American Financial situation

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American Financial situation

Postby GCM » Thu Sep 25, 2008 2:28 am UTC

Right, so before I say anything, please note that I am short on time right now, but this caught my interest. So, if there's already something, please chuck this out.

So, I was on Yahoo, and got this. http://news.yahoo.com/s/ap/bush_markets

Generally, it says that Bush says that $700 billion for the Federal Reserve or something is needed to bail out the Wall Street bigwigs who are currently in debt. The argument being that, economic growth will falter if not. It says he's talked to Obama and McCain, and both agree that it needs to be done.

Personally, this sounds a little iffy. I may be affected by my own feelings that we should have less economic growth because the US is already "wealthy" enough, and we need to focus a little more on the environment now. But where is this money going to come from? I'm probably just ignorant, but this sounds like a magical savings account that the US keeps there mainly for giggles. In addition, I don't see why big companies should be bailed out. Give smaller businesses a chance, and stop hogging the market for everything, you rich bastards.
Also, I don't think Bush should say this since the war itself cost the US economy something like 3 trillion, but now I'm just being stupid about it.

Comments? Explanations? Opinions?
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Re: American Financial situation

Postby jimrandomh » Thu Sep 25, 2008 2:51 am UTC

Actually, the US government does have something like a magical savings account. Specifically, it has the unique legal right to print as many US dollars as it wants, whenever it wants. The only reason not to do so is because it would devalue the money that already exists (ie, inflation). When people talk about deficit spending, this is what's really happening.

That said, I don't think that bailing out investment banks is a good idea. These are companies that produce nothing whatsoever; their sole purpose is to move money around while skimming off the top. The argument is that one bank failing can bring down others, but while I can see how banks might be hurt this way, I don't see how individuals or non-bank businesses would be hurt - After all, our deposits are all protected by FDIC insurance. Our society has far too many useless finance people, and it would be great if they were forced to work for companies that actually made things. If the banks fail en mass, then good riddance.

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Re: American Financial situation

Postby Indon » Thu Sep 25, 2008 4:10 am UTC

jimrandomh wrote:Actually, the US government does have something like a magical savings account. Specifically, it has the unique legal right to print as many US dollars as it wants, whenever it wants. The only reason not to do so is because it would devalue the money that already exists (ie, inflation). When people talk about deficit spending, this is what's really happening.

Deficit spending doesn't just involve printing out more money - it involves the government incurring debt, such as through bonds.

It's not magical. In fact, it's getting quite strained.
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Re: American Financial situation

Postby Silas » Thu Sep 25, 2008 4:32 am UTC

jimrandomh wrote:That said, I don't think that bailing out investment banks is a good idea. These are companies that produce nothing whatsoever; their sole purpose is to move money around while skimming off the top. The argument is that one bank failing can bring down others, but while I can see how banks might be hurt this way, I don't see how individuals or non-bank businesses would be hurt - After all, our deposits are all protected by FDIC insurance. Our society has far too many useless finance people, and it would be great if they were forced to work for companies that actually made things. If the banks fail en mass, then good riddance.

Emphasis added.

That's not the argument at all. The point is that failing banks make it difficult- nigh impossible- for those actually-making-stuff companies to get the lumps of cash they need to set up, expand, or invent their production centers and methods. GM would never have built a single factory if it had to wait for its revenues to pile up enough to pay for it outright at any point in its history. If Google hadn't been able to borrow against future earnings, it's be maybe a fifty-million-dollar company. Maybe. It takes a long time for ad revenue to pile up.

The financial sector is not dispensable.

Edit: changed size of would-have-been Google from $5M to $50M- not that either figure stacks up against its market capitalization of $150B.
Last edited by Silas on Thu Sep 25, 2008 4:50 am UTC, edited 1 time in total.
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Re: American Financial situation

Postby Solt » Thu Sep 25, 2008 4:45 am UTC

jimrandomh wrote:Actually, the US government does have something like a magical savings account. Specifically, it has the unique legal right to print as many US dollars as it wants, whenever it wants. The only reason not to do so is because it would devalue the money that already exists (ie, inflation). When people talk about deficit spending, this is what's really happening.

That said, I don't think that bailing out investment banks is a good idea. These are companies that produce nothing whatsoever; their sole purpose is to move money around while skimming off the top. The argument is that one bank failing can bring down others, but while I can see how banks might be hurt this way, I don't see how individuals or non-bank businesses would be hurt - After all, our deposits are all protected by FDIC insurance. Our society has far too many useless finance people, and it would be great if they were forced to work for companies that actually made things. If the banks fail en mass, then good riddance.

Communist much?

This shows a pretty poor understanding of the financial system. Hint: when you are about to claim that some action that people have been doing for several centuries on an almost universal scale is illogical or stupid, it's a sign that you don't fully understand the thing.

Banks fuel growth. They take money that would otherwise be sitting around in the form of savings, and pump it back into the economy. Without a bank accumulating the wealth of millions of people, and without institutions like Fannie Mae and Freddie Mac, you would never be able to own your own house or buy a car. Large scale capitalism just wouldn't work without the idea of credit. The only people who would do well would be the extremely wealthy- they would stay wealthy because only they would be able to make new investments; it would be next to impossible for poor people to get richer.

And if you think the financial system only benefits the lower classes and businesses, you're wrong. Lack of credit is one of the reasons the Roman Empire collapsed. And an abundance of it is the of the major reasons Britain was able to build such a huge empire and still wage decades long wars and prosper.

I could go on. Modern banks let you send and access your money anywhere. If you wanted to visit another part of the country or world without electronic banking? You'd have to take all the money you would need for the trip with you. Hard currency. Yea. And if you wanted to buy something, say, over the internet? What would you do, mail them a bag of gold?

