Discussions on the new bailout bill

[smockers83]

You know, all this talk about the government debt, I would like to address it a little bit.

A company in corporate America or even a small company, they choose how to structure their capital finances, otherwise known as capital structure. They do so in the forms of equity and debt. Changing the structure changes the expected return of investments made by those who buy that company's equity shares, or stock.

Determining the level of debt you take on to structure your capital, as said earlier, affects the rate of return. This rate of return entices investors to invest. So taking on some debt can actually be a good thing.

The US taking on debt is not like you or me going into debt. When the US goes into debt, it brings in investors that buy up US bonds and what not.

[audtatious]

I understand that. The Gov is not a corporation or a small business.

[smockers83]

True, but there are many investors that treat it as such.

To think of it like a corporation, everyone and everything that is a taxpayer is like a person who is buying stock in a company. Then on the other side is the bonds, issued to citizens and foreigners, who invest in the debt.

[audtatious]

The fed gov is supposed to be a governing body, not one who buys up US investments. At this point they are making decisions on which company will fail and which will not instead of letting things happen based on their own merit. If company A fails then so be it. Joe Citizen does not have a chance in hell anymore.

Who's to say that everything happening today is not what the politicians want in order to gain more power and control? Conspiracy theory?

[smockers83]

But the majority of companies do fail. The reason the government is stepping in now is because the financial system of this country is in danger. If you don't have a banking/financial system, you don't have an economy. If you don't have an economy, you don't have a country. If you don't have a country, you don't have a government.

The auto industry is being "saved" because it has national security implications. Personally, I think each large financial institution CEO should have been hauled into DC like the Big 3 CEOs and grilled in order to get their money.

[Cold_Zero]

You know, all this talk about the government debt, I would like to address it a little bit.

A company in corporate America or even a small company, they choose how to structure their capital finances, otherwise known as capital structure. They do so in the forms of equity and debt. Changing the structure changes the expected return of investments made by those who buy that company's equity shares, or stock.

Determining the level of debt you take on to structure your capital, as said earlier, affects the rate of return. This rate of return entices investors to invest. So taking on some debt can actually be a good thing.

The US taking on debt is not like you or me going into debt. When the US goes into debt, it brings in investors that buy up US bonds and what not.

Smockers, but there are differences.1. The Federal Government structures a heck of a lot more debt (I assume long term) than any Corporation could dream of doing.2. Unlike Corporations, the tax payers are ultimately on the hook for debt. So when there is inflation or a devaluing of our currency, we the shareholders suffer.3. Corporations do get pinched by when their debt instrument obligations come due and they can't refinance or repay them. The only difference is that if the USA can't repay its obligations it either taxes the United States or it floats more debt to pay for the current debt management.

But here is my question Smockers. What happens when a corporation is over extended with its debt instrument obligations? From what I understand the Credit Rating Agencies move your debt from AAA to BBB and so on and it becomes harder to refinance and float more debt in order to raise cash in order to pay for your day to day operating expenses. Isn't the Federal Government Susceptible to these same forces and principals? II guess what I am trying to say is that there isn't just an endless supply of 'debt' that the Government of the United States of America can just keep tapping into to.

I am by no means an expert in this field and only know as much as what happens with our bond and other securities ratings and what my brother in law talks about. He deals with this 'stuff' on a day to day basis for FHLB. But make no mistake, we got burn from this when we had $5billion of preferred stock that came due with Citibank and our stock price didnt match the offered strike price. Subsequently, our stock plummeted and our rating suffered.

[smockers83]

If a corporation overextends its capital structure into debt, it can begin to go into bankruptcy. The corporation's bonds are also downgraded, making it harder to get cash.

Government bonds are susceptible to these gradings as well. California's bonds were recently downgraded. They were tied with a southern state for the lowest rating in the union, now they are the lowest. This makes it more expensive and harder for California to get money.

The federal government is susceptible to this as well but US government bonds are seen as such a safe investment with the ability to repay that it isn't affected like one corporation is. When one buys bonds with the federal government, you are essentially investing in the US and its economy in its entirety. Of course, when the economy isn't doing well in the US, it makes investors nervous to invest in the US, but that's normal. The US is just as susceptible to go into bankruptcy as a corporation, but the chances are slim.

