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Just Say No

I've been wrong to advocate hedging the bailout bill with conditions; we should just say "NO".

We can take a fraction of the $700 billion dollars we save and use it for specific anti-recession measures. Let's start rebuilding our power grid; fix some bridges; maybe even help some homeowners with their mortgages where warranted. But no bailout for Wall Street; none.

If we say "yes" to the bailout bill, the Dow will go up. Great time to sell your stocks because we will have damaged the economy and our competitiveness for a long time to come.

If we say "no" to the bailout bill, the Dow will plummet – for a while. Big deal; that's what the Dow does; it'll create a buying opportunity.

If we say "yes" to the bailout bill, the dollar will plummet. That $700 billion to bailout the world's financial institutions comes from printing more dollars and devaluing every dollar already in existence. A plummeting dollar means higher imported energy costs. That really hurts Main Street, the real economy, and national security.

If we say "no" to the bailout bill, investors like Warren Buffet and Bank of America will continue to pick up assets from distressed banks cheaply. More power to them; they can deal with the problem of overpaid executives. They are showing us the right way out of this mess.

Normally The Wall Street Journal would have been against the bailout on economic terms and The New York Times against it on populist terms. Apparently our two great national newspapers are too much the hometown newspapers of New York City to see straight. When you look out the windows of their editorial offices, you're more likely to see out-of-work bankers and empty restaurants than people struggling to pay for gas and home heating oil – or to keep their small businesses running or stay in their homes. So we have to do without their leadership on this issue.

Fortunately three out of the four candidates in the Presidential sweepstakes are senators; they have to vote on the bill (unless it dies in committee). My vote for President is up for grabs. If there were contested house or senate races in Vermont, my vote for them would be up for grabs as well.

The upcoming election gives us a chance to save ourselves from the horrendous mistake this bailout bill would be. Don't wait for the pollsters to call; write your senators and congressperson today.

 

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Comments

JRM

I actually believe that would be a fair medium, Tom. It is in the interest of every nation to correct this global issue. After the issue has been corrected, however, there is a great need for better enforcement of financial company laws. Seriously, 50 year mortgages and loans are ridiculous, it should be plainly illegal to offer such a thing.

It is such a debatable topic... I hate the fact that we are merely giving the people responsible for this whole situation a small slap on the wrists. But in reality, the global economy depends so heavily upon this. Many people that have been saving for many years (be it for retirement, education for their children, etc.); there isn't much else we can do.

I suppose people do, indeed, acknowledge that there is risk involved with funds which depend on the stock market. Though it seems that if there were the opportunity to avoid a sharp decline in the market, it would make sense to seize it.

Tom Evslin

JRM:

You are right; the effects of this are felt well beyond the US as does responsibility for bad financial practices.

How much are you proposing that Canadians contribute to the $700B bailout? The rest of the world?

JRM

Take this into perspective...

If you divide the $700 billion over the population of the United States, it will cost just over $2000 tax dollars per person. Now (because this is an international affair, not solely affecting the U.S.), a study done by RBC indicates that the average person in Canada invests about $6000/year in RRSPs.

Now take into consideration this fact, most RRSPs are directly linked to the stock market. So, let's assume by retirement the average person will have $1 million in RRSPS (for simplicity's sake). Factor in just a 10% drop in those RRSPs (due to stock market drops), and each person will have lost $100,000. Citizens will have lost over $3 trillion dollars combined. Now lets assume the same for the U.S. citizens... Combined, Canada and the United States will have lost over $33 trillion.

You are very ignorant to think this is an issue only affecting the United States.

Brian Pendleton

I agree with you Tom that this shouldn't be done unless it clearly has a benefit. I'm sure there is a liquidity crunch, not crisis, but there is still plenty of private money, such as Mr. Buffet's, that is ready to infuse capital back in to the system once the valuations are correct.

Abby

Hi! I'm an editor for Seeking Alpha. Please contact me at your earliest convenience.

Terry Gold

Tom, I appreciate that your are trying to analyze this rationally, rather than coming at it from a particular political point of view. We need more of that in this country.

On a side note, I see you are recommending the Black Swan book. Our mutual friend Brad just said yesterday that it is one of his favorite books and helps to explain what is going on here. I sent it to my Kindle today and will start reading it tonight.

Terry

Tom Evslin

Damon:

I wish I felt as sure as I write.

But it seems to me that it is up those who propose something huge to make the case for it - not the other way around. And no compelling case has been made that the bailout is either necessary or sufficient so it shouldn't be done.

Damon

I wish I could be so adamant. Is there any rational evidence out there that not doing a bailout would, in fact, be disastrous to the economy? I see lots of opinions based on little, but not much rational analysis.

Political nonsense aside, I've seen precious little on the debate over the economic merits of a bailout. Anyone have a source to point me towards?

Letting this thing go bailout-free would make me all happy inside. But I fear that it's the wrong choice.

Pete

I totally agree! This bailout sounds like the biggest SHAM ever in the history of our nation... Who pays for all these shams and scams? US unfortunantely!!! It's robbery and hypocricy!!!

Jim

True, the markets will take a major fall. This will have a carry on effect on all world markets, a little help to even things out. Also, the dollar will fall, good for exports, maybe people will outsource to us for a change. The pain of this will have have people screaming at their legislators to pass laws to prevent it from happening again. Why have that attached to a "bailout" when it will happen through the process that should have worked in the first place. The increased oil costs (if they happen, with speculation being hampered by new rules, perhaps), will spur the growth of alternative means that we got a glimpse of a few months ago. A final note, it wouldn't take $700B to have targeted aid to individuals directly affected, ie. tax relief. People are asking where can we get this money? Try removing the $102000 cap on social security, and stop supplementing it with the federal budget, it's a $500B++ per year hole that all people cry about. Ok enough whining from me. Well except I want the 16th repealed and government shrunk.

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