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Discomfort With The Bailout


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#1 Pot Odds RAC

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Posted 26 September 2008 - 09:39 AM

Don't really know if this warrants a New Thread, but thought I'd do it anyway.The regulators have been sitting still for YEARS while the markets and companies KNOWINGLY entered risky water.This Financial Market "crisis" worries me less than the Government reaction to it. Proposals are including things like limiting executive pay. But the most troubling aspect of this "Emergency Action" is the reactive rush instead of a long term proactive approach to limited regulation. Politicians are calling the $700 Billion as an investment on which they plan to realize a profit!The Government is going into the business of turning a profit in the financial markets?!? They are going to COMPETE with Private companies and citizens? Just as the freaking Post Office shouldn't be trying to compete with private companies such as FedEx, the notion of the Government trying to turn a profit in capitalistic markets is really foul to me.They keep trying to sell this as the tax-payers are going to make money not lose money. From where do you think that Profit comes?!? How FAIR is the playing field when the Government comes to play?This notion sickens me and scares the crap out of me as a potential precedent setter.

#2 El Guapo

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Posted 26 September 2008 - 09:42 AM

Would you rather them try to operate at a loss, like most government businesses?

#3 Loismustdie

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Posted 26 September 2008 - 09:45 AM

View PostEl Guapo, on Friday, September 26th, 2008, 10:42 AM, said:

Would you rather them try to operate at a loss, like most government businesses?
That's funny.
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#4 whatgreatis

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Posted 26 September 2008 - 09:45 AM

View PostPot Odds RAC, on Friday, September 26th, 2008, 10:39 AM, said:

Proposals are including things like limiting executive pay.
If they don't limit executive pay I'll be really really pissed. Why do they deserve a paycheck from the taxpayers when they drove the worlds most powerful financial companies into the ground? If I ran the chicken farm I work at into the ground, I'd be fired.
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#5 Pot Odds RAC

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Posted 26 September 2008 - 09:48 AM

View PostEl Guapo, on Friday, September 26th, 2008, 1:42 PM, said:

Would you rather them try to operate at a loss, like most government businesses?
Good public policy decisions are different from good business decisions. That is what is forgotten by most analysts. The Quantatative analysis for evaluating a Public Policy impact is and must be different from a Business Analysis. I don't think Government should be in the business of Business - especially if they are competing in a Capatialistic marketplace with Private Companies and Citizens.Again, from where do you think this promised Profit will come? "Profit" means someone will pay for it.

#6 El Guapo

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Posted 26 September 2008 - 09:48 AM

View Postwhatgreatis, on Friday, September 26th, 2008, 10:45 AM, said:

If they don't limit executive pay I'll be really really pissed. Why do they deserve a paycheck from the taxpayers when they drove the worlds most powerful financial companies into the ground? If I ran the chicken farm I work at into the ground, I'd be fired.
Limiting executive pay is actually really really dumb. Why would a top executive come and help a company through a hard time if there is nothing in it for him/her?Executives usually get very generous performance based compensation packages, based on their ability to turn the company around.Think of it like a sports contract: a true "Pay for Play"They sure as hell are not going to do it to be a good citizen.What I think they are talking about (i hope) is limiting the pay to the failed CEO's, CFO's, COO's and BOD's.

#7 Suited_Up

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Posted 26 September 2008 - 09:50 AM

View PostPot Odds RAC, on Friday, September 26th, 2008, 12:48 PM, said:

Again, from where do you think this promised Profit will come? "Profit" means someone will pay for it.
Like I said on another subject in the other thread.How are the big boys up top supposed to make money when everyone at the bottom is broke as fuck?How exactly does giving extra money to the top fix anything at all? I don't know the details of this bailout, and it sounds like nobody actually understands it, but this seems like common sense to me.
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#8 whatgreatis

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Posted 26 September 2008 - 09:52 AM

View PostEl Guapo, on Friday, September 26th, 2008, 10:48 AM, said:

What I think they are talking about (i hope) is limiting the pay to the failed CEO's, CFO's, COO's and BOD's.
That's what I was talking about. I don't care how much the CEO of Google gets paid but the CEO of Lehman Brothers better not get a million from the tax payers. If I destory my company I don't expect the tax payers to pay me, he shouldn't expect a dime from the tax payers imo.
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#9 copernicus

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Posted 26 September 2008 - 10:01 AM

View PostPot Odds RAC, on Friday, September 26th, 2008, 10:39 AM, said:

