[Sayma-Discuss] The Economics of the Bailout Bill

Janet Minshall jhminshall at comcast.net
Wed Oct 1 17:26:34 EDT 2008

Friends speak plainly when faced with questions about money and 
power.  Michael Moore has written in opposition to the proposed 
bailout bill.  His message has been forwarded to Friends in Atlanta 
Meeting on their discussion list.  I am responding to Atlanta Meeting 
as well to the SAYMA discussion list because I believe that it is 
also important to speak truth to Quakers.  Janet Minshall

Hi Betsy and Atlanta Meeting Friends,
I want to thank Betsy for forwarding this letter from Michael Moore 
(MM) about the proposed government bailout of the financial sector of 
our economy.  I am writing to try to resolve some confusion that 
exists among liberal Democrats and many Friends.  I am an economist 
and have been writing to my investment clients about this credit 
crisis since last July.  MM is right in his instincts (expressed 
below in Betsy's forward) but wrong about the need for this bailout bill.

The reality is that all of us who have savings and retirement money 
invested in the markets should be praying that this bailout bill 
passes quickly.  Whether we like it or not, ALL of our accumulated 
financial assets are in the hands of the financial sector and the 
whole sector is in deep trouble.  MM says in his PPS that people he 
knows in Washington have told him "that the Dems have a gun to their 
heads"  and if they don't get the bailout bill passed all the pension 
funds and 401Ks of the middle class will be blown up by Wall Street. 
MM says this is something that will happen if Congress does not 
approve the bailout.  This is not something that will happen in the 
future to pension funds and 401K retirement plans, this is something 
that has already happened! To preserve our savings and retirement 
assets that bailout bill has to make it through Congress and be 
signed by the President right away.  The huge 770 point drop in the 
Dow when the bailout bill was not signed on Monday was all the proof 
we should need that this financial crisis is real.  It affected all 
of us in our wallets.  Ask for a current statement of your 
accounts.  Whatever financial institution handles your investment and 
retirement accounts, it has been losing money for the past year, and 
it lost a lot of money this past Monday.  That means you have lost a 
lot of money over the past year, and you lost a lot of money this past Monday.

The only way the Democrats can get their way in both the House and 
the Senate, as they are presently constituted, is to work with the 
Republicans and with the current administration.  That is what they 
did.  President Bush and his appointees, Henry Paulson, and Ben 
Bernanke, sent to Congress a request for a giveaway, as Michael Moore 
says.  But what the Democrats did was to take that giveaway and 
transform it into an investment by the American people in the 
financial sector of the market to save it from the kind of collapse 
that occurred in the Great Depression.  That isn't a lie or an 
exaggeration as MM indicates, it is the simple truth.

The credit crisis started with mortgage lenders who began several 
years ago to process mortgage loan applications with no regard to the 
amount of downpayment required or the income of the person 
applying.  Suddenly all that was important to those mortgage lenders 
was the fee paid to them when the mortgage loan was first made. (All 
of us who have taken out mortgages know that saving up for the 
downpayment, and attaining the required level of income, were the 
biggest hurdles for us when we began trying to buy our first 
houses.)  Then the mortgage lenders came up with a new kind of 
mortgage, a variable-rate mortgage that starts out at a low rate of 
interest and then resets to a higher rate after 3 or 5 years. Then 
the mortgage lenders, with the help of the largest investment banks, 
packaged large numbers of these mortgage loans into derivatives 
(loans derived from an underlying asset such as a mortgage) in order 
to raise the amount of  interest to be paid.  Then the investment 
banks sold those mortgagee backed derivatives to pension and 
retirement funds who were always looking for a higher yield on the 
investments they held.

When the economy began to slow over the past few years, many people 
lost jobs and were unable to pay their mortgages. And when those 
mortgages reset to a higher payment after 3 or 5 years, even more 
people were unable to make their house payments.  That was the last 
straw.  People began to abandon their houses which now were worth 
less than they were paying for them.  As a result mortgages were 
foreclosed and large numbers of houses sit empty.  Five million 
mortgages have been foreclosed so far and five million families have 
had to find rentals they could afford or join the millions of 
homeless people on the streets.  All of our homes have decreased in 
value as the supply of houses on the market surpassed demand.

Thus the financial channel through which mortgage money passes became 
clogged with nonperforming assets.  The unpaid loans had to  either 
be paid or recognized as a loss on the bank's books. Then, as the 
economy slowed still further, the same problem began to occur with 
credit card accounts, car loans, home equity loans, student loans 
and, most recently, business loans.  Each of these different 
financial channels became clogged with huge unpaid credit card 
balances, unpaid car loans and reposessed vehicles, and home equity 
loans which went unpaid, causing a whole new group of houses to be 
foreclosed and vacated. It also became harder and harder to find 
student loans or the money to start or refinance a 
business.  Eventually the banks could absorb no more losses and no 
longer had the money to lend out. This morning I heard an interview 
on the business news channel where a big toymaker was concerned that 
he wouldn't have the money to borrow against his Christmas sales in 
order to buy the new toys he needs to have in stock, as he had always 
done before, because it has become harder and harder, now almost 
impossible, to get that business financing. Even people with 
excellent credit can no longer get mortgages or business loans 
because the financial channels are still backed up and all kinds of 
loans are now affected.  This credit crisis has damaged us all.