And deficit spending is funded from bonds. That money comes from wall street, and is re payed with interest.
Last edited by Solt on Thu Sep 25, 2008 4:57 am UTC, edited 1 time in total.
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Re: American Financial situation

Postby Silas » Thu Sep 25, 2008 4:57 am UTC

Solt wrote:Without a bank accumulating the wealth of millions of people, and without institutions like Fannie Mae and Freddie Mac, you would never be able to own your own house or buy a car.

Just point of fact, I bought my car with cash- no bank was involved, except for the ATM at Wachovia. The real necessity of financing probably doesn't set in until you're talking about ten grand or better.
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Re: American Financial situation

Postby Solt » Thu Sep 25, 2008 5:04 am UTC

Silas wrote:
Solt wrote:Without a bank accumulating the wealth of millions of people, and without institutions like Fannie Mae and Freddie Mac, you would never be able to own your own house or buy a car.

Just point of fact, I bought my car with cash- no bank was involved, except for the ATM at Wachovia. The real necessity of financing probably doesn't set in until you're talking about ten grand or better.


Unfortunately the technology doesn't exist yet to build the most desirable things cheaply.

In any case, you probably were working on credit. How did you get the money to buy that car? You had a job. How did you get that job? You told them you'd be able to show up every day. How did you guarantee that you'd be able to show up every day? Either you lived within walking distance of the place (unlikely) or you used public transportation (funded by loans taken out with your city/county/state's tax revenue as a guarantee) or used someone else's car (also borrowed capital, just in a different form).

Also, having a few thousand dollars in cash would have been a very good motivation for robbers to break into your house and take it. Isn't it nice that the bank held it for you (safely) until the very moment you needed it?

Also, (if you bought a new car) how did the car maker build a car that it hadn't sold yet? Or if it was used, it must have been new at some point.
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Re: American Financial situation

Postby Silas » Thu Sep 25, 2008 5:51 am UTC

Ok, you got me. I was restricting my consideration to the demand side. With that regard, I think what I said was justified. But it's kind of silly object that Fannie and Freddie are sine-qua-non's of everything in the economy. It's like saying there couldn't be a fossil fuel economy without hydrogen:
"without hydrogen, fossil fuels like gasoline and propane couldn't exist,"
"yeah, but what about coal? It's pure carbon."
"well, without the sun, a giant glob of mostly hydrogen, life never would have arisen, and without life, there can't be an economy of any sort."

If you really want to have this argument, I'm always game. But it's just semantics and gotcha. I'm pretty sure we're in more or less complete agreement on facts.
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Re: American Financial situation

Postby Malice » Thu Sep 25, 2008 6:47 am UTC

Financial institutions expand the economy, literally; it would be much, much smaller if banks weren't able to hold onto Jack's money and, at the same time, loan it out to Jill, Dave, and Bob. Those three people use the loans to buy stuff that helps them work (like cars for commuting) and start up their own businesses (which in turn help other areas of the economy); suddenly things have exploded far beyond Jack's ability to do so by himself.

The only detriment to this wonderful wealth-creating idea is that if you lose the banks, the economy swiftly contracts. If you want to prevent that, you have to prevent the banks from doing stupid things, or, in this case, bail them out of the consequences of the stupid thing they already did while you weren't looking.
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Re: American Financial situation

Postby optionalredmark » Thu Sep 25, 2008 11:35 am UTC

Well, the money is coming from taxes -- and it's backed/secured by the idea that the Government CAN force you and every American citizen to pay for it.

The fun part is, according to Forbes, the 700 billion:

"It's not based on any particular data point," a Treasury spokeswoman told Forbes.com Tuesday. "We just wanted to choose a really large number."


While I don't know enough about economics to argue a point for or against the bailout, I am particularly annoyed that the Government is interfering with the failure of the market. In essence a Capitalist economy has expansion and contraction periods of growth -- just like in life everything has it's ups and downs, ins and outs, etc. I don't necessarily want to see our fellow country men out in the cold and starving... but then again, the citizens of the United States of America have been living like Kings for the past 50-60 years, compared to the other several billion residents of our Earth... so a little 'adjustment' is not out of question. In a way, Marx predicted this would happen, but being the proud and somewhat uneducated people that we are, we will continue to call it Capitalism and Democracy, even when really we should be finding a new name for this economy, and we've actually been a Republic all along.

So with that said we get to the 'IMO' -- The bailout plan, seems to me to be more of our government pleading for the very rich to keep investing in our country. If these companies fail we'll have a catastrophy on the hands of Americans, but the very rich men and women (w/ billion dollar bonuses), will still have the capital necessary to go anywhere else on Earth and start up businesses, schemes, and what-have-you necessary to continue their own personal growth... and now with a global economy they have more options--they can play against the other communication/federal tycoons, or any of the several wealthy oil families in the Mid-East or even w/ the ancient families of Asia.

On the other hand, even if these companies get 'bribed' to stay in America, I have absolutetly no reason to believe that they will keep their word... while the US Government is under contract to force its citizens for the next X generations to pay back the bribe.

Anyway...

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Re: American Financial situation

Postby jimrandomh » Thu Sep 25, 2008 12:56 pm UTC

Solt, you misunderstood me. I didn't say I wanted an economy without banks, just an economy without today's banks. If today's banks failed, then better ones would rise to take their place. Maybe those banks wouldn't give loans to every John Doe with a social security number.

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Re: American Financial situation

Postby Indon » Thu Sep 25, 2008 1:48 pm UTC

Malice wrote:Financial institutions expand the economy, literally; it would be much, much smaller if banks weren't able to hold onto Jack's money and, at the same time, loan it out to Jill, Dave, and Bob. Those three people use the loans to buy stuff that helps them work (like cars for commuting) and start up their own businesses (which in turn help other areas of the economy); suddenly things have exploded far beyond Jack's ability to do so by himself.

But there's a place for credit, and consumption (and beyond a certain point, investment - see the housing bubble) isn't it.

