I really, really need help understanding this bailout. Could someone help me?

[JDwho]

I've said it before...I'm no economist. But, before work (early, early this am), there was a 300

billion for citibank bailout; now, I see that we're up to 7.2 trillion for everything. What is my

child going to do? Or her children??? Please tell me that she and hers won't live in depression era

times. Because, trust me she doesn't know how. None of us do. We are not (I repeat NOT) well off.

But, we make things work, just barely. To what end, is all of this? What will it solve? What will

children face from this point on?....

I know, a lot of questions, but as I said, I'm no analyst. I just heard on the news that Obama's not

happy. I translate that into, he would never take this route.


Could someone explain this to me as if I'm a 2 year old? Maybe then, I'll have a clue as to what end

they ( B administration) are seeking. Is there a chance in the world that this will help???
:yoiks:

[OffWithTheirHeads]

1. Real simple. Step 1. Take money from everybody

Step 2. Give it to your rich friends.
Mission accomplished.

[phantom power]

2. BushCo is running out the clock. They have no plan to help your family.

If there is any plan, it is to pack golden parachutes for their cronies in the finance industry.

If there were any *real* plan, these bailouts would have some strings attached, which I see no evidence of.

[JDwho]

4. So, we are up the proverbial creek without a paddle?

What do the people making these decisions think will happen to all of us (poor and middle class),

with their plan? I've always believed that the wheel won't work without the cogs for the wheel. Us

being the cogs. Is there any hope at all?

I have become attached to the idea of "hope" and now feel it slipping away...

[phantom power]

6. Personally, I am hoping Obama and the next Congress can stop the bleeding...

and that whatever damage is done by BushCo between now and January 20th isn't too great to repair. Hang on until Jan 20th. That's the only advice I've got, for what it's worth.

[JDwho]

11. Thanks for the encouragement...tiny hope still lives.

[specimenfred1984]

3. Sometimes countries are taken over by criminals

The criminals then steal as much of the country's money as they can, lying day after day, week after week so they can steal it all.

[JDwho]

5. What can "we the people" do about it?

Do we just sit on our hands? Write senators and governors? What? Tell me, I'll do it. There has to be a way to voice this to the #!##'s in power....?

[specimenfred1984]

9. People always ask me that about 3 years after I warned them repeatedly

Do nothing, just act like you are powerless and most importantly, CALL ME EVERY NAME IN THE BOOK. Keep doing business with Citibank and all the other fascist corporations. Let criminals go and offer them "redemption" as DU did with Colin Powell a few weeks ago. Don't let a "little" thing like torture bother you. Keep telling yourself "I've got a family to feed" and keep your mouth shut.

[JDwho]

16. So, you were right all along. Now, what can we do???? Anything?

[Two Americas]

19. organize and fight back

Our grandparents and great grandparents did. Otherwise we would have nothing to lose.

There is no more "middle class" for 70-90% of the people, depending on how we measure that. The middle class was not created by trusting in princes, nor by personal choice individual survival strategies. It took a fight, it took unionizing, it took courage and solidarity.

[JDwho]

21. Solidarity and any kind of helpful action sounds good to me.

I don't want life of future generations to be determined by the horrible decisions made by this administration.

[Idealism]

7. We have two choices here:

Bailout these people and print money, leading to high inflation (but not hyperinflation)

OR

Let these companies fail and sink into a new certain great depression.

There are no good choices here, either way we will still have our national debt and will have inflation. Personally, inflation is easier to deal with if you actually have a job. Realistically, we as a country will never pay off our national debt. But we can keep borrowing because the two countries who do the majority of our funding need the US market to sell their trash too or they would be bleeding money too. If the US slides into a depression, we buy less of China's and Japan's goods which leads their country into depression aswell. No one wins there, globalization is a funny thing sometimes.

I am sorry to hear about your situation, and I'm afraid I don't have any good news, but to let these things fail will lead to far far worse consequences than bailing them out.