I'm not saying that the government's debt isn't an issue, it definitely is.

[audtatious]

We can only keep floating debt to the point that others will buy it. The gov looks like it is currently in business when it should not be. Is Nationalized banking good? Is anything Nationalized really a good thing for the US as a whole?

The way the Gov is doing things today would never be accepted via a corporation. What if you received your next paycheck and noticed that the company you work for is taking an additional 10% of your salary away from you as a means to stabilize the finances of another company, thus giving them partial ownership? This is similar to what the Gov is doing except it is penalizing the taxpayer (or at least those who pay taxes) as a whole for its decisions.....At least that's the way I see things going down today.

[smockers83]

Yeah, you're right. If people decided to stop buying US debt and decided to make a call on all US debt, we'd be in some major trouble. If this were to happen, and this is all hypothetical, the government could effectively get all the money it needs to pay down that debt in a year from the economy. US debt, last time I saw was somewhere around 65% of GDP. Would this be good? Absolutely not. Could it happen? Sure thing. Would I accept it? Absolutely not.

The debt to GDP ratio is similar to how capital structures are in some successful corporations.

Can we clear something up though first. The TARP funds, they are kind of like loans. It's not money that has gone out and the government will never see again. Whether the money went into a corporation's equity or debt, the program is designed so that when the financial institutions recover, the money is paid back with a possible profit.

So are we going to pay for it upfront? Sure I guess. But we'll see that money again.

It's kind of a stretch, but it's like JP Morgan loaning money to Lehmans before it went bankrupt. It effectively owned part of the company, that money could have been paid out to employees, shareholders, and what not, but it was hoping to be paid back or make a profit, in which it could pass on to employees, shareholders, and what not.

It all makes sense in my head, I know that. Maybe I'm not making myself clear enough or can't find a better way to explain it.

[telcoman]

OMG! they passed that SINKING ECONOMIC TITANIC of a debotchery friggin spending bill...im so mad..this bill does nothing for the american people but to add 3trillion in debit to the national debt in 10 years after intrest...these bafoons in congress just sent us all down the economic river!..on a good note thou...at least the republicans grew a friggin spine and said no for a change..insted of crossin the friggin isle to vote with the other bafoons!

Well I don't know what your solution might be but do keep in mind that is was the Republican party over the past eight years that got us into this mess.I am no economic expert but I am ok with at least giving it a try because doing nothing could lead us and possibly the rest of the world into a deep depression.

I read this today in Barrons and it makes sense to me.-----------------------------------------------------------------------------------------

Saturday, February 14, 2009 EDITORIAL COMMENTARY

The Barron's Plan By EDWIN A. FINN

How to fix America's financial system and pull the U.S. out of recession. IF PRESIDENT OBAMA AND TREASURY SECRETARY GEITHNER want to fix America's financial system and pull us out of recession, they should take $200 billion of "TARP" money and give it to banks and other institutions that hold subprime mortgages and related securities. The government would do this on the condition that the money be used to cut the principal amount of the nation's roughly $850 billion of subprime mortgages by about 25%. Monthly payments would be trimmed accordingly. This would give homeowners in the subprime category a better chance of repaying their mortgages, and in many cases it could put their principal amount below the current market value of their homes, reducing the temptation to walk away from their obligations. The plan helps the banks and other mortgage holders by giving them funds that could be used either to invest in the credit markets, make new loans or absorb the losses required to sell off the toxic subprime mortgage assets. Banks could also use the funds to offer relief to troubled borrowers who have prime mortgages. All of these activities would bolster the economy.

We know this type of debt relief will spark a chorus of complaints about the government helping one class of homeowners, some of whom may not need help, some of whom may not deserve it. But to solve our national economic problems quickly, we have to admit that mistakes were made by bankers, by the government and by homeowners. Getting our economy back on track, and getting our financial system fixed, is far more important than assigning blame or waiting around for a solution that is perfectly fair.