Financing beyond the places and circumstances where financing works is just overinflating the balloon - it's just a matter of time before it pops and we all go Hindenburg.
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Re: American Financial situation

Postby GCM » Thu Sep 25, 2008 2:16 pm UTC

jimrandomh wrote:Actually, the US government does have something like a magical savings account. Specifically, it has the unique legal right to print as many US dollars as it wants, whenever it wants. The only reason not to do so is because it would devalue the money that already exists (ie, inflation). When people talk about deficit spending, this is what's really happening.


Ahh, alright. I was curious when I came up across what appeared to be them pulling money out of their federal arse. (It's funnier than ass, okay?)

Another thing I encountered in the article was about how Bush wanted to do this instead of taxing the American people (for the sake of big companies). But since this devalues money, prices go up, in which case, the general public loses anyway. Wouldn't it be better (if this HAD to be done) to just tax things and keep finances less complicated than to do this? Or is this just some Republican ideal image of tax breaks that would appeal to the public but in practice really won't do anything?

And while I agree that financial institutions are not dispensable, what I don't like is people getting ridiculously rich off it (such as, say, the people of Wall Street), screwing up, and expecting the public to pay for their mistakes. Google has some great technologies, which is terrific. But then, there's the whole issue of world domination, and when you start hearing things from them like "We are about to buy Valve", it starts getting a little worrying. Aren't they rich enough already?

Which sparks another query; how did the institutions mess up, anyway?
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Re: American Financial situation

Postby Kachi » Thu Sep 25, 2008 3:15 pm UTC

My question is if we're going to spend $700 billion of taxpayer money, is this really the way to do it? If you split $700 billion among the 300,000,000 Americans, that's $2300 per person. Exempt the richest 10% and make it more like $2500. That's every American-- man, woman and infant.

Now, I don't know on what level the average American will be affected if AIG goes under. I do have a hard time believing that my mother, who is still raising 3 children, and struggles with medical debt, would rather bail out Wall Street than receive a check for $12,500 (economic stimulus part two). I imagine most lower and middle class families who are struggling right now would feel the same way.

I don't know how many people will lose their jobs without the bailout, or how badly the economy on the whole will be influenced, particularly in comparison to a direct redistribution of that money among taxpayers-- but I do know that there are other options here that aren't being explored by Congress.

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Re: American Financial situation

Postby Silas » Thu Sep 25, 2008 3:18 pm UTC

GCM wrote:Another thing I encountered in the article was about how Bush wanted to do this instead of taxing the American people (for the sake of big companies). But since this devalues money, prices go up, in which case, the general public loses anyway. Wouldn't it be better (if this HAD to be done) to just tax things and keep finances less complicated than to do this? Or is this just some Republican ideal image of tax breaks that would appeal to the public but in practice really won't do anything?

Well, the bailout has to happen now or not at all, and changes to taxes won't bring in (much) new money until May, when income tax checks start to clear. So if we're going to do anything, it's going to be paid for with bonds.
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Re: American Financial situation

Postby Ixtellor » Thu Sep 25, 2008 6:31 pm UTC

A proposal I heard, then calculated, and haven't since given much thought is:

Take the X billion $'s and use it to pay off all the defaulted homes.

$200 Billion = 400,000 homes costing $500,000 each.
or
$200, Billion = 800,000 homes costing $250,000 each.

So I assume that with $700 BILLION, they could basically just pay off every defaulted home.

So A: The people get to keep their homes. (deserved or not)
and B: The Banks get the money in the end anyway. So all their cash problems and default problems are solved in 1 fell swoop.


What problems do you see? ( I already see one big problem , but a matter of principle, not really dealing with soloving the crisis)


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Re: American Financial situation

Postby Abstruse » Thu Sep 25, 2008 6:48 pm UTC

The argument is that one bank failing can bring down others, but while I can see how banks might be hurt this way, I don't see how individuals or non-bank businesses would be hurt


Considering the amount of debt freddie and fannie carry not bailing them out might not just cause other banks to fail it could shut down the world economy.

Those two companies have more debt than any country in the history of the WORLD (bar one). The collapse of those companies could have a larger impact than the bankruptcy of a nation on the economic scale of Japan, or larger.

That's how I understand it at least.

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Re: American Financial situation

Postby The Great Hippo » Thu Sep 25, 2008 8:37 pm UTC

I don't know a damn thing about economics, just history. So, with that said:

Way back in the early 1900s (or was it late 1800s? I'm abhorrent with dates) we had a lot of push for the de-regulation of businesses and finances here in America; things like social darwinism and laissez faire capitalism. The premise of those who pushed for things like this was that naturally-occurring forms of regulation would keep everything in check. When things like that did happen (unions, so on), the businesses that were demanding that the government stop intervening suddenly flipped sides and asked the government to intervene--on their behalf.

From what I understand of the current crisis, it's a lot like that--banks demanded less regulation from the government (or 'positive' forms of regulation), got it, fucked everything up, and now they're asking the same government to intervene on their behalf. This isn't how laissez faire capitalism works.

And that's fine, but I'd really like to at least see this 700 billion dollar buy-out come with heavy regulations that clamp down on the banks. Because as far as I see it (and please, if someone understands this subject better, feel free to correct me), this is a clear-cut case of banks wanting to have their cake and eat it too.

It's been said before, but it bares repeating--as far as I can see, this sounds like socialism for the rich and capitalism for the poor.

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Re: American Financial situation

Postby FourLetterWord » Thu Sep 25, 2008 8:43 pm UTC

Hour-long radio program that does a really really good job of explaining the current crisis:

This American Life - The Giant Pool of Money

seriously this is a pro-click zone

if you care about this issue (all of you should) and you arent already versed in economics (most people arent) then click dis here shit, it explains the kerfuffle in an easily-accessible way

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Re: American Financial situation

Postby Fuzzy_Wuzzy.bmp » Thu Sep 25, 2008 9:27 pm UTC

Indon wrote:Financing beyond the places and circumstances where financing works is just overinflating the balloon - it's just a matter of time before it pops and we all go Hindenburg.

