I have a stupid question about the bailout.

[backscatter712]

What happens if there is no bailout?

Oh, I know what the Bushies and Rethugs want us to believe - DOOOOOM! DOOOOOM! DOOOOOOM! The entire economy falls apart like a house of cards and it's the Great Depression all over again.

Wait a second. What if we treat these failing banks like normal businesses?

They declare bankruptcy. The bankruptcy court appoints a .gov officer to take over the company, then assets are sold at auction to the highest bidder. Those junk mortgages? Probably sold for pennies on the dollar. Real assets? They don't disappear - they get sold to someone. Everything in the company that's worth something is sold to pay the creditors, and the junk debt pretty much is written off.

Why is this gonna crash the economy?

[ladjf]

1. Makes sense to me.

[Raven]

2. You and everybody else would like to know! They won't answer...

no one will answer because no one knows. I am taking the worst case approach and figuring that there will be no money, no food, no gas, no jobs...

[Speck Tater]

3. Because everybody is waving their arms around when they talk about it.

And using their shrillest voices. What more evidence do you need?

[gateley]

4. To extend backscatter712's question --

How would no bailout effect US today, tomorrow, in a month? They're fanning the flames that we, the people will be hurt if this doesn't take place. Is that accurate?

[HamdenRice]

5. It's not really a bailout. It's the feds becoming a "market maker"

One commentator described it as separating the "liquidity crisis" from the "insolvency crisis." This plan attacks the liquidity crisis, but most insolvent institutions -- like Lehman, Bear Sterns, Merrill -- will be allowed to fail or be swallowed up.

The main thing here is not to have vast amounts of assets dumped at once creating a downward spiral that take down the solvent with the unsolvent, while also basically making you and I unable to cash our paychecks or use atms.

[alsame]

6. A good friend of mine is VP of a major bank and a Certified

Financial Planner. We had a brief discussion this morning and she told me that the media is grossly exaggerating the risk that consumers are facing in regard to banks. She said they are using the AIG failure to get people panicked about the money that is in banks and the FDIC. Her read as a person in the industry is that this is being done to make the bailout palatable to the public who has to pay for it. I'm hoping to continue the conversation with her this evening and get more specifics from her point of view.

[backscatter712]

7. That's what I'm suspecting.

The consequences of these bank failures fall mostly upon the shareholders, the entities that lent money to that bank, and the .gov, when accounts in that bank are insured by programs like FDIC.

Mortgage securities get sold off, probably get bought up by someone else, and the person who bought the home covered by the mortgage makes his payments to a new lender.

Where's the DOOOOOOOOOOM!?

[mrfrapp]

8. Bad Debts

Because the USA is in debt to the tune of 9 trillion dollars and it is only the trading value of the dollar that stops the creditors from calling those debts in. If the banks fail then other currencies become more attractive and the debts would be collected.

Paulson's plan is wrong on so many levels but the taxpayer pretty much has to bail out the banks or the USA would become a third world nation over night. Personally, I would just nationalise the banking industry.

[applegrove]

9. The worry is that there will be so little cash in the system (cash for new

loans for homeowners or businesses) because of all those losses that the economy will completely tank and we will go into a depression situation where unemployment is huge and firms go bankrupt left, right & centre. Tons of wealth will be erased. Inflation is high too. Could be a really bad situation. And they are doing this bailout to try to keep the cash from drying up. So that other sectors of the econmy (other than the mortgage industry) are not affected by the lack of cash banks are willing to lend them.