[JDwho]

10. So, you think our best bet is the bailout, to avoid certain depression?

Instead of, no bailout, to avoid a most certain depression?

I think I understand now, and maybe have for a while, that it's a lose-lose situation.

I just want to to know the lesser of two evils, so to speak.

Thanks for your answers, and everyone else's :) (mustering a smile)

[Idealism]

12. Caught between a rock and a hard place

Neither is a great answer, but I believe we have to secure the foundation of this country, financially and industrially, or else we will collapse.

[FedUpWithIt All]

8. I have four children. Today i looked up life skills that we have lost over the last century.

i do this a lot.

This Xmas the kids are getting knitting needles, a sewing machine, books, tools (the baby will get different sizes of warm pj's, shoes etc)...I will pass on what i know already and keep learning more.

We have been printing out and compiling a notebook of useful info from the net.

I cannot change the coming crisis, i can only change how i deal with it. Hopefully the worst of it will be the anticipation.



:hug:

[JDwho]

14. Please pass on any tips to surviving this that you may learn...

Thanks for your post, it does help to control (panic) how you deal with this crisis. I just look at

my daughter and nephew and wonder with anxiety "What is in store for them?"

I hope someone charges B#!# with something, eventually. He has ruined so much.

[HamdenRice]

13. There's maybe too much anger around for you to get a straight answer, but here goes

A number of DUers, mostly with a background or former background in finance have generally been supportive of the bailout efforts, and I include myself. The problem is that it is increasingly clear that Paulson is running around like a chicken with no head, trying one thing one week (money to buy into banks) and another thing another week (buying assets) without concentrating the resources he's been given in an effective way.

There is no guarantee that the bailout will work. But there's a chance it will prevent worse damage than if there were no bailout.

So about Citibank. It's one of the largest banks in the world. It has lots of people doing business with it -- depositors, corporations who deposit money with it, other banks that deposit money with Citibank, corporations that have transferred their assets to Citibank as trustee, people who own their bonds, people who have bought various kinds of insurance from it, and so on. These are often called "counter-parties" -- that is they are parties to transactions with Citibank. Finance at that level is very complex and Citibank has transactions going on in the trillions with millions of counter-parties.

If people start to think a banks is going under, it will go under, even if it is not actually bankrupt. That's because counter-parties begin to unwind what they're doing with the bank. Depositors withdraw their money, bondholders sell their bonds, trust beneficiaries liquidate their trusts and so on.

This could be because the bank is losing some money like Citibank, even if it's not losing too much money to survive.

Have you ever seen the Christmas movie, "It's a Wonderful Life" -- especially the bank run scene? If not, you should rent it to understand what's going on and how banks work. It's a story about a tiny bank, but the idea is the same. A bank cannot ever -- even a healthy bank -- unwind all it's transactions at once. One depositor's deposit is a credit card user's balance or a car loan borrower's car.

A bank's existence depends on confidence. So when people start getting scared, the bank dies, but because everyone rushed to the exits at the same time, far more counter-parties lose than if the bank can be kept going.

The problem with a bank as big as Citibank is that its failure would take down thousands of other corporations and smaller banks, and the stock and bond markets would be so freaked that investors would dump everything (that includes fat cats but it also includes people cashing in their 401Ks in panic) leading to more bankruptcies, in a snowball effect leading to a Great Depression. If Citibank fails, the snowball effect could mean that finance would simply stop: no checks cashed, no ATMs working, nothing. For an explanation of why, go here:

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x4027506

That's pretty bad for each of us, but when you add companies not being able to cash checks or make payroll, it could mean everyone just goes home and does nothing for a few years. (Actually if you look at countries like Argentina and Brazil that have suffered through this, people and even companies persevere somehow.)

So what the government is trying to do is prop it up until (if) things get back to relative normal.