Hindenburg didn't pop though, it just kinda burned.
But yeah, maybe instead of bailing those guys out, if spending 7 * 10^11 $ is a good idea (I don't know, I'm no economist), there's almost certainly a better way. Possibly one that doesn't involve giving money to the very richest.

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Re: American Financial situation

Postby Indon » Fri Sep 26, 2008 3:59 am UTC

Fuzzy_Wuzzy.bmp wrote:Hindenburg didn't pop though, it just kinda burned.


I'm pretty sure the bag ruptured before the gas ignited. You might be right, though, and the bag might only have ruptured afterwards.

I used that as an example because America used Hydrogen because it was the most economic - and, coincidentally, most dangerous - way to get the job done.

Our banks have operated similarly - America's economy is inflated with H, not He.
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Re: American Financial situation

Postby Bubbles McCoy » Fri Sep 26, 2008 4:16 am UTC

Really off topic here, but recent evidence has shown that the reason the Hindenburg's hydrogen did not cause the expolsion, but a static discharge between the metal superstructure and the fabric which happened to be coated in a chemical startingly similar to rocket fuel. The German scientists actually knew this, but hid the research.

Just for the fun of it, let's extend the new metaphor - while the underpinnings are dangerous to the American economy, it works so long as it's not regulated in a stupid manner :P


...I really shouldn't have...

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Re: American Financial situation

Postby Fuzzy_Wuzzy.bmp » Fri Sep 26, 2008 2:04 pm UTC

Indon wrote:I'm pretty sure the bag ruptured before the gas ignited.

I assumed it did, but the pressure difference between the baloon and the outside was not large enough to generate a 'pop'. More of a 'phuuuush'.

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Re: American Financial situation

Postby Indon » Fri Sep 26, 2008 3:28 pm UTC

Bubbles McCoy wrote:Really off topic here, but recent evidence has shown that the reason the Hindenburg's hydrogen did not cause the expolsion, but a static discharge between the metal superstructure and the fabric which happened to be coated in a chemical startingly similar to rocket fuel. The German scientists actually knew this, but hid the research.

Just for the fun of it, let's extend the new metaphor - while the underpinnings are dangerous to the American economy, it works so long as it's not regulated in a stupid manner :P


...I really shouldn't have...


So the hydrogen is the operation of the market, and the rocket fuel is deregulation, and static discharges are risky investments!

Fuzzy_Wuzzy.bmp wrote:I assumed it did, but the pressure difference between the baloon and the outside was not large enough to generate a 'pop'. More of a 'phuuuush'.


Well, our economy's been taking some time to deflate too. While on fire from the rocket-fuel regulations and risky lending sparks.
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Re: American Financial situation

Postby Dazmilar » Fri Sep 26, 2008 5:42 pm UTC

You know, it gets a little tiring to keep seeing the us vs. them, poor vs. rich arguments. It's reprehensible when you polarize the country into us/them mentalities over race, gay rights, etc. But apparently, when it comes to rich/poor it's business as usual. I'm half willing to vote republican just out of spite, because if I'm not a blue-collar, "salt-of-the-earth" factory worker from Bumblefuck, Ohio, I'm not a real American. I think we can stop talking about Wall Street as if it's an entity separate from the United States. Over 12,000 people worked for Lehman Brothers in NYC alone. Last I checked, these folks are Americans, too. And they're not all fat men in business suits smoking cigars looking at stock tickers while saying, "Haha, Jameson, I've just made another million."

Obviously, we shouldn't reward CEOs who ran these institutions into the ground. But if we continue the argument that Wall Street is some separate thign out there for rich folks, it's easy to argue against the bailout. After all, it has no impact on you, on Main Street, right? (Will want to push sharp things into soft things that scream and bleed if the Wall Street/Main Street rhetoric continues.) It's important to stem the tide of foreclosures, because they drive down the value of all homes. There are people out there paying 300k mortgages on houses worth 200k, just because the property values have plummeted. We need to free up credit so banks can lend. I don't think most people want to live in a world where you need a 720+ credit score just to get a car loan.

Now, I'm not sure what the arguments are against the alternative that was suggested above, about cutting a 10k check to homeowners. My guess is, that it's likely a large percentage of such a check wouldn't go towards the home. Especially if you're dealing with a lot of people who probably weren't fiscally responsible enough to own a home in the first place.

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Re: American Financial situation

Postby Indon » Fri Sep 26, 2008 6:39 pm UTC

Dazmilar wrote:You know, it gets a little tiring to keep seeing the us vs. them, poor vs. rich arguments. It's reprehensible when you polarize the country into us/them mentalities over race, gay rights, etc. But apparently, when it comes to rich/poor it's business as usual. I'm half willing to vote republican just out of spite, because if I'm not a blue-collar, "salt-of-the-earth" factory worker from Bumblefuck, Ohio, I'm not a real American. I think we can stop talking about Wall Street as if it's an entity separate from the United States. Over 12,000 people worked for Lehman Brothers in NYC alone. Last I checked, these folks are Americans, too. And they're not all fat men in business suits smoking cigars looking at stock tickers while saying, "Haha, Jameson, I've just made another million."

Obviously, we shouldn't reward CEOs who ran these institutions into the ground. But if we continue the argument that Wall Street is some separate thign out there for rich folks, it's easy to argue against the bailout. After all, it has no impact on you, on Main Street, right? (Will want to push sharp things into soft things that scream and bleed if the Wall Street/Main Street rhetoric continues.) It's important to stem the tide of foreclosures, because they drive down the value of all homes. There are people out there paying 300k mortgages on houses worth 200k, just because the property values have plummeted. We need to free up credit so banks can lend. I don't think most people want to live in a world where you need a 720+ credit score just to get a car loan.

Now, I'm not sure what the arguments are against the alternative that was suggested above, about cutting a 10k check to homeowners. My guess is, that it's likely a large percentage of such a check wouldn't go towards the home. Especially if you're dealing with a lot of people who probably weren't fiscally responsible enough to own a home in the first place.


