. If his idea of proper tactics and procedures is embodied in this sort of activity, if this is organization he sees as beneficial for a community, he should not be trusted with an even larger community to organize.

    There will be more investigation into this matter in the days ahead. Stay tuned. And stay engaged. It may mean the difference between electing a man and a party that believes this sort of outrage is good for the American people and a man who believes in service to country over to service to self.”

    http://www.theminorityreportblog.com/blog_entry/blue_collar_muse/2008/09/27/cra_acorn_obama_democrats_and_the_housing_market_crisis

  12. leytenian on October 5th, 2008 7:05 am

    I think Pinoy in the US should be Republican and for McCain.

    Republicans are for free trades and free markets, beneficial for Philippines. :)

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