Keep in mind that each bailout is not an expenditure, but an investment. When the government buys a $2 billion nuclear submarine, that money is gone forever. It's an expenditure. Each bailout has been in the form of a loan or investment that theoretically will get paid back IF we get over the crisis. Next year the government could earn $8 billion in dividends on the bailout so far, and in a few years get back everything it is putting out now in addition to those earnings.

So basically the government is gambling with hundreds of billions to keep things going, because the alternative would be much worse.

[JDwho]

15. Thank you, thank you, thank you HamdenRice,

I think I understand that. It's the best explanation (and most detailed), for those of us not

financially minded, that I've heard so far. So, I really appreciate your time. I stay so confused

most of the time with the govt. spending money like it's going out of style, that I conclude that it

will "go out of style" or run out.


I think many others that are barely making it, are afraid of things worsening.

Though I read (somewhere), yesterday, the lyrics of an Alabama song that stated "We were in a

depression, but didn't know it, because we didn't have much to begin with". I know I put that in

quotes, but that is not exact; but, it's the gist of it.

Again, thank you for explaining things so well. :)

[earth mom]

25. Don't take the word of someone who was pro the 700 billion bailout rip off.

Do your own research here on DU and you will see that the majority of people here were vehemently against the bailout for the rich fat cats.

It is just common sense to know that the bailout was nothing more than throwing good money after bad for the benefit of the few.

And something else...

Many of the same people who were gung ho for the billion dollar bailout don't want to bail out the big 3 auto makers.

No, instead, they want to trash those well paying jobs that are extremely important to the middle class of this country.

Yep, the moneyed elite and DU dinos want to trash those jobs.

And who benefits?

You should know the answer to that one.

[JDwho]

26. Thanks for your response, I promise to continue to do my homework.

But, although I've excelled in other areas, I don't nearly match the financially/economically talented minds here on DU. That's why I asked, because I really wanted to know the right action. The bailout never sounded good to me (giving money to banks, who screwed up?). But, as I stated, perhaps there was something I wasn't understanding in the big picture, the final result of all of this. I'm not looking for an angry answer and I'm sure some chuckled when I asked for it to be explained to me as if I'm a two year old. But, I meant that. It seems so complicated, what we're dealing with, and I'm afraid for my daughter and her children's future. As well as everyone else's children and theirs. Perhaps, I'm missing the simple math gene, but I really wanted/needed it explained to me, what we're doing, and how it makes sense. Because, it just looked like a simple give-away to me. I wanted to know if I was thinking in simple terms. I'm not sure if I did my homework from now until the end of time, I'd understand the logic in all of this spending. But, it did make some sense to me what HamdenRice had to say...
Thanks for your advice
JD

[earth mom]

27. How many people in the U.S. are financial experts? Few, I'd say and that's why * & Co got away

with such theft/fraud on such a massive scale.

They used scare tactics like they did after 9/11 to get everyone to go along with them.

My best advice is to do your own investigation and then go with your gut. If it looks, sounds & feels like a scam, it no doubt is.


Also, you were right to question and I hope I helped in some way. :hi:

[spin]

32. The "experts" appear to be having a hard time...

understanding what is happening or how severe it might become. I hear lots of opinions on the financial channels.

It's fairly obvious that greed and lack of regulation got us into this hole. I just hope that all the current bailouts are not just making the hole deeper.

[renate]

22. thank you so much

It's still a scary situation but I feel better knowing that there's more going on than politicians throwing handfuls of money at the biggest companies, going "Please don't fail! I'm sure you can use this free money somehow!"

I really appreciate your detailed explanations. Thank you very much.

[Indiana_Dem]

24. Well, since you put it that way...it's depressing!

But thanks anyway!You worded the situation well.

[RoyGBiv]

29. Chicken with no head ...

It occurs to me, again, that this is the heart of the problem of the management of this whole fiasco.

It started when he first went to congressional leaders and just sorta got down on his knees and begged. And then when Dodd came out and presented it like he did, everyone got scared, and then they got scared for entirely different reasons when they soon realized what Paulson was asking was essentially unlimited authority to do whatever he wanted at any time he wanted with whatever amount of money he chose to print that day.