This Barron's plan resolves perhaps the most vexing problem in the complicated approach outlined by Secretary Geithner last Tuesday, which puts him in a no-win situation: If the government pays too much for toxic securities, it hurts taxpayers; if the government pays too little, or helps vulture investors pay too little, it hurts the very banks it is trying to help.

More than just about anyone, we at Barron's deplore excessive spending by the government, feckless management by chief executives and irresponsible financial actions by individuals. But sometimes the only way to end a standoff is to make bold concessions and move ahead. Now is the time for America to put this sad chapter behind us and move ahead.

-- Ed Finn, Editor

------------------------------------------------------------------------------------------We need to get the economy moving and quickly.

I've never seen mall parking lots as empty as they are now all over New Jersey. Even my local pizzia is hurting due to a drop off in business.

If this plan does work the republicans that opposed this plan should all be voted out of office because it is they that are part of the problem & not the solution.

Telcoman

[themadscientist]

Look at what California is dealing with right now and imagine it on a national scale, it's coming if things don't change. Debt on this scale is necrotizing. Countries will loan the U.S. money only as long as it makes sense. America is looking more and more like a crackhead looking for money to satisfy their fix. The fix is pocket money for a bloated government that never saw a project they didn't want to fund. Government IS THE PROBLEM NOT THE SOLUTION.

The American mindset of credit-purchasing, little or no savings and investment and living beyond one's means is not a sustainable paradigm. Unfortunately the average American who bought that inflated-price house on a floating rate mortgage and now can't pay for it needs to suffer. This government, and I am not just kicking Democrats either, we got more than enough Republicans with the same disease to definately just dam the whole lot of them, need to scrap their model of spending and do it like those of us out there who are handling our business responsibly.

How much is coming in?What do we want?We can't get it all, how does everything prioritize?Get the most important things and look for ways to trim the fat.

Works for the average family, it's a simple concept.

I put NO faith in government or business elites. If they are so learned and skilled how is it we find ourselves in this position?

Time for some real citizens to get on the hill and show these stuffed shirts how to put food on the table. I would trust most of the people here with the ship of state before our current crop of politicians. Hell, even Howie, fruitloop that he is has a better idea of how to stay solvent than Barney Frank. He is like any of us, can't pay the bills they take the car, the house, everything.

I apologize to all those that will be hurt in the coming recession. It was not really their fault but they will be made to suffer for it, the elites never do. It is my hope though that two years with a Deocrat majority and still no results will FINALLY wake people up to the fact that the entrenched ruling class cannot or more truthfully will not put the best interests of America before their own greed and ego.

Hopefully the moderates in both parties will man up and walk towards the center and coalesce into a viable third party.

[audtatious]

Well I don't know what your solution might be but do keep in mind that is was the Republican party over the past eight years that got us into this mess.

Keep fooling yourself.

[audtatious]

The debt to GDP ratio is similar to how capital structures are in some successful corporations.

Hope so. Of course, only a small portion of the complete stimulus package is something we will get "paid back on".

[OriginalWheelman]

I love how every day we wait was going to hurt the economy on Monday, but now that it's Saturday, BHO will take his 3 day weekend before signing it.

[audtatious]

He's taking this weekend as a vacation away from the White House. It was 6 months before Bush took one IIRC and he received hell for it. 30 days as President must be hard on the Big O

http://news.yahoo.com/s/ap/200...ago_2

[Cold_Zero]

Yeah Smockers, I hope that the TARP funds get paid back and actually yield the federal government money.

In talking with my brother in law today (only for a few minutes), he gave me a quote that was pretty poignant about this discussion of monetizing debt. He said there is a saying that "Debt is a Sword and Equity is a Pillow." He also said something that disturbed me. He said that every Fiat currency has failed in its lifetime, so the dollar should be no different. Again, I dont understand high finance like some of you guys do and especially as well as my brother in law.

[Armelius]

The fed gov is supposed to be a governing body, not one who buys up US investments. At this point they are making decisions on which company will fail and which will not instead of letting things happen based on their own merit. If company A fails then so be it. Joe Citizen does not have a chance in hell anymore.