Don't really know if this warrants a New Thread, but thought I'd do it anyway.The regulators have been sitting still for YEARS while the markets and companies KNOWINGLY entered risky water.This Financial Market "crisis" worries me less than the Government reaction to it. Proposals are including things like limiting executive pay. But the most troubling aspect of this "Emergency Action" is the reactive rush instead of a long term proactive approach to limited regulation. Politicians are calling the $700 Billion as an investment on which they plan to realize a profit!The Government is going into the business of turning a profit in the financial markets?!? They are going to COMPETE with Private companies and citizens? Just as the freaking Post Office shouldn't be trying to compete with private companies such as FedEx, the notion of the Government trying to turn a profit in capitalistic markets is really foul to me.They keep trying to sell this as the tax-payers are going to make money not lose money. From where do you think that Profit comes?!? How FAIR is the playing field when the Government comes to play?This notion sickens me and scares the crap out of me as a potential precedent setter.
They are not competing with private companies. The market for low grade paper simply doesnt exist. That is why it is buyable at prices that could very well lead to a "profit"However, one aspect of last night's proposed plan that I heard about this morning does bother me. Apparently 20% of the bailout funds are earmarked for community organizations such as ACORN, some of which are already under investigation. The Democrats in the House are laying low on this. They can pass whatever bill they want, but are afraid to without Republican support so they can point fingers if the bail out is too little too late.
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#10 Loismustdie

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Posted 26 September 2008 - 10:01 AM

View PostSuited_Up, on Friday, September 26th, 2008, 10:50 AM, said:

Like I said on another subject in the other thread.How are the big boys up top supposed to make money when everyone at the bottom is broke as fuck?How exactly does giving extra money to the top fix anything at all? I don't know the details of this bailout, and it sounds like nobody actually understands it, but this seems like common sense to me.
To sum it up: Investments in Mortgage backed securities clogging balance books. Liquidity low. Buy up percentage of invesments, increase liquidity People buy houses, housing market turns towards the good over time. Over time, investments become worth more and can be sold for profit. This is a situation that has been done before on a smaller level but it was profitable then as well. Basically, what we have here is an investment in the actual economy, instead of say, handing out money so more people can buy PS3's.
So much for a comeback.

#11 copernicus

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Posted 26 September 2008 - 10:02 AM

View PostPot Odds RAC, on Friday, September 26th, 2008, 10:48 AM, said:

Good public policy decisions are different from good business decisions. That is what is forgotten by most analysts. The Quantatative analysis for evaluating a Public Policy impact is and must be different from a Business Analysis. I don't think Government should be in the business of Business - especially if they are competing in a Capatialistic marketplace with Private Companies and Citizens.Again, from where do you think this promised Profit will come? "Profit" means someone will pay for it.
Yes, and its the stockholders of the companies they buy the paper from that pay for it.
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#12 El Guapo

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Posted 26 September 2008 - 10:03 AM

View Postwhatgreatis, on Friday, September 26th, 2008, 10:52 AM, said:

That's what I was talking about. I don't care how much the CEO of Google gets paid but the CEO of Lehman Brothers better not get a million from the tax payers. If I destory my company I don't expect the tax payers to pay me, he shouldn't expect a dime from the tax payers imo.
But what if its a new CEO brought in to help turn the company around. Do you expect him to work for $100,000 a year? With no bonus for turning around the company? What incentive does that person have?None.

#13 whatgreatis

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Posted 26 September 2008 - 10:08 AM

View PostEl Guapo, on Friday, September 26th, 2008, 11:03 AM, said:

But what if its a new CEO brought in to help turn the company around. Do you expect him to work for $100,000 a year? With no bonus for turning around the company? What incentive does that person have?None.
Well, 100,000 a year would be until the company does turn around. As far as I understand the bail out package, the government intervention will end when the companies are back on their feet and the bad mortgages are sold.It's not like 100k a year is something to sneeze at. Not to mention you'd be getting the best health care in the world and the wonders it would do to your resume if you turned the Lehman Brothers around.
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#14 Suited_Up

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Posted 26 September 2008 - 10:12 AM

View PostLoismustdie, on Friday, September 26th, 2008, 1:01 PM, said:

To sum it up: Investments in Mortgage backed securities clogging balance books. Liquidity low. Buy up percentage of invesments, increase liquidity People buy houses, housing market turns towards the good over time. Over time, investments become worth more and can be sold for profit. This is a situation that has been done before on a smaller level but it was profitable then as well. Basically, what we have here is an investment in the actual economy, instead of say, handing out money so more people can buy PS3's.
Sounds flawed to me.It's great for the top half.... not so much for everyone else. What about those people who still can't afford to buy a house? I don't think we should hand out money either, but I think that wages are ridiculously disproportionate for the cost of living in most places now. It's not about welfare as far as I'm concerned. I hate welfare too. I think we should cut it off completely and let them rot if they don't get their shit together. But there's also the issue that you can't create enough jobs for that to work unless the bottom half has money to spend, and job wages are big enough to survive. Right now they're not. At least not in the places with the biggest populations.The entire system is flawed. I wish I had a solution, but it seems pretty apparent if you look at the classes all the way down to the bottom, that something is obviously not working. Seems to me that the whole system is backwards. The people up top should be making money because the ones on the bottom are funneling it up the chain. But it's pretty hard to do that when there isn't any money left on the bottom. It has to come back around somehow, but everyone at the top is so greedy that it never will. Salaries keep inflating up top and hardly moving at the bottom, that sounds like a recipe for exactly what's happening right now.
-Kurt

#15 Pot Odds RAC

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Posted 26 September 2008 - 10:21 AM

View Postcopernicus, on Friday, September 26th, 2008, 2:02 PM, said:

Yes, and its the stockholders of the companies they buy the paper from that pay for it.
Exactly.When the Government comes in and Profits from the Business (by taking advantage of their unfair advantage in a Capitalistic Marketplace) it is just a hidden TAX. The notion that there "is no market" for the assets that the Government is buying may be true, but only in the short term - in the longer term Point of View it is clearly false - how else will the Government produce this promised Profit? This is not some sort of a Monopoly or other non-capatalistic market condition (Such as Education) that requires the Government to run because the Free Market can't or won't.Don't confuse a temporary - although very large - crash (caused at least in part by VERY poor government regulation) with a more general Market Failure.

#16 El Guapo

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Posted 26 September 2008 - 10:29 AM

View Postwhatgreatis, on Friday, September 26th, 2008, 11:08 AM, said:

Well, 100,000 a year would be until the company does turn around. As far as I understand the bail out package, the government intervention will end when the companies are back on their feet and the bad mortgages are sold.It's not like 100k a year is something to sneeze at. Not to mention you'd be getting the best health care in the world and the wonders it would do to your resume if you turned the Lehman Brothers around.
This is very naive. 100K is middle management salary. Not CEO pay. Someone being brought in to turn around one of these companies does not need to build their resume, they already have it, that is why they would be asked to do it. LOL at the health care comment.I would bet a lot of them would work for no salary at all, but a percentage of the company if it's salvaged, or a percentage of future profits or even a percentage of the difference in operating loss would be reasonable.e.g. Company A lost 1 Billion in 2008, in 2009 Mr. CEO made them only lose 100 Million, he get's 1% of the difference as a bonus. So he gets a 9 Million dollar bonus.

#17 copernicus

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Posted 26 September 2008 - 10:30 AM

View PostPot Odds RAC, on Friday, September 26th, 2008, 11:21 AM, said:

Exactly.When the Government comes in and Profits from the Business (by taking advantage of their unfair advantage in a Capitalistic Marketplace) it is just a hidden TAX. The notion that there "is no market" for the assets that the Government is buying may be true, but only in the short term - in the longer term Point of View it is clearly false - how else will the Government produce this promised Profit? This is not some sort of a Monopoly or other non-capatalistic market condition (Such as Education) that requires the Government to run because the Free Market can't or won't.
Thats exactly what it is. The free market can't afford to keep the paper on their balance sheets. There are no other companies with the assets to buy the paper to get them off the other companies' balance sheets. By buying up the paper at a discount the Fed introduces liquidity to the credit markets, increasing the value of the paper beyond the price they bought it at. Its not that difficult.Take a real estate analogy. Donald Trump in the late 70s/early 80s was way overcommitted between his real estate and casino holdings. When the bottom fell out of the real estate market he was bankrupt on paper, but his debt was "too big to fail". His lenders renegotiated terms (which is no different than buying out their own bad paper at a loss) and when the real estate market came back it was a win-win. But what if there had been no capital at his lenders to renegotiate terms? Trump goes bankrupt, the lenders foreclose and sell the properties at a loss. Who wins? The deep pocket 3rd party who had the capital to buy the properties at a discount.
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#18 Suited_Up

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Posted 26 September 2008 - 10:31 AM

View PostEl Guapo, on Friday, September 26th, 2008, 1:29 PM, said:

This is very naive. 100K is middle management salary. Not CEO pay. Someone being brought in to turn around one of these companies does not need to build their resume, they already have it, that is why they would be asked to do it. LOL at the health care comment.I would bet a lot of them would work for no salary at all, but a percentage of the company if it's salvaged, or a percentage of future profits or even a percentage of the difference in operating loss would be reasonable.e.g. Company A lost 1 Billion in 2008, in 2009 Mr. CEO made them only lose 100 Million, he get's 1% of the difference as a bonus. So he gets a 9 Million dollar bonus.
Why should he get any bonus if they're still losing money?Maybe he can wait till year 2 for his bonus.Nobody needs 9m a year anyway.
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#19 Pot Odds RAC

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Posted 26 September 2008 - 10:32 AM

View Postwhatgreatis, on Friday, September 26th, 2008, 2:08 PM, said:

Well, 100,000 a year would be until the company does turn around. As far as I understand the bail out package, the government intervention will end when the companies are back on their feet and the bad mortgages are sold.It's not like 100k a year is something to sneeze at. Not to mention you'd be getting the best health care in the world and the wonders it would do to your resume if you turned the Lehman Brothers around.
Fine. The best and brightest will go to London, Dubai, or Hong Kong or wherever they can get $100MM rather than $100K. I just don't think the Government should be determining how much is "enough".

#20 El Guapo

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Posted 26 September 2008 - 10:33 AM

View PostSuited_Up, on Friday, September 26th, 2008, 11:31 AM, said:

1.) Why should he get any bonus if they're still losing money?2.) Maybe he can wait till year 2 for his bonus.3.) Nobody needs 9m a year anyway.
1.) It was just an example.2.) Very possible, it may also be paid out over time3.) That is a ridiculous statement




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