And he had a huge PR problem. He's a poor communicator, and poor listener, and apparently a poor decision maker, which is a really bad combination.

I think, now, the reason he asked for the authority he asked in the beginning is because he really had no clue what to do or how much it would take but just wanted to start doing something. I could sympathize with that if he were a back-office clerk somewhere, but damn ... he's supposed to have a clue of some sort, and it's hard to imagine with Bernanke in his ear exactly what he was thinking.

In any case, he got a lot of authority as it was with the inclusion of an equity clause in one of the law's provisions and now just can't seem to settle on anything, which means he's effectively spinning in circles.

Is it January yet?

[JDwho]

17. One more question...thanks for your patience...

What about helping the auto industry? (Will that be included in the 7.4 billion?) Or is the best bet for them bankruptcy? I've heard both from the media. What's true?

[wurzel]

18. What they are actually doing with your money!!

Treasury goes to the banks in secret and buy new issue shares from them. We have no clue how many they bought nor how much they paid per share because they did not buy these shares at "market price" from Wall Street. It is the biggest stealing of tax payer money since the Iraq War.

[JDwho]

20. Perhaps. But, would we collapse without their thievery?

It seems like, from a couple of the explanations above, that the bailouts are the lesser of two evils. I'm just trying to learn. I've been watching the news, reading all over the internet, and get mixed messages everywhere. I think halo experiment and HamdenRice cleared this disaster up a bit for me. It's still a disaster, but either choice would be one. The bailout seems like the lesser of them, and one that may (and I emphasize "MAY") prop us up until we can get on our feet again as a country.

[JDwho]

23. Thank you everyone, for your input. I really appreciate it!

:yourock:

[Anarpeace]

28. i have no idea...

why they support a bailout -- but I do know is that the bailout will fail, and that the future will be bad for the stock market, which will continue to fall.

Unlike the FDR depression era; the only people that will benefit, are the US Congress, the politicians, and their friends in the USA and Saudi Arabia, etc.

[gravity]

30. We aren't just giving money away

The government is buying assets at low prices and getting equity stakes through the process. The net costs should be around 0, and we have a chance of making a profit from it.

One of the main problems is that there is no one in the private sector that is willing to buy mortgage backed securities from the banks because they don't have the cash to do so, and the banks won't loan them any money because of the credit crisis. This is causing banks to write down these mortgages, which causes losses, which makes it less likely to lend money and is forced to liquidate these securities. It is a downward spiral kind of like an bank run.

At the current treasury security rates, the government can borrow money and pay basically no interest. They can act as a buyer of last resort, and provide a floor on the market so banks can start unloading their bad debt and start lending again. Although these are bad assets, they are priced so cheap that they become good assets. A mortgage backed security is backed by real equity, and even if everyone defaults and sell their house at 50% off, it is still worth 50 cents on the dollar.

Since the government can buy assets at liquidation prices and borrow money at very low interest rates (0 to 2%), it can hold the assets for a long period of time and sell them when the markets calm back down.

I don't think that anything close to 7.2 trillion is going to be spent. The treasury is just signaling that it will to what it takes to back up the markets. It is more like insurance to instill confidence in the market, but we'll see.

[Anarpeace]

31. But But But...

There are many other factors to consider; most of the local and state pension funds, do not have the money in their budget to pay the retired. Secondly, hedge funds are done mostly in deregulated and secret markets, thus billions of $$$ each day is traded -- to manipulate stock prices for the few that have insider information (the politicians, the bankers, the generals, etc.) -- whom could care less about a free or fair market system, let alone a democracy.

Thirdly, the market itself, is uncontrollable by its very nature. The reason why it is currently so "volatile" is because fear, and greed are the primary factors in the minds of institutional and the common investor.

I could go on and on; but the stock market has to continue to fall, no matter what administration is in power.

[KG]

33. actually, nobody on god's green earth knows where the money is going, but Thank Gawd It Passed!