I don't think there's any chance that the tens of thousands of financial workers and... what, hundreds of thousands? of people getting jacked over by mortgages are going to get any significant help from a government bailout of a bunch of mismanaged (edit: Oh, and often unethically acquired - predatory lending much?) assets.

It's pretty much exclusively about saving CEO's and wealthy investors (in fact, the logic is literally, "These people are too rich to be subject to capitalism"). You can't get much more Rich vs. Poor than that without going with Paulson's bailout plan (which Paulson could just give to himself, making him rich and taxpayers poor).

Edit: That said, economics is about interdependence, even if we have so many lawmakers who 99% of the time pretend like it isn't, and I'm sure that investment banks going catastrophically under would carry over into some kind of minor inconvenience for everyone else, like higher grocery bills or something. To be honest, I'm much more concerned with the dollar collapsing as a result of the disgusting debt we're incurring from having a corporate welfare state. That would do more than just 'trickle down' to me.
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Re: American Financial situation

Postby Bubbles McCoy » Sat Sep 27, 2008 12:24 am UTC

I'm pretty sure plans for the bailout won't work this way Indon... from most of the talk on the bailout from the capital, it generally seems as though the purchased debt will probably be weilded in a manner that keeps people in their homes, as the entire point of this bailout is to stem the tide of forclosures. I think your rebuttal to Dazmilar's statement pretty much confirmed his statements, as you're automatically assuming that this is just throwing money at the rich when it's crafted more evenly (as a matter of fact, most Republicans oppose the bailout). We need to get banks operational agian and yes, that will involve taking bad debt off their hands but the next step isn't evicting the tenants of the houses and demolishing them. Absentmindedly hating Wall Street and the rich and assuming they're all evil is exactly what Dazmilar was complaining about, and I'd tend to agree that thinking everything is us vs. them is the root of many, many evils.

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Re: American Financial situation

Postby GCM » Sat Sep 27, 2008 1:21 am UTC

Silas wrote:Well, the bailout has to happen now or not at all, and changes to taxes won't bring in (much) new money until May, when income tax checks start to clear. So if we're going to do anything, it's going to be paid for with bonds.


Ahh, okay. That clears it up. But still, Bush DID say he doesn't want to tax. So, does he get it?

Bubbles McCoy wrote:I'm pretty sure plans for the bailout won't work this way Indon... from most of the talk on the bailout from the capital, it generally seems as though the purchased debt will probably be weilded in a manner that keeps people in their homes, as the entire point of this bailout is to stem the tide of forclosures. I think your rebuttal to Dazmilar's statement pretty much confirmed his statements, as you're automatically assuming that this is just throwing money at the rich when it's crafted more evenly (as a matter of fact, most Republicans oppose the bailout). We need to get banks operational agian and yes, that will involve taking bad debt off their hands but the next step isn't evicting the tenants of the houses and demolishing them. Absentmindedly hating Wall Street and the rich and assuming they're all evil is exactly what Dazmilar was complaining about, and I'd tend to agree that thinking everything is us vs. them is the root of many, many evils.


Wow. Chill out.

Also, it's not that I (just speaking for me here) hate the rich or have a grudge against them. I just hate what a lot of them do to become rich (I'm looking at you, advertisers, businessmen, Walmart). And from what I understand, the Republican party tries to explain that by supporting these rich people, America will get richer. Which I see as the rich people in America getting richer. The inequality index is .40, after all.
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Re: American Financial situation

Postby Indon » Sat Sep 27, 2008 4:07 am UTC

Bubbles McCoy wrote:from most of the talk on the bailout from the capital, it generally seems as though the purchased debt will probably be weilded in a manner that keeps people in their homes, as the entire point of this bailout is to stem the tide of forclosures.

No, it isn't. The entire point of the bailout is to ensure that banks are solvent. It's to save the banking industry, not its' customers.

There are some democrats pushing to provide relief for some of the SOL debtors (mind that the banks are collapsing because everyone finally realized just how many SOL debtors there are in the first place). They're being opposed by most republicans - who have stated they're in favor of a bailout but only if it's packaged alongside less regulation.

You know what the difference between being bailed out and not being bailed out will be for someone up to their necks in mortgage debt? Absolutely nothing unless there's a bill explicitly targeting them - it doesn't matter who owns their mortgage, or how much that mortgage is valued at as an asset, as the terms for the debtor were cemented when the loan was signed.

The bailout is to increase the value of worthless assets, because the industry jacked up so incredibly badly by screwing over countless people with bad loans that it endangers the entirety of our banking system.

I'll say that again. Our banking system is in danger because of predatory lending. Short of corporate stores, you can't get closer to class warfare than widescale predatory lending.

Edit: But I think we all agree that a bailout is desirable - the collapse of our banking and investment system would lead to a very significant impact on the economy as a whole, and even with the bailout there'll be some effects. Really, I'm just venting at the greedy bastards who manipulated the government into letting them be able to take advantage of people at such a massive scale that the government can now not allow them to fail in their massive scheme, and how this entire thing is not only biting me in the ass as a taxpayer by aggravating an already far-overstretched federal budget, but that some of our lawmakers want to make it easier for this to happen again (thanks a lot, GOP).
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Re: American Financial situation

Postby Bubbles McCoy » Sat Sep 27, 2008 6:21 am UTC

I have read nothing to suggest that Republicans like this plan in any way, shape or form, only John McCain seems to be supporting it for largely political reasons (link). The support of this plan rides on the Democrats, and seeing as how the passage of the bailout rides on them this will help homeowners. Bernake and Paulson are just concerned with the banks, yes, but it's their job; any support from homeowners will naturally come from Congress. Forclosures decrease home prices and encourage more forclosures, so if the plan doesn't keep people in their homes their is really no point to it. I fail to see how this bailout will increase the value of assets if it doesn't do this.