Who's to say that everything happening today is not what the politicians want in order to gain more power and control? Conspiracy theory?

That's what it's all about. The US is being drugged down to the basement to be horse whipped by red headed step children that never had a horse to begin with and never will get another horse so they are going to prevent everyone else from riding it. Each time they whip the horse they get paid and even if it's a dead horse they will get paid to mull around to make sure it doesn't get up and run away.

The US is that horse and everyone wants to do what they will or try to charge their citizens to have a potential ride on it. Yet, the people here that had the horse can only wait until they say they are done or tired or let us back on.

The more congress keeps throwing those coins at the foreigners (banks and corporations) we will never get back on it.

Maybe it's the story of Humpty Dumpty. Conspiracy? You bet. Jekyl Island.

[themadscientist]

DANGER DANGERMETAPHOR EXTENDED TO LIMITSENSE IT DOES NOT MAKELAUNCH THE ESCAPE PODS

[liquid_cool]

Well I don't know what your solution might be but do keep in mind that is was the Republican party over the past eight years that got us into this mess.I am no economic expert but I am ok with at least giving it a try because doing nothing could lead us and possibly the rest of the world into a deep depression.

I read this today in Barrons and it makes sense to me.-----------------------------------------------------------------------------------------

Saturday, February 14, 2009 EDITORIAL COMMENTARY

The Barron's Plan By EDWIN A. FINN

How to fix America's financial system and pull the U.S. out of recession. IF PRESIDENT OBAMA AND TREASURY SECRETARY GEITHNER want to fix America's financial system and pull us out of recession, they should take $200 billion of "TARP" money and give it to banks and other institutions that hold subprime mortgages and related securities. The government would do this on the condition that the money be used to cut the principal amount of the nation's roughly $850 billion of subprime mortgages by about 25%. Monthly payments would be trimmed accordingly. This would give homeowners in the subprime category a better chance of repaying their mortgages, and in many cases it could put their principal amount below the current market value of their homes, reducing the temptation to walk away from their obligations. The plan helps the banks and other mortgage holders by giving them funds that could be used either to invest in the credit markets, make new loans or absorb the losses required to sell off the toxic subprime mortgage assets. Banks could also use the funds to offer relief to troubled borrowers who have prime mortgages. All of these activities would bolster the economy.

We know this type of debt relief will spark a chorus of complaints about the government helping one class of homeowners, some of whom may not need help, some of whom may not deserve it. But to solve our national economic problems quickly, we have to admit that mistakes were made by bankers, by the government and by homeowners. Getting our economy back on track, and getting our financial system fixed, is far more important than assigning blame or waiting around for a solution that is perfectly fair.

This Barron's plan resolves perhaps the most vexing problem in the complicated approach outlined by Secretary Geithner last Tuesday, which puts him in a no-win situation: If the government pays too much for toxic securities, it hurts taxpayers; if the government pays too little, or helps vulture investors pay too little, it hurts the very banks it is trying to help.

More than just about anyone, we at Barron's deplore excessive spending by the government, feckless management by chief executives and irresponsible financial actions by individuals. But sometimes the only way to end a standoff is to make bold concessions and move ahead. Now is the time for America to put this sad chapter behind us and move ahead.

-- Ed Finn, Editor

------------------------------------------------------------------------------------------We need to get the economy moving and quickly.

I've never seen mall parking lots as empty as they are now all over New Jersey. Even my local pizzia is hurting due to a drop off in business.

If this plan does work the republicans that opposed this plan should all be voted out of office because it is they that are part of the problem & not the solution.

Telcoman

i dont first know how to say this...but...DID you even read one sentence of it?..first..it does nothing till 2011!..and even then its all pork of some kind..all of it..there might be a few tax cuts to make ya think it will stimulate something..but in reallity..there cutting taxes on the lower income bracket that barly payes taxes to begin with...you really need to delve into this bill man..and stop praying at the alter of Obama the lord merciful ...if you were to read and understand what is in this..you would see your chosen one in a different light..he promissed change..well you got it!..the largest spending bill in any nations history.

