Looks like you can forget about the economy being bailed out....

[Reaper]

Hey, look what I found! As you know, the federal government approved of a 700 billion dollar bailout just recently. And, well, it turns out that the bailout money isn't being used to bailing the economy out:

 

http://articles.moneycentral.msn.com/Investing/CompanyFocus/10-worst-bailout-boondoggles.aspx

 

So, what do you think awaits the future of the global economy now?

[Pangloss]

The bank bailouts are going to need a lot more scrutiny, and they'll probably get it. The news this past week of Goldman Sachs giving out $10.93 billion in employee bonuses after receiving $10 billion in bailout money was staggering and threw just about everyone for a loop. And the worst part of it was, they weren't the only ones.

 

But the changes in lending rates have already created a huge spike in real estate interest. We could see a big surge in lending soon, kick-starting the economy back into swing.

[Phi for All]

Oh wonderful. So we have companies deemed too big to fail, and now that we've bailed them out they're buying competitors to become even bigger.

Edited December 21, 2008 by Phi for All

[npts2020]

I don't see why anyone would be surprised by this, after all it was the same profligate greed and disregard for consequences that got us here to begin with. IMO most of the current consternation is a result of the derivative market more than just real estate troubles, although the two are very interrelated, especially since credit default options (CDO's) make up a significant part of the derivative market. Essentially, a derivative allows you (usually a large corporation) to borrow money against assets, frequently being leveraged to 90% or more. Now you have asset values, especially real estate, being depressed, making the degree of leveraging even greater. Everything is still ok as long as the vast majority of derivatives are not being cashed in. The kicker comes when the companies backing the derivatives go into default themselves. A typical derivative is backed by anywhere from about 30 to 100 companies but if a certain number of those companies (as few as 12 on many) go into default the derivative is considered to be in default. Only a little over 100 companies underwrite virtually all of the derivatives worldwide. Some of the ones already in default, WaMu, Lehman Bros., Freddie Mac, Fannie Mae. Additionally, there are up to 35 more of those companies in financial trouble enough to be considering bankruptcy, mergers, downsizing or other drastic restructuring. A few of these companies are GMAC, Ford Credit, AIG, Citicorp, Goldman Sachs. If as few as about 20 of these companies end up defaulting for any reason, as much as $500 trillion in wealth could be basically flushed down the drain. One could say that that wealth never really existed to begin with but the fact of the matter is that it will have to be accounted for in some manner IMO deflation and devaluing of the dollar being the ultimate accountant. Now, if you want a concrete definition or "too big to fail", check out what companies are underwriting this market and are in trouble, those are the ones too much in debt to be able to afford to let fail. BTW the derivative market is one of the least regulated financial markets in the world......hmmm.

[bascule]

I don't see why anyone would be surprised by this

 

Initially there was lip service paid to this money actually being used for the purposes of keeping the economy from collapsing, as opposed to lining the pockets of Wall Street fat cats. Unfortunately thanks to Bush that's not the case.

 

I was originally for the bailout, but in retrospect I can only slap my forehead and say "WHAT THE F**K?"

[Phi for All]

That's absolutely disgusting. I take back all the kudos about Bush's humanitarian efforts in Africa. He probably had an angle.

 

Time to buy some heavier shoes, with cleats.

[Severian]

I personally don't understand why there are not more prosecutions happening as a result of the credit crunch. The entire problem essentially came about because of the repackaging of sub-prime mortgages using derivatives. It is quite clear to me that products were sold with misleading information as to their risk. If a car salesman sells you a car that explodes when you hit 50mph, he will be prosecuted, independently of any regulation in the automobile industry (and derivatives have hardly any regulation at all).

 

Likewise, with the bonuses issue. Were the loans given with no formal and contractual conditions? If they weren't, shame on the government. If they were, people should be punished for violating their contract.

[npts2020]

I personally don't understand why there are not more prosecutions happening as a result of the credit crunch. The entire problem essentially came about because of the repackaging of sub-prime mortgages using derivatives. It is quite clear to me that products were sold with misleading information as to their risk. If a car salesman sells you a car that explodes when you hit 50mph, he will be prosecuted, independently of any regulation in the automobile industry (and derivatives have hardly any regulation at all).

