Stupidity, the new 8th deadly sin?

[Dark-San]

Beware, do not be taken in by the topic title! This topic discussion has nothing with with morals but it is a mere quotation from one of my local papers.

Wall Street's 7 deadly sins - and Congress' lunacy

GREED - Feeding frenzy of financial houses on sub- prime loans
LUST - Banks' desire to boost value at all costs
SLOTH - US Govt's reaction to the crisis
ENVY - How US public sees bank CEOs' pay
WRATH - US public's anger at having to foot bailout bill
GLUTTONY - US consumer spending - borrowing to live good life
PRIDE - Before a fall - in worldwide markets

Bonus Sin:

STUPIDITY - US Congress deadlock on bailout bill - pandering to partisanship

For all of you dudes not familiar with this situation (which I doubt so), the disaster first started out as sub-prime mortgage crisis. From then, things escalated into the point where by the US Government have to purchased three investment banks; Freddie Mac, Fannie Mac and Merill Lynch. The fourth largest investment bank, Lehman Brothers, was declared bankrupt soon after the acquisition of the three banks were done with. It did not stop there. AIG, the second biggest investment bank, was given a US$85 billion package by the US Govt. And now with the talks of another major buyout of US$700 billion dollars to save Wall Street was discussed, investors' confidence was given a boost. But yesterday, that bailout was not given the green light by the Senate.

As a foreign observer to this whole economic drama, my first reaction to the rejection of this bailout was like 'what the fuck'. What on earth is Senate thinking about when this whole US$700 billion was rejected when it could be used to save the global economy, including that of American's? Is it really the time for the Senate to be bickering at those minute details, when they should be approving the bailout as soon as possible to restore the economy and preventing another Great Depression? Well one thing is true is that US$700 billion isn't like your Zimbabwe dollar notes, which is practically worthless. Is America responsible to fork out this sum of money from their bank roll? We are talking about the green back here. The major disadvantages of approving this package would be as followed,

1) The next incoming American president, be it Obama or McCain, will have a huge financial burden to take care of. The America's economy is already in recession and they would have to deal with the US$1 trillion deficit, should the US$700 billion be added onto the whole Iraq war expenses.

2) US citizens would be paranoia on whether the major of this payment would it ended up as being the banks' CEO walk away bonus package.

But if we have to think of it, the whole thing started out in America. Banks 'killed' themselves by repeatedly lending money to consumers without considering about their liquidity ratio. Consumers borrowed too much, spent it on their lifestyle and did not repay back the bank loans, which eventually becomes bad debt. Now if I repeated question again, does America deserves it?

Many world leaders apparently thought so. They had even asked Bush's administration to take up responsibility of it and fork out that massive sum. Even if you asked for my opinion, I would likely agreed wholeheartedly with them. It does affected me indirectly here. This US$700 billion besides having an immediate impact on the Wall Street, but this impact would be heavy enough to send ripples of assurance to the global economy. I have immediate concerns of this incident too.

1) The fallout would affected SGX (Singapore Stock Exchange). Share prices dropped rapidly and investor's confidence is at its all time low. Surprising to know is that the performance of the stock market is the reflection of the next six month local economical outlook. Already, the job market is at an all time low and is expected to worsen till June 2009. This rejection of the bailout will only aggravate the situation. Taking into account that I would be graduating by this year end, wouldn't the whole job search issue for me becoming a more daunting task?

2) The AIG has a local insurance subsidiary arm in Singapore, in the form of AIA. Soon after AIG was given the bailout of US$85 billion, insurance policy holders here were given repeated assurance that the company would not go bankrupt. However soon after that, the CEO of the insurance company jumped ship and got himself a job at a Canadian bank. The customers went into jittery mode. How would we expected other insurance companies, who have affiliations with banks back in the US, to do when the bailout gets reject? For short, the local insurance sector here would crumbled too. Nobody would even have the confidence to even buy any insurance policy in fear that they might never see its benefits.

Now we are seriously talking about undergoing hard times here. Now that the Bush's administration had informed the public about their plans to review the bailout package on the Thursday's Senate meeting, I have just one instruction to all the Senators and lawmakers out there. Be sensible and accept the bailout! You will not only saved your own ass but also millions of other people worldwide. -.-;

[Roy Karrde]

Well there are several problems with the bail out that are causing alot of Senators and House members not to vote for it.

A: It doesn't fix the main contributor to this, the Community Investment Act, which had the Government force the banks to make these Sub Prime loans to people who had horrible credit and probably couldn't pay it back.

B: It gives obseen power to the Treasury with very little oversight.

C: There is no guarantee that the money couldn't be used to bail out Foreign Banks as well.

Now there are alot of other problems with it, but these are the main ones I keep hearing about. Really I believe this needs to be passed, but mainly for personal reasons. Its the quickest way to fix the problem, but not the best way. And with out fixing or even repealing the Community Investment Act, we are going to be just screwing ourselves again.

[Gavin Luper]

That article is a fresh twist from a journalistic point of view, but it doesn't really offer much insight into the situation for me. It seems everyone is railing against the sub-prime lending practices now, but I don't think it's very helpful to do that. I mean, yeah, it's definitely irresponsible lending and if banks are having to write off money, that is messed up; but from my understanding, the US Government encouraged that stuff back in 01-02 to prop the economy up and avoid a recession. In other words, it looks like they basically transferred the economic crisis from 2001/2 to 2008. Is that a bad thing? A good thing? Does it even matter, if in the end we all have to deal with the same scenario? Or will the repercussions from the sub-prime mortgage crisis hurl us into a worse recession than what might have happened before - maybe even another Depression?

In a way, it's the same deal with the bailout plan, isn't it? You get the government to spend $700bn bailing out the big investment banks, but in the end you're just transferring the debt from one institution to another. Having said that, I really think the bailout should be pushed through: if it fixes the immediate market volatility it might make things go a little more smoothly. I can't say I fully understand why congress opposed the bailout, unless it is simply that a massive deficit like that would destabilise the US economy even more. (I'm by no means an economist/financially minded, so that's just my understanding of the possibilities.)

One of the things I found most "stupid" about this was Bush's televised address to the US. Good thing he didn't want to frighten the general public or anything ...

[DarkTemplarZero]

The thing that I find shocking is that anybody actually voted for the bailout. Here's why:
1) Conservatives hate it; it rewards businesses for failure
2) Liberals hate it; it puts taxpayer money straight into the pockets of private industry for no return
3) George W. Bush supports it, so the people who are convinced that he is an imbecile who can do nothing right (probably the majority of the US) are put off.

What I find surprising is that the US isn't taking a page out of Sweden's book; Sweden had a massive banking crisis about 15 years ago that was quite similar to what the US was going through now. Their solution? Instead of just handing money to the banks and basically making taxpayers swallow the problem, the government instead invested a large amount of money in the banks, bought up a lot of shares. This influx of cash allowed banks to get themselves back on their feet and eventually gave the government a sizable return. The government needs to stop taking the "hey, let's throw money at the problem and hopefully make it better" approach and actually use their brains. Oh wait, right, it's congress, they're all retards anyway.

[Dark-San]

In a matter of fact, I had just learn from the news that the US$700 billion bailout package was approved by the Senate on Thursday. It seems now that it has to wait for the clearance from the last hindrance in the form of the House of Representatives before the plan can be put into action. It does looks like investor's confidence is likely to be restored faster, smoothing the slideing down pattern of the economic curve.

I do understand from your point of view, DarkTemplar. But what the Swedish government did, I believe is totally different from the capitalism that the American economy usually operates in. If the American does it that way, wouldn't it be like the Government would be like owning all the major banks in the United States instead of having a free market. From the way I looked at it, it would be a mixture between Socialism and Communism.

[DarkTemplarZero]

Ok, investing in a bank != owning it necessarily. If you have some experience working with start-ups, you'll see that the government is like a really slacker angel investor; the government has lots of other things to do, so they'll just throw some money at the banks to keep them going in exchange for hopefully a bigger payout later and not be involved in the day to day matters. Quite frankly, this would be much more capitalist than the bailout; the bailout is just the government giving money to private enterprise with no possible return. It's not even a loan, it's just "hey, here's some cash home slice". However, investing in such a diverse collection of banks would give the government a high probability of a big return. In other words, instead of forcing taxpayers to swallow Wall Street's mistakes, you give Wall Street enough money to get back on its feet, make them pay for the disaster later, and use the return to help education or something nice like that.

[mr_pikachu]

Ok, investing in a bank != owning it necessarily. If you have some experience working with start-ups, you'll see that the government is like a really slacker angel investor; the government has lots of other things to do, so they'll just throw some money at the banks to keep them going in exchange for hopefully a bigger payout later and not be involved in the day to day matters. Quite frankly, this would be much more capitalist than the bailout; the bailout is just the government giving money to private enterprise with no possible return. It's not even a loan, it's just "hey, here's some cash home slice". However, investing in such a diverse collection of banks would give the government a high probability of a big return. In other words, instead of forcing taxpayers to swallow Wall Street's mistakes, you give Wall Street enough money to get back on its feet, make them pay for the disaster later, and use the return to help education or something nice like that.

See, that's something I could actually support. Considering how slow Congress works, though, it'd take something like five years to get it approved.

Oh, wait. They've known about this situation for about five years. Uh... five extra years?

[Dark-San]

No Brian, it has been approved by the House of Representatives two days ago and signed by President Bush soon after that. I guess if the situation calls for it, Congress do actually act fast.

[Mikachu Yukitatsu]

What I find surprising is that the US isn't taking a page out of Sweden's book; Sweden had a massive banking crisis about 15 years ago that was quite similar to what the US was going through now.

As a matter of fact, the US is taking a page out of, at least, Finland's book. The massive bank crisis swept through Sweden AND Finland in the early 90s, so we both have experience on that. I have watched the news and if I heard correctly, Americans actually ARE consulting Finns for solutions.