[liquid_cool]

I love how every day we wait was going to hurt the economy on Monday, but now that it's Saturday, BHO will take his 3 day weekend before signing it.

3day weekend!..on my tax dollar!..scandal!..lol...on a real point...they kept saying months agao.."if we dont do this now the world will end" scare tactic..and guess what..we are still here...they are allways using fear against the people...Global warming CRISIS..Aids CRISIS...Economic CRISIS...Housing CRISIS...Hunger CRISIS..Homeless CRISIS..Education CRISIS..FOR THE CHILDREN!..ect ect..thats the tactic..scare the old to vote for them..scare the young its all gona end.

[audtatious]

http://4.bp.blogspot.com/_L6pD...3.jpg

What's that at the top? 1.6 billion for science with no description of what it is going to be used for? As time passes and people actually go over the 1000+ page bill I'm sure there will be lots of these.

Since we can't wait to get this bill passed to stimulate the economy, can one of those who support the bill explain to me how a bill, where the majority of stimulus won't start until 2011, benefits the economy in the short term?

[telcoman]

http://4.bp.blogspot.com/_L6pD...3.jpg

What's that at the top? 1.6 billion for science with no description of what it is going to be used for? As time passes and people actually go over the 1000+ page bill I'm sure there will be lots of these.

Since we can't wait to get this bill passed to stimulate the economy, can one of those who support the bill explain to me how a bill, where the majority of stimulus won't start until 2011, benefits the economy in the short term?

It was explained on Meet the Press earlier this morning. Perhaps you missed it?

It took eight long years for us to slip into this mess and it is going to take a few years to get us out. This financial mess is not only affecting us here in the US but is rapidly spreading around the world.Once the bill is signed, the expectation is that job losses will decline and business will begin to plan for improving roads, bridges, schools, a new tunnel under the Hudson river into NY, completion of the 2nd Ave subway and thousands of other projects around the US. Reforming healthcare, putting social security on a sounder footing. All those executives that earned 10's of millions of dollars in bonus money over the past few years should have paid 15% of it into the social security system.

A leading indicator is the stock market and another is my 401k plan.

Telcoman

[Armelius]

It was explained on Meet the Press earlier this morning. Perhaps you missed it?

It took eight long years for us to slip into this mess and it is going to take a few years to get us out. This financial mess is not only affecting us here in the US but is rapidly spreading around the world.Once the bill is signed, the expectation is that job losses will decline and business will begin to plan for improving roads, bridges, schools, a new tunnel under the Hudson river into NY, completion of the 2nd Ave subway and thousands of other projects around the US. Reforming healthcare, putting social security on a sounder footing. All those executives that earned 10's of millions of dollars in bonus money over the past few years should have paid 15% of it into the social security system.

A leading indicator is the stock market and another is my 401k plan.

Telcoman

Bridges and roads? They sound like Romans. We have been doing that sort of thing for years. Schools suck, roads don't keep people working, bridges just let people get somewhere faster.

How about just build a new city in each state? Can it be done? Does anyone want to move to the new city to build it? Sell off a park and build it. Move the capitol. Anything is better than throwing cash at roads, bridges and schools.

[audtatious]

You mean the stock market that keeps dropping and peoples 401k's which keep dropping which moves the Democrats to want to nationalize it under the SSA?

You really need to stop watching moveon.org ads. Maybe the problem is with the left-leaning big city media you listen to? This trainwreck started WAY before Bush came into office and a number of Republicans and quite a number of your key Democrats in charge had their fingers all in it. Of course, I don't expect you to give bi-partisan blame because you never do. It's all the Republicans fault because they controlled the Executive Branch and Congress over the last 8 years.....

Oh, wait....Didn't the Dems control Congress the last two years in which this escalated along with rising gas prices?

You really have no game, old man. Why don't you go posting more Republican Scandal threads? Oh yeah, kinda difficult when the scandals of the last three months have all been your beloved Democrats.

