Delaney asked in Business & FinanceInvesting · 1 decade ago

Why is the govt using our tax money to help Wall Street? What about a low interest loan for these firms?

If my business fails the government won't give me help, or will it? That would be a form of welfare. Right?

I know we must do what we can to fix the economy.

6 Answers

  • 1 decade ago
    Favorite Answer

    I think the problem here is that everyone somehow thinks our $700 billion is just being tossed in the wind. Not true. This is not a bailout for Wall Street, this is the solution that will save Main Street.

    The truth is, there could possibly be a profit derived from the plan that would actually put money back in the budget. Yes, I said a PROFIT. $700 billion could actually generate a profit of possibly a couple hundred billion dollars.

    Today in the Washington Post, Bill Gross, manager of the $133 billion Pimco Total Return Fund outlined this possibility:

    How Main Street Will Profit

    By William H. Gross

    Wednesday, September 24, 2008; A23

    Capitalism is a delicate balance between production and finance. Today, our seemingly guaranteed living standard is threatened, much like it has been in previous recessions or, some would say, the Depression. Finance has run amok because of oversecuritization, poor regulation and the excessively exuberant spirits of investors; the delicate balance has once again been disrupted; production, and with it jobs and our national standard of living, is declining.

    If this were a textbook recession, policy prescriptions would recommend two aspirin and bed rest -- a healthy dose of interest rate cuts and a fiscal package that mildly expanded the deficit. That, of course, has been the attempted remedy over the past 12 months. But recent events have made it apparent that this downturn differs from recessions past. Today's housing bubble, unlike that of the stock market's before it, was financed with excessive and poorly regulated mortgage debt, and as housing prices began to tumble from the peak, the delinquencies and foreclosures have led to a downward spiral of debt liquidation that in turn led to even lower prices and more foreclosures.

    And so, instead of mild medication and rest, it became apparent that quadruple bypass surgery is necessary. The extreme measures are extended government guarantees and the formation of an RTC-like holding company housed within the Treasury. Critics call this a bailout of Wall Street; in fact, it is anything but. I estimate the average price of distressed mortgages that pass from "troubled financial institutions" to the Treasury at auction will be 65 cents on the dollar, representing a loss of one-third of the original purchase price to the seller, and a prospective yield of 10 to 15 percent to the Treasury. Financed at 3 to 4 percent via the sale of Treasury bonds, the Treasury will therefore be in a position to earn a positive carry or yield spread of at least 7 to 8 percent. Calls for appropriate oversight of this auction process are more than justified. There are disinterested firms, some not even based on Wall Street, with the expertise to evaluate these complicated pools of mortgages and other assets to assure taxpayers that their money is being wisely invested. My estimate of double-digit returns assumes lengthy ownership of the assets and is in turn dependent on the level of home foreclosures, but this program is, in fact, directed to prevent just that.

    In effect, the Treasury will have the fate of the American taxpayer in its hands. The Resolution Trust Corp., created in the late 1980s to deal with the savings and loan crisis, dealt with previously purchased real estate, which was flushed into government hands with a "best efforts" future liquidation. Today, the purchase of junk mortgages, securitized credit card receivables and even student loans will be bought at prices significantly below "par" or cost, and prospectively at levels allowing for capital gains. This is a Wall Street-friendly package only to the extent that it frees up funds for future loans and economic growth. Politicians afraid of parallels to legislation that enabled the Iraq war are raising concerns about a rush to judgment, but the need for speed is clear. In this case, there really are weapons of mass destruction -- financial derivatives -- that threaten to destroy our system from within. Move quickly, Washington, with appropriate safeguards.

    The Treasury proposal will not be a bailout of Wall Street but a rescue of Main Street, as lending capacity and confidence is restored to our banks and the delicate balance between production and finance is given a chance to work its magic. Democratic Party earmarks mandating forbearance on home mortgage foreclosures will be critical as well. If this program is successful, however, it is obvious that the free market and Wild West capitalism of recent decades will be forever changed. Future economic textbooks are likely to teach that while capitalism is the most dynamic and productive system ever conceived, it is most efficient over the long term when there is another delicate balance -- between private incentive and government oversight.

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  • 4 years ago

    Many people with any common sense at all knew the housing bubble would eventually bust and leave the taxpayers holding the bag. The Fat Cats on Wall Street are using both Democrats and Republicans to fashion a bail out plan that will allow them to walk away with millions of dollars while the middle class deteriorates even further. Both the Democrats and Republicans are in Wall Street's pocket because of the large campaign contributions they give to each side. It's the same with Big Oil. I personally believe that these firms should all be allowed to fail. The government can start a new mortgage program and help taxpayer's directly. But it will never happen cause Wall Street owns too many of our politicians and they will never let the greedy cockroaches go down the toilet where they belong. This whole situation is just wrong. I have never believed in revolution by the middle class but it's time will come but probably not in my lifetime but someday it will come.

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  • Gem
    Lv 7
    1 decade ago

    They are doing this to keep from collapsing the entire economy, both here and throughout the world.

    And, let's be honest here, the people who bought houses they never could afford are as guilty of screwing the rest of us over as Wall Street is.

    You can't just blame one side and say the other side, who GLADLY took the money and lived in the McMansion or took the money and bought big tvs and fancy SUVs are not guilty here. They are.

    But that is then, and this is now. If we don't fix this quickly, look for the stock market to crumble to nothing. People like us will lose their entire savings/retirements, pension plans may be bankrupt and thousands of companies will close their doors.

    My suggestion is buy food now. You may not be able to afford it next week if Congress keeps their bickering.

    Heck, in this economy the only sure worthy investment IS food. The prices are skyrocketing already (I've noticed 20% jumps in grain fed meats within a month!) and you will still have to eat next week, rather you have a job, savings or a dime to your name.

    Good luck to us all.

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  • Sailon
    Lv 4
    1 decade ago

    Good point- unfortunately (and I don't use that word lightly) at some point we as a nation have got to bite the bullet and go through some real pain. The qwik fix is all too much the popular thing to resort. to.

    Dishonesty is a very real part of all of this. If you have opportunity accompanied by temptation -most often a good many people will get themselves into trouble. This is the case in the banking systems, wallstreet, and the US government regarding a big part of the mess that we are in, and the irony to the whole thing is that they depend on the hard working Americans to bail them out every single time !?>

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  • Anonymous
    1 decade ago

    chantal first of all nice pic.

    U have to think on a global scale to to fully understand the answer, especially with AIG. AIG has insured several large euro companies that have large investments in the U.S so if they let that one fall it would of have great ramifications in other sectors in the U.S. Doing the bailout make sense on two levels: 1st it help re-assure the common investor that their savings are not going to hell in a hand-basket and second it stops what could of been a far greater economic disaster. That said I do not believe in writing a blank check but I think those detail will be worked out.

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  • 1 decade ago

    The economy would not be in trouble if it wasn't for those corrupt liars in Wall Street. The only assistance they deserve is jail time.

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