As to "class warfare," how exactly does predatory lending constitute this? I know plenty of people who used to sell loans and homes, I work with them for $16 an hour through a temp agency. Yes, a handful of people did some highly questionable acts in terms of encouraging the writing of these loans and passing them off to other institution packaged with a few lies as to how easily they can be paid off. But lies are hardly the sole providence of the wealthy, it just so happens some people manage to become wealthy using them.

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Re: American Financial situation

Postby FrankDemola » Sat Sep 27, 2008 10:18 am UTC

For both sides of the either/or poor/rich argument: Can we agree that culture vacuums suck? People allowed to act irrespectively of other forces will ultimately fall into patterns entropic to other entities. In this case: the housing market lost sight of basic economic virtues, got used to operating within a culture supporting irresponsible lending/buying, and it blew out of proportion to the point where debt made them look down in the cliff they jumped from and go, "Oh schnap!" Had better care been taken to stop funding these loan givers, or to restrict these selfish actions in some way, we wouldn't need to have this conversation.

Not just power vacuums. Culture vacuums. You need to stay within the frame of the larger social organism, to some extent, or you become a latching cancer on larger society.


As much as I am distrustful of this government, I understand why it needs to act, and why it believes it is doing the right thing with this bailout.

The main boon the government foresees is that banks would be given money to pay off their debt so they could use the money to invest in the economy. The market is deadlocked, our largest banks' liquid assets trapped within the windowless cellar of debt. Buying up debt means freeing the banks assets to move through the market and thus for the process of growth to continue with as NEARLY as many players as there have been.

What the government can expect to foresee if they do not act? Larger than large businesses being shut down. Big Business with not 1 but 2 capital G's. Millions of people lose their jobs. Other companies that got a large share of their business from these companies (construction companies, landscape specialists, etc. etc.) fold and go under. Unemployment fires up, and any specialized workers might as well start retraining in another field or moving out of the country, because there's NO demand for them now.

Another option, although less likely,

Even larger companies consolidating even more power as they buy up the smaller companies, making even larger conglomerates with even more potential market power. This is less likely because, well, conglomerates are vain, but no one likes to take such monumental initial losses for what appears to be a no-win scenario. But for the right price, they'd buy out these companies...ultimately, if the governments of the world did nothing, the failing companies wouldn't have a choice but to attempt to cut their losses by selling cheap. Dirt cheap. It has already happened a couple of times.


What I see as the problem with the bailout? The main reason is that it hurts the entire American economy at its heart: the dollar. A bad dollar, as we all know, means that everything we import (including oil, as we have seen!) costs more. It also means the salaries people are paying won't go as far. Also, since we're incurring billions of dollars of debt to an already ridiculous number, means we're nearing the breaking point...we have to pay it off. Which means, yes, more taxes. I mean, how much can we really cut spending? If there's a way someone knows to cut spending, and still have the necessary infrastructure to compete in the future global market, let me know, and that's cool. Maybe the defense budget could be cut a bit...we've been in a one nation arms race for twenty years, maybe now we should chill on it.

With people's dollar going for less and taxes likely having to be raised, an already often impacted middle and lower class will feel a greater pinch...and some may even pop. Which means low consumer confidence. Which means people not buying stuff. Things could very well just explode.


I, personally, believe that the crash is inevitable, a Depression is close at hand, and if we brace ourselves for it, we may not be able to stop it, but we can be able to roll with the immense hardships, and manage to rebuild our nation with our personal freedoms still in tact when we do manage to stand up as a leading nation again.

Because moments of crisis can really bring out the best in society, and alternatively the worst. I hope we have the insight to side on the prior.

-Frank

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Re: American Financial situation

Postby TheStranger » Sat Sep 27, 2008 10:21 am UTC

Without hard numbers there is no way to tell how many of these bad loans were the result of predatory lending practices or from government policies that 'encouraged' higher risk loans.
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Re: American Financial situation

Postby drunken » Sat Sep 27, 2008 1:55 pm UTC

Edit: Please let me apologise for this post. It is uninformed unresearched and basically just a collection of my random opinions. I knew this was the case when I wrote it but I somehow neglected to word it in such a way that this was obvious, or even possible to guess. It should have been proceeded with some sort of disclaimer at least just so everyone doesn't think I am a total idiot:

This post is more accurate when I prefix every sentence with the phrase "I had a vague impression that" or "someone once told me at some point that" and follow each sentence with a comment along the lines of "can anyone verify/refute/elaborate on this?". Thankyou to the person that answered this and clarified things and I hope my post didn't make anyone too angry.

Sorry, I'll be more careful in future





Solt wrote:
jimrandomh wrote:words.

Communist much?

This shows a pretty poor understanding of the financial system. Hint: when you are about to claim that some action that people have been doing for several centuries on an almost universal scale is illogical or stupid, it's a sign that you don't fully understand the thing.

Banks fuel growth. They take money that would otherwise be sitting around in the form of savings, and pump it back into the economy. Without a bank accumulating the wealth of millions of people, and without institutions like Fannie Mae and Freddie Mac, you would never be able to own your own house or buy a car. Large scale capitalism just wouldn't work without the idea of credit. The only people who would do well would be the extremely wealthy- they would stay wealthy because only they would be able to make new investments; it would be next to impossible for poor people to get richer.

And if you think the financial system only benefits the lower classes and businesses, you're wrong. Lack of credit is one of the reasons the Roman Empire collapsed. And an abundance of it is the of the major reasons Britain was able to build such a huge empire and still wage decades long wars and prosper.

I could go on. Modern banks let you send and access your money anywhere. If you wanted to visit another part of the country or world without electronic banking? You'd have to take all the money you would need for the trip with you. Hard currency. Yea. And if you wanted to buy something, say, over the internet? What would you do, mail them a bag of gold?

And deficit spending is funded from bonds. That money comes from wall street, and is re payed with interest.


1) Communist is not an insult, neither is it contradictory evidence for a point, it's a political ideology. Please look up the difference on wikipedia if you are confused.