[OriginalWheelman]

All those executives that earned 10's of millions of dollars in bonus money over the past few years should have paid 15% of it into the social security system.

IIRC, bonuses are taxed around 50%.

[telcoman]

Why don't you go posting more Republican Scandal threads? Oh yeah, kinda difficult when the scandals of the last three months have all been your beloved Democrats.

ok

2008

Bruce Barclay, former Cumberland County commissioner, videotaped hundreds of sexual encounters — many with male escorts — using cameras hidden throughout his Monroe Township home.[1]

Matthew Joseph Elliott, former aide to Republican presidential candidate Mitt Romney, was convicted of sexual exploitation of a child.[2]

Vito Fossella, the only Republican member of Congress from New York City, admitted to police to having a child out-of-wedlock when stopped for drunk driving.[3]

Robert McKee, Republican delegate from Western Maryland, announced his resignation after authorities seized two computers, videotapes and printed materials from his Hagerstown home in a child pornography investigation. McKee also resigned his position as executive director of Big Brothers Big Sisters of Washington County.[4]

Daniel Dean Thompson, 31, a Utah retailer of "family-friendly" tapes and DVDs (Hollywood films with the "dirty parts" cut out of them), arrested and booked into the Utah County jail on charges of sexual abuse and unlawful sexual activity with a 14-year-old.[5]

Derek Walker, former Eagle Scout and candidate seeking the GOP nomination in a race for north-central Pennsylvania district, was charged with felony burglary and criminal trespass stemming from an encounter last year with an ex-girlfriend, during which he allegedly broke into her home and used his cell phone to videotape her engaged in an intimate moment with another man.[6]

-------------------------------------------------------------------------------------

A few Dems forgot to pay all of their taxes. At least Bill Clinton left us with a budget surplus.

The party of fiscal responsibility & no regulation doubled our national debt in eight years and had no oversight of the initial 300 billion handed out to the banks in December.

[audtatious]

- Rod Blagojevich - Elliot Spitzer- Jim McGreevey- William Jefferson- Kwame Kilpatrick- Charlie Rangel- David Paterson- John Murtha- Tom Daschle- Nancy Killefer- Hilda Solis- Timothy Geithner- John Edwards

Let's not forget Bill Ayers, Tony Rezko, Michael Pfleger, Jeremiah Wright and all the others associated with Obama. I'm sure if I did the same as you I could find lots of scandals from the local levels as well. Your beloved Democrats have as much if not more crap on their hands than the Republicans do but you won't admit it.

The party of fiscal responsibility & no regulation doubled our national debt in eight years and had no oversight of the initial 300 billion handed out to the banks in December.

Bush asked for regulation quite a few time but your hero's like Barney Frank said there was nothing wrong. The whole 300 billion was a Dem bailout bill by Pelosi and gang that Bush was stupid enough to sign and did not have wide Republican support. Put blame where it is due.

[OriginalWheelman]

At least Bill Clinton left us with a budget surplus.

That he got by raising taxes and selling off government assets.

[liquid_cool]

Bridges and roads? They sound like Romans. We have been doing that sort of thing for years. Schools suck, roads don't keep people working, bridges just let people get somewhere faster.

How about just build a new city in each state? Can it be done? Does anyone want to move to the new city to build it? Sell off a park and build it. Move the capitol. Anything is better than throwing cash at roads, bridges and schools.

Yaa...give the cash back to the American People that they stole from us anyways..and we will spend it here in the us on products and services...thats my plan for economic stimulus..and it would work..unlike the PAY for VOTES bill that just passed...thats bill isent worth what i would wipe up with it..the more i read into it..the more angry i get.

[Cold_Zero]

A few Dems forgot to pay all of their taxes. At least Bill Clinton left us with a budget surplus.

Howie,There is a huge difference between a budget surplus (cutting Government spending as opposed to projected tax revenue) and having a ACTUAL capital surplus. I know Dems are fond of running around claiming this fact, but we should not confuse the two.It also does not credit GHW Bush (41) for starting the process with reneging on his "No New Taxes" pledge, which helped him to loose the 92 election.