I was around for a while in the aftermath of the depression (which really didn't end until 1954 when the market regained its 1929 highs). While we didn't live in tents, there were many days when potato peel soup was featured on the household menu du jour.
Interesting about the FDIC reserves... in fact, they're already gone... as is the Pension Benefit Guaranty Fund, the Social Security Fund, and the Medicare/Medicaid fund. They exist on paper, but in reality the funds will come from the same place the "bailout" funds will come from. DEBT.
About AIG... As far as I can tell, no one knows how many dollars are involved. Since AIG was working with derivatives, and swaps, no one has been able to say just how far reaching their transactions went.
The push is to "Save the Banks", to "Save the Brokers" and maybe to "Save the Foreign Investment Banks. And so far, Mr. Paulson et al, have not said that the $700B would fix the problem.. Estimates go to $3.6 Trillion.
We DO have laws that cover bankruptcy, and procedures to follow to insure the residual assets.
This is very complex, and there are no certain answers. Given that, my personal feeling is that putting off the inevitable will result in compounding the problem. Had we taken the "hit" back in 2003, it might have been much , much less than it is today.
So, I'd prefer to let nature take it's course.... to abide by the existing rules, and to avoid the creative 3 day plan to "Fix it". Instead of leaving the revaluation of the mysterious bank assets to the same people who built the problem, we should do it by using government personnel without a vested interest in the results.
My feeling is that if we are going to spend the money, it should go towards making the innocent victims whole.
As far as "Fixing the System"? I believe that the private sector will find a way to return to the market economy, and that it would be better built from the ground up, than by Government intervention.
Lindsey, I'd love to see an accounting of how much you spend per homemade loaf. I have a Goodwill bread machine ($4) and we love the fresh bread, but I am not really sure if I'm saving much or any money.
Then again, I don't have a membership at a warehouse store so I have to buy the flour and yeast on sale at grocery stores.
I just recently heard about the Walgreens free-after-rebate deals, and I'm going to start incorporating those into our shopping routine soon. I have a road warrior husband too, and we've completely given up buying shampoo, bath soap, or conditioner. We just use whatever he brings home. He's now well trained to snap up every bar and bottle available to him. I even make our laundry detergent with the free bars of soap he brings home.
I do water down the liquid hand soap we buy in bulk. I started doing this because I noticed that very often a pumpfull of the full strength soap would slip right off my wet hands and into the sink. Diluting it slightly fixed this problem. Besides, a single pump of full strength soap was more than I usually needed to clean my hands.
"The fact that the Great Depression was hard does not change the fact that it was necessary"
Really? Virtually every analysis I read and every historical account criticized the actions of the government then and said that it could've been avoided had the government not tightened the credit. How can you be sure that different policy in 1929 wouldn't have prevented it and maybe indirectly could've saved saved millions of people? The Great Depression spread abroad and hit other countries, specifically Germany, and, well.. you know how this turned out. Your post contains much general discussion, but very little concrete proof that different actions in 1929 wouldn't have prevented it.
It is also totally unclear - as pointed above and in many newspaper article - if all this money will be lost or if government ends up actually making money... Again, historically bailouts (like Chrysler's) worked out to the taxpayers' advantage. We don't know how this will turn out.
It also took over 20 years for stock values to reach the same level they were at in 1929 before the crash. Which means most of us would lose our savings. I am 49, so sorry if I am not that anxious. If you are younger, and maybe if you have all of your money in gold, you may be fine. Oh wait, there was gold confiscation in the 30s....
The fact that the Great Depression was hard does not change the fact that it was necessary (I'm sure I can only say this because I was born 50 years after it ended)
Nevertheless, when businesses (and consumers) become too leveraged and have engaged in too many risky behaviors, the market needs to correct itself. The sooner it does so, the smaller and less devastating the cleanup is.
In just about any scope of life, there are infinite parallels where consistent maintenance is better than remedial solutions How about: " A stitch in time saves nine?"
When the market is not allowed to correct itself, it merely postpones that pain to some point in the future. At this point, it looks that it may be quite a few years until we have to deal with the predicament since the government keeps shouldering more and more of the debt. As a result, our financial system won't be the only thing to collapse. Now that these are inter-twined, our financial system won't go down until our government systems collapse as well. I think most everyone can agree that this will be a bigger problem to contend with than just the downfall of our banks.
The reason our government is crippling our market system and pushing back reality is because we have elected officials, but the real power of our country lies in our corporations. They exercise so much power on our officials because they've all been bought and paid for to get them to the place of power they are. If companies can rig up a system that allows them to continue to make consistent profits while the government shoulders their risk, that is exactly what they will do.
My "forefathers" were not citizens of this country. They were Irish, and they only came here out of desperation, not desire. The peeps from the American Revolution hold