Pension and retirement funds have had to absorb the enormous losses 
they incurred when the economy started to slow and the high-return 
mortgage-backed derivatives they held became worthless.  The big 
investment banks have lost most of their value and have either been 
bought at a lower price or have declared bankruptcy.  The largest 
commercial banks, the savings and loans, and almost all of the 
mortgage lenders have been merged at a lower price or have declared 
bankruptcy.  It is expected by economists that between 100 and 300 
banks will go under before this credit crisis is over. Bear Stearns, 
Lehmann Brothers, Goldman Sachs and Merrill Lynch no longer exist as 
stand-alone companies. Yes, as MM says, all the CEOs of the financial 
sector down the line collected outrageous salaries.  But most of 
their thousands of employees didn't.  Most of their employees have 
nothing but short-term unemployment benefits to help them find a new 
job. That is the pickle we're all in right now.  The government 
bailout plan is the result of an acknowledgement by the Bush 
Administration that because we've had inadequate and/or unenforced 
financial regulations for the last eight years of the Bush 
presidency, our whole system, which is completely dependent on 
credit, is on the verge of collapse.

That is what most of the Democrats and some of the Republicans know, 
and that is why this bailout has to get done.  That is what is meant 
when you hear Barney Frank or Chris Dodd, the Democrats chairing the 
House and Senate Finance committees, say 'We just have to hold our 
noses and vote "yea" on this'.  That is why you should be praying 
that this bailout bill gets done as soon as possible.
                                                 Janet Minshall

At 05:08 PM 9/30/2008, you wrote:

>Date: Mon, 29 Sep 2008 16:48:15 -0700
> >From: "Ellen Eggers" <<mailto:Eggers%40ospd.ca.gov>Eggers at ospd.ca.gov>
> >To: 
> <<mailto:betsyeggers%40mindspring.com>betsyeggers at mindspring.com>,<<mailto:eggerssd%40pacbell.net>eggerssd at pacbell.net>,
> ><<mailto:Laurie.Eggers%40parkview.com>Laurie.Eggers at parkview.com>,
> >"Ahnee Conner" <<mailto:ahneeconner%40yahoo.com>ahneeconner at yahoo.com>
> >Subject: Well here's a new perspective on the "bailout"
> >
> >I'll be the first to admit that I have been assuming that we had no
> >choice but to go along with this...esp since it seemed to be
> >bi-partisan, or even Demo-driven. But check out what MM has to
> >say...seems plausible. E
> >
> >Friends,
> >
> >Let me cut to the chase. The biggest robbery in the history of this
> >country is taking place as you read this. Though no guns are being
> >used, 300 million hostages are being taken. Make no mistake about
> >it: After stealing a half trillion dollars to line the pockets of
> >their war-profiteering backers for the past five years, after lining
> >the pockets of their fellow oilmen to the tune of over a hundred
> >billion dollars in just the last two years, Bush and his cronies --
> >who must soon vacate the White House -- are looting the U.S.
> >Treasury of every dollar they can grab. They are swiping as much of
> >the silverware as they can on their way out the door.
> >
> >No matter what they say, no matter how many scare words they use,
> >they are up to their old tricks of creating fear and confusion in
> >order to make and keep themselves and the upper one percent filthy
> >rich. Just read the first four paragraphs of the lead story in last
> >Monday's New York Times and you can see what the real deal is:
> >
> >
> >
> >"Even as policy makers worked on details of a $700 billion bailout
> >of the financial industry, Wall Street began looking for ways to
> >profit from it.
> >
> >"Financial firms were lobbying to have all manner of troubled
> >investments covered, not just those related to mortgages.
> >
> >"At the same time, investment firms were jockeying to oversee all
> >the assets that Treasury plans to take off the books of financial
> >institutions, a role that could earn them hundreds of millions of
> >dollars a year in fees.
> >
> >"Nobody wants to be left out of Treasury's proposal to buy up bad
> >assets of financial institutions."
> >
> >
> >Unbelievable. Wall Street and its backers created this mess and now
> >they are going to clean up like bandits. Even Rudy Giuliani is
> >lobbying for his firm to be hired (and paid) to "consult" in the
> >bailout.
> >
> >The problem is, nobody truly knows what this "collapse" is all
> >about. Even Treasury Secretary Paulson admitted he doesn't know the
> >exact amount that is needed (he just picked the $700 billion number
> >out of his head!). The head of the congressional budget office said
> >he can't figure it out nor can he explain it to anyone.
> >
> >And yet, they are screeching about how the end is near! Panic!
> >Recession! The Great Depression! Y2K! Bird flu! Killer bees! We must
> >pass the bailout bill today!! The sky is falling! The sky is falling!
> >
> >Falling for whom? NOTHING in this "bailout" package will lower the
> >price of the gas you have to put in your car to get to work. NOTHING
> >in this bill will protect you from losing your home. NOTHING in this
> >bill will give you health insurance.
> >
> >Health insurance? Mike, why are you bringing this up? What's this
> >got to do with the Wall Street collapse?
> >
> >It has everything to do with it. This so-called "collapse" was
> >triggered by the massive defaulting and foreclosures going on with
> >people's home mortgages. Do you know why so many Americans are
> >losing their homes? To hear the Republicans describe it, it's
> >because too many working class idiots were given mortgages that they
> >really couldn't afford. Here's the truth: The number one cause of
> >people declaring bankruptcy is because of medical bills. Let me
> >state this simply: If we had had universal health coverage, this
> >mortgage "crisis" may never have happened.
> >
> >This bailout's mission is to protect the obscene amount of wealth
> >that has been accumulated in the last eight years. It's to protect
> >the top shareholders who own and control corporate America. It's to
> >make sure their yachts and mansions and "way of life" go
> >uninterrupted while the rest of America suffers and struggles to pay
> >the bills. Let the rich suffer for once. Let them pay for the
> >bailout. We are spending 400 million dollars a day on the war in
> >Iraq. Let them end the war immediately and save us all another
> >half-trillion dollars!
> >
> >I have to stop writing this and you have to stop reading it. They
> >are staging a financial coup this morning in our country. They are
> >hoping Congress will act fast before they stop to think, before we
> >have a chance to stop them ourselves. So stop reading this and do
> >something -- NOW! Here's what you can do immediately:
> >
> >1. Call or e-mail Senator Obama. Tell him he does not need to be
> >sitting there trying to help prop up Bush and Cheney and the mess
> >they've made. Tell him we know he has the smarts to slow this thing
> >down and figure out what's the best route to take. Tell him the rich
> >have to pay for whatever help is offered. Use the leverage we have
> >now to insist on a moratorium on home foreclosures, to insist on a
> >move to universal health coverage, and tell him that we the people
> >need to be in charge of the economic decisions that affect our
> >lives, not the barons of Wall Street.
> >
> >2. Take to the streets. Participate in one of the hundreds of
> >quickly-called demonstrations that are taking place all over the
> >country (especially those near Wall Street and DC).
> >
> >3. Call your Representative in Congress and your Senators. (click
> >here to find their phone numbers). Tell them what you told Senator
> >Obama.
> >
> >When you screw up in life, there is hell to pay. Each and every one
> >of you reading this knows that basic lesson and has paid the
> >consequences of your actions at some point. In this great democracy,
> >we cannot let there be one set of rules for the vast majority of
> >hard-working citizens, and another set of rules for the elite, who,
> >when they screw up, are handed one more gift on a silver platter. No
> >more! Not again!
> >
> >Yours,
> >Michael Moore
> ><mailto:MMFlint%40aol.com>MMFlint at aol.com
> >MichaelMoore.com
> >
> >P.S. Having read further the details of this bailout bill, you need
> >to know you are being lied to. They talk about how they will prevent
> >golden parachutes. It says NOTHING about what these executives and
> >fat cats will make in SALARY. According to Rep. Brad Sherman of
> >California, these top managers will continue to receive
> >million-dollar-a-month paychecks under this new bill. There is no
> >direct ownership given to the American people for the money being
> >handed over. Foreign banks and investors will be allowed to receive
> >billion-dollar handouts. A large chunk of this $700 billion is going
> >to be given directly to Chinese and Middle Eastern banks. There is
> >NO guarantee of ever seeing that money again.
> >
> >P.P.S. From talking to people I know in DC, they say the reason so
> >many Dems are behind this is because Wall Street this weekend put a
> >gun to their heads and said either turn over the $700 billion or the
> >first thing we'll start blowing up are the pension funds and 401(k)s
> >of your middle class constituents. The Dems are scared they may make
> >good on their threat. But this is not the time to back down or act
> >like the typical Democrat we have witnessed for the last eight
> >years. The Dems handed a stolen election over to Bush. The Dems gave
> >Bush the votes he needed to invade a sovereign country. Once they
> >took over Congress in 2007, they refused to pull the plug on the
> >war. And now they have been cowered into being accomplices in the
> >crime of the century. You have to call them now and say "NO!" If we
> >let them do this, just imagine how hard it will be to get anything
> >good done when President Obama is in the White House. THESE
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