2) The federal reserve system has been around in america since 1913, this is almost 100 years.

3) The connection between "large scale capitalism" (of the wall st type) and an individual buyers purchasing (Fannie and Freddie) is tenuous at best.

4) The ability of poor people to get richer relies on a free market model of capitalism with government controls on despotic activities. The federal reserve system is not necessary for this.

5) The federal reserve bank is a private corporation, never forget where your 700 billion dollars are going.

6) "And if you think the financial system only benefits the lower classes and businesses, you're wrong." Did you mean upper classes? This sentence confused me next to your other comments. Also reducing the causes of the collapse of the roman empire to finance is a masssive oversimplification. It's like reducing your analysis of peoples buying power to the financial system and looking no further. Oh wait you did that too. Well anyway the real causes are far more complicated.

7) Federal reserve sytem != electronic banking. Electronic money handling is a system that could be used with any monetary system, and although in most cases it does require a reserve of something like gold to back up the electronic currency, the way that is implemented can be done in a host of different ways of which the American system is just one.

The American Federal reserve bank was founded to prevent panics leading to financial crises. In the last 95 years since it's conception there have been more of these financial crashes than most other 95 year periods in history. Tell me what the system is supposed to achieve again? Ever wondered who benefits from all this suffering?
Last edited by drunken on Wed Oct 01, 2008 1:21 pm UTC, edited 1 time in total.
***This post is my own opinion and no claim is being made that it is in any way scientific nor intended to be construed as such by any reader***

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Re: American Financial situation

Postby Rysto » Sat Sep 27, 2008 3:20 pm UTC

drunken wrote:The American Federal reserve bank was founded to prevent panics leading to financial crises. In the last 95 years since it's conception there have been more of these financial crashes than most other 95 year periods in history.

Yeah, you're going to need a cite for that.

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Re: American Financial situation

Postby pchoo » Sat Sep 27, 2008 6:02 pm UTC

drunken wrote:3) The connection between "large scale capitalism" (of the wall st type) and an individual buyers purchasing (Fannie and Freddie) is tenuous at best.

I'm not completely sure what you're referring to as "large scale capitalism" vs. "individual buyers", but many commercial banks and wall street firms purchased the mortgaged backed securities from Freddie & Fannie in order to wrap them up into more complicated derivatives. The securities issued by Freddie/Fannie wasn't as risky as securities issued from other places due to restrictions set by regulators, but they still got into Alt-A mortages (which don't require proof of income, versus subprime that don't require proof of income or employment and disregards credit rating). Fannie and Freddie also held mortgages that they bought on their own books... they pretty much tried as hard as they could (under restrictions set by regulators) to be like the wall street banks.

drunken wrote:4) The ability of poor people to get richer relies on a free market model of capitalism with government controls on despotic activities. The federal reserve system is not necessary for this.

While the statement is true, part of the Federal Reserve's duties is to regulate commercial banks & prevent unfair practices. So I guess you could set up some other system to do it, but they are part of the "government controls on despotic activities" as far as commercial banks go.

drunken wrote:5) The federal reserve bank is a private corporation, never forget where your 700 billion dollars are going.

Not really - they're far less private than Fannie & Freddie for example. Their authority is mandated by law, and government has a strong (if indirect) say in what they do via government appointed positions on the board of governors and modifications to their charter via legislation. The "private" parts of the structure are an attempt to balance government oversight with the free market ideal and to keep the Federal Reserve distinctly separate from any one given administration. For example, they do pay out dividends to (private) member banks because they don't pay interest on required reserves, but all money in excess of expenses goes back to the Treasury. Wikipedia says, "the Federal Reserve system contributed over $29 billion to the Treasury in 2006."

drunken wrote:7) Federal reserve sytem != electronic banking. Electronic money handling is a system that could be used with any monetary system, and although in most cases it does require a reserve of something like gold to back up the electronic currency, the way that is implemented can be done in a host of different ways of which the American system is just one.

Again, while this statement is true, the federal reserve system currently handles the checking (automated clearing house) and electronic money services. It would be difficult for this system to be handled outside of a government since anytime you credit someone money for a check you're taking a large risk that a) the check writer doesn't have the funds to back it up and b) the bank where the check writer has an account doesn't have the money to back it up. Electronic handling of money could be established through a different system, but linking it to the Federal Reserve both makes sense & works.

drunken wrote:The American Federal reserve bank was founded to prevent panics leading to financial crises. In the last 95 years since it's conception there have been more of these financial crashes than most other 95 year periods in history. Tell me what the system is supposed to achieve again? Ever wondered who benefits from all this suffering?

The Federal Reserve was founded to prevent banking panics leading to financial crises. In other words, it was created to make sure banks had enough money to pay depositors in case a bunch of them wanted to withdraw all at the same time. A high rate of financial crises isn't necessarily correlated with the Federal Reserve doing a bad job. The current financial crisis, for example, was originated by an asset bubble in housing, fueled by general greed, with mortgage lenders & Wall street fanning the flames further. The Federal Reserve doesn't have the authority to regulate anything outside of the commercial banking system (ie. wall street - Investment Bank oversight is/was supposed to be handled by the SEC).

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Re: American Financial situation

Postby spi » Mon Sep 29, 2008 4:15 am UTC

FourLetterWord wrote:Hour-long radio program that does a really really good job of explaining the current crisis:

This American Life - The Giant Pool of Money

seriously this is a pro-click zone

if you care about this issue (all of you should) and you arent already versed in economics (most people arent) then click dis here shit, it explains the kerfuffle in an easily-accessible way


I cannot reccommed this episode of TAL enough. It really does an amazing job of tracing and explaining how this whole thing went down.

I have always felt that it is stupid how focused Wallstreet gets on quarter by quarter results. Working for a fortune 100 company I see this every quarter as we get mandates to limit spending so we can make targets. Of course this happens in companies of any size as even private companies have revenue targets to meet and they perform the same spending gyrations to make it so they can meet the targets.

In this case however people were forced to keep quite or were ignored when they pointed out that a given instrument(CDO) wasn't a sound investment. Certain people didn't care because they were able to meet their targets.

It will not be easy to get out of this mess but I do feel some kind of money infusion is needed, I just hope Congress can attach the right kind of oversight to the process.
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Re: American Financial situation

Postby Spuddly » Mon Sep 29, 2008 6:24 am UTC

jimrandomh wrote:Solt, you misunderstood me. I didn't say I wanted an economy without banks, just an economy without today's banks. If today's banks failed, then better ones would rise to take their place. Maybe those banks wouldn't give loans to every John Doe with a social security number.


Fannie & Freddie are subsidized by the US government to give poor people loans.
They went a little overboard with it, though.
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Re: American Financial situation

Postby Solt » Mon Sep 29, 2008 8:10 am UTC

drunken wrote:1) Communist is not an insult, neither is it contradictory evidence for a point, it's a political ideology. Please look up the difference on wikipedia if you are confused.


I didn't mean it insultingly. What I did mean is that if you are communist, there really is no point in entering the thread. Why discuss the merits of one aspect of the financial system when you believe the financial system itself shouldn't exists?

2) The federal reserve system has been around in america since 1913, this is almost 100 years.


Yes but banking has been around for much longer. Anyway, where did you get the idea I'm even talking about the Federal Reserve? Many of the following points are resolved if you realize I was originally referring to the banking system in general, and PRIVATE banks in particular (ie JP Morgan, Citigroup, Bank of America, etc).

3) The connection between "large scale capitalism" (of the wall st type) and an individual buyers purchasing (Fannie and Freddie) is tenuous at best.
Not so. This may be an oversimplification, but in principle the massive investments that go into, say, Ford Motor Company, originate from millions of small, individual savings accounts with the same institution. The same goes for individual home loans. It all comes from the same pool of money, and thus they are linked (via Freddie and Fanny, who effectively allow banks to operate in both businesses).

4) The ability of poor people to get richer relies on a free market model of capitalism with government controls on despotic activities. The federal reserve system is not necessary for this.
No, the federal reserve is not necessary for this. What _is_ necessary is credit (ie, to start a small business, pay for college, or get investment capital). Again, you missed my original meaning, I never mentioned the Fed.

5) The federal reserve bank is a private corporation, never forget where your 700 billion dollars are going.

I like how your definition of private corporation involves the chairman reporting directly to congress.

6) "And if you think the financial system only benefits the lower classes and businesses, you're wrong." Did you mean upper classes? This sentence confused me next to your other comments. Also reducing the causes of the collapse of the roman empire to finance is a masssive oversimplification. It's like reducing your analysis of peoples buying power to the financial system and looking no further. Oh wait you did that too. Well anyway the real causes are far more complicated.
Nope, I meant lower class. Credit is for people who don't have piles of money sitting around, ie poor people. Rich people can finance investments out of pocket. I admit the equating of finance to the collapse of the Roman empire is oversimplification, and for that I apologize. But it _is_ linked to some of the other causes, such as the fact that the empire depended on constant military expansion to stay solvent. This need brought it into conflict with many of the enemies who eventually over ran it. This might not have been the case with a stronger financial system providing capital for large scale projects that could sustain the empire without expansion or with massive credit available to bail the emperor out if he suddenly didn't have enough money to pay for armies that were badly needed.

7) Federal reserve sytem != electronic banking. Electronic money handling is a system that could be used with any monetary system, and although in most cases it does require a reserve of something like gold to back up the electronic currency, the way that is implemented can be done in a host of different ways of which the American system is just one.
No, but banks = electronic banking. Again, I wasn't talking about the Fed.

Tell me what the system is supposed to achieve again? Ever wondered who benefits from all this suffering?


http://en.wikipedia.org/wiki/Federal_Re ... em#Purpose
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Re: American Financial situation

Postby Fuzzy_Wuzzy.bmp » Mon Sep 29, 2008 3:20 pm UTC

The Hindenburg analogy worked surprisingly well. Perhaps we should fire all the economists and hire enginners instead?

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Re: American Financial situation

Postby Garm » Mon Sep 29, 2008 5:10 pm UTC

Bubbles McCoy wrote:I have read nothing to suggest that Republicans like this plan in any way, shape or form, only John McCain seems to be supporting it for largely political reasons (link). The support of this plan rides on the Democrats, and seeing as how the passage of the bailout rides on them this will help homeowners. Bernake and Paulson are just concerned with the banks, yes, but it's their job; any support from homeowners will naturally come from Congress. Forclosures decrease home prices and encourage more forclosures, so if the plan doesn't keep people in their homes their is really no point to it. I fail to see how this bailout will increase the value of assets if it doesn't do this.

As to "class warfare," how exactly does predatory lending constitute this? I know plenty of people who used to sell loans and homes, I work with them for $16 an hour through a temp agency. Yes, a handful of people did some highly questionable acts in terms of encouraging the writing of these loans and passing them off to other institution packaged with a few lies as to how easily they can be paid off. But lies are hardly the sole providence of the wealthy, it just so happens some people manage to become wealthy using them.


One of the major reasons the house repubs don't like this plan is that it signals a return to regulation. They are suggesting that we lower capital gains taxes and corporate taxes in addition to the unfettered 700B giveaway to the banks. So what they're saying is that they want to give the very rich a great deal of money without any strings attached. The very fact that they would suggest lowering capital gains taxes is so mind blowing I can't begin to cope with it.

Insofar as the class warfare thing goes the uncontrolled 700B bailout that Paulson suggested (no oversight whatsoever) is as someone else said in another thread a socialization of the debt and a privatization of the profits. The few rich people who run all the banks and what not would have gotten fabulously wealthy (or more wealthy) and the tax payer would have gotten screwed. I doubt that the hard working financial analysts who work for the companies involved in the bailout would have seen much in the way of compensation.
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