 

Likewise, with the bonuses issue. Were the loans given with no formal and contractual conditions? If they weren't, shame on the government. If they were, people should be punished for violating their contract.

 

Unfortunately The Emergency Economic Stabilization Act of 2008 Places almost no conditions on the recipients of the money or the Treasury Secretary, who hands the money out. The only "concessions" made between the bill that was turned down and the one that passed, was more spending not more regulation or oversight. Currently the only oversight is we can complain, if we can figure out exactly where all of the money went. I don't think anyone can be prosecuted for this seemingly legal looting of the U.S. Traesury, our elected representitives have gone for it hook, line, and sinker.

[swansont]

I think the bonuses are the hardest to swallow.

 

There were a few examples that were reaches, IMO. While you can debate the value of naming rights to stadia and the level of fiscal irresponsibility in golden parachutes (and if you thought these a waste of money I'd agree) those were contracts in place before the bailout. It points to the shabby thinking that got these companies in trouble, but are not bailout boondoggles, per se, like the retention bonuses and the AIG party.

[padren]

I don't think anyone can be prosecuted for this seemingly legal looting of the U.S. Treasury, our elected representatives have gone for it hook, line, and sinker.

 

And of course, our representatives will see large amounts of that exact money coming into their own campaigns through the industry's lobbyists, so why wouldn't they buy it hook, line and sinker?

 

 

I am beside myself to understand how this can happen and everything just rolls along as normal. The sheer scale of abuse of the public trust is astounding. It erodes the deepest foundation of our society's stability - faith in law.

 

Now that we are being legally screwed over to such a degree it makes you wonder why you should even bother with this "legal" system in the first place - why not cheat on your taxes? They screwed you first after all. If a CEO can line his pockets with your money because of a legal loop hole, why can you loot his house to get some of it back? Because a law says you have to bend over for him, and you should just accept that?

 

To be clear - I am not advocating tax fraud, anarchy, or burglary... I am saying such abuses of public trust erode the social fabric that keeps these mentalities in check.

 

That damage angers me just as much as the money.

[ecoli]

not suprised at all. This is the exact definition of 'moral hazard.' You can't legislate the greediness out of the people, but you can let them learn from their mistakes.

[Sisyphus]

Now that we are being legally screwed over to such a degree it makes you wonder why you should even bother with this "legal" system in the first place

 

Indeed. This is the kind of arrogance of and sense of entitlement to ridiculous privilege in the face of widespread economic woe that preceded, say, the French Revolution. Maybe we should replace the Bull statue on Wall Street with a guillotine. Not that it should see any use, of course, but it might make the right people appropriately nervous.

[npts2020]

Trouble is, I seriously doubt more than a few members of Congress ever read the Emergency Economic Stabilization Act of 2008 (as with most legislation) and would bet even fewer had/have any clue of its implications. The fact that it even passed is as strong proof as I have ever seen that America is run by a single "Business Party" with any differences about being Democrat or Republican being mostly cosmetic. Why would any "traditional" Democrat be in favor of giving money to the richest corporations in the world? Yet the Congressional puppet jumped when the executive from the "other" party pulled the strings.

[ecoli]

Trouble is, I seriously doubt more than a few members of Congress ever read the Emergency Economic Stabilization Act of 2008 (as with most legislation) and would bet even fewer had/have any clue of its implications. The fact that it even passed is as strong proof as I have ever seen that America is run by a single "Business Party" with any differences about being Democrat or Republican being mostly cosmetic. Why would any "traditional" Democrat be in favor of giving money to the richest corporations in the world? Yet the Congressional puppet jumped when the executive from the "other" party pulled the strings.

 

Or for that matter, conservative republicans being in favor of the largest government interventionist action the nation has ever seen.

 

The funny thing is, this is an issue which many partisan groups and 60-70% of the US pop would disagree with... but there are plenty of mainstream economists and politicians coming out in favor. People are confused because they don't know how to forget about partisanship and start the massive protests that could be happening.

[Reaper]

People are confused because they don't know how to forget about partisanship and start the massive protests that could be happening.

 

They have been desensitized and they are just simply too cynical at this point. Corruption among our policy makers has been on the increase since at least the Watergate scandal, and I don't think the situation is going to improve anytime soon. At least, not until huge impeding doom is eminent (such as what is going to happen in the Great Market Crash of 2009...)