Against the Bailout

By
Mortgage and Lending with Peoples Bank NMLS 500247

Now I know I am not as smart as FED Chief Ben Bernanke and all his advisors, but I have to voice my opinion that  this $700Billion bailout is a bad deal for the economy and the country.

 

First, it will result in a raising of interest rates and a slowing of the economy. This is because the Government will need to finance this plan by issuing more debt (Treasury Bonds, Notes and Bills).  Half of these are already owned by Foreign investors, with China and the Oil-producing countries near the top of the list (the others are Great Britain,Japan, Brazil and the unknown people with Carribean bank accounts).  In order to bring in $700 Billion in cash, the government will have to issue a ton of debt.  The Foreign investors are going to think that our country is run by poor financial managers, and in order to entice them to buy up this debt, we will have to offer more attractive (higher) interest rates to get them to buy.You always demand a higher return as investments get riskier.  Already, these investors can buy a German note that pays 1.88% more than we offer. If I was a foreign investor, I would think that the German note is looking like a better deal.  So if you want me to buy your US debt, I want to be paid a higher interest rate.

So if the current 10 year US Treasury Note pays 3.88%, and the investors say,"I'm not going to buy up $700 Billion unless you pay 5.88%"  Guess what, 30 year mortgage rates would now be over 8%.  What does that do for the economy?

Hey, our huge foreign-financed deficit was a big concern to me even without this bailout plan.

The second reason I am against the plan is that it rewards greed and removes risk from our supposedly free-market economy.  There are executives from Enron who created these same type of derivatives who had to spend 6 years in the Federal Penitentiary; and the taxpayers are supposed to bail out this latest set of clowns?

 

These are the people who started the subprime meltdown. It began with the hedgefunds, and then soon all of Wall Street was wanting to rake in Billions from Real Estate by soliciting mortgage companies to sell them loans under terms that were doomed to fail.  These loan terms allowed people to buy homes way over what they could afford.  The bad loans weren't pushed on these Wall Street firms, they were the ones who paid the mortgage brokers to go find the people to buy  houses with little chance of repaying.  They then defrauded their shareholders by listing these new Mortgage Backed Securities as Assets on their books. 

If Bear Stearns, CitiCorp, Wamu or any of these others made bad financial choices, they should suffer the consequences. I didn't see them running to congress 2 years ago offering to pay the taxpayers their record Billions of dollars of earnings!

 

So let some banks fail; the consumer will be protected by the FDIC.  Some people argue that if we let some big firms fall, there won't be any money to lend.  Here is a clue-if banks don't lend money they go out  of business, so the remaining banks will be lending. Second clue- somewhere out there in this great big world is $700 Billion that the Government was about to borrow; the world financial markets are all liquid, and that same money is available to lend to any American business or individual who has a good home, business or idea to invest in.  Let the free markets flow - the money will go to the people who are likely to pay it back.  There may be some unemployment on Wall Street, but what have those highly paid experts done with your 401-K over the last 5 years anyway? They need to find new careers.

 

Meanwhile with all the fear being spread by the media and the Government, consumers are like deer in headlights; a terrorist attack wouldn't have been this effective at shutting down commerce.  Here in our market of Wenatchee, we have great homes available for under $200,000 , strong employment, and with all the media panic, the public doesn't realize that a First Time Homebuyer or a Veteran can still buy these homes with 0 down (and it doesn't end in October), plus anyone else can pick up these well-priced home with just 3% down with FHA financing. Let's get this thing settled so we can get on with getting people into the houses that they want and can afford.

 

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Rainer
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Carol Williams
Nationwide: Self-employed Real Estate Copywriter, Blogger, Photographer and Real Estate Mentor - Wenatchee, WA
Wenatchee Real Estate

Hi Darel,

Good article.  I don't understand it as well as you do... but it just doesn't feel right to me!

September 24, 2008 08:02 PM #1
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Anonymous
Bob Carmody

Darel, you sure explained this so called national crisis more clearly than any partisan newscaster has.  This is not a Democratic or Republican issue.  It most certainly is a private business issue.  It seems this bailout is going to go forward despite apparent public majority resentment.  Maybe George Orwell was right in many more ways than one reading of his book can describe.

September 25, 2008 09:13 AM #2
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Anonymous
Kelly Boyle

Well said Darel...let me go on record as being in agreement with you.  Let the free markets work.  Our culture has become a "bailout mentality".  Enough is enough.  History is full of booms and busts.  It is time we learned our lesson in this bust and refrain from borrowing from our children and grandchildren.  There will be a reckoning day for this unprecedented national debt.  It is time we wake up and realize that printing money and issuing notes to foreign investors will no longer save us from our foolishness.  The inevitable runaway inflation and devaluation of the dollar may be the straw that breaks the camel's back!  Yet, in spite of all this, I trust that our democratic political system and free market economy will work as intended and our best days are yet to come.  Out of this crisis will arise profitable opportunities and innovative leadership.  I am grateful to live in such a great country.  May God Bless America in this time of rapid change!   

September 25, 2008 11:17 PM #3
Rainer
14,878
Darel Ansley
Peoples Bank - Wenatchee, WA

Great Comments, thanks Kelly, Bob and Carol.  I emailed our Congressman and both our Senators, stating my opinion; I just hope voices like ours will outweigh the lobbyists and whoever else is influencing Bernanke and Paulson.  In my opinion this event can have a greater impact on the future of our country than the events of 9/11.  I pray that Kelly is right and that true leadership can arise to guide us out of this greed-created mess.

September 26, 2008 11:09 AM #4
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Anonymous
Don Collins

I've been thinking about this a lot (as we all have) and it just occurred to me tonight...  I'm be more than happy to agree with the "rescue" plan if Congress will do two things...


1. Hold themselves accountable (by name... not House or Senate but by individual names) if this thing doesn't work.  I want to know who screwed up!
2. Agree to some punishment if their plan doesn't do what they are promising it will do.  Punishment and an agreement that they will resign their post... Immediately!

I want to see some accountability before I will agree to this approach.

October 02, 2008 09:38 PM #5
Rainer
14,878
Darel Ansley
Peoples Bank - Wenatchee, WA

Don, I like your answer, but I would like to go back and add the same requirement to the people who put together the off-book accounting plans etc that got us into this mess. It comes down to being individually accountable for all our actions.  I have a hard time with these executives who 'earned' millions of dollars of bonuses on these investments in 2006 (and took that money out of the company) and then want to offload the risk onto us taxpayers.

 

October 03, 2008 11:15 AM #6
Anonymous
Anonymous
Robert

We decided that purchasing a house would be too financially risky for the past three years. The prices where I live are still astronomical. However, I now want the chance to purchase my million dollar home and all of you are welcome to help me pay my mortgage with your taxes regardless of whether you own a home or are simply a renter.

Please add to the stimulus package a provision for also paying about 1/2 of the mortgage for anyone who purchases an overpriced house within the next three months.

 

Thank you.

 

February 19, 2009 03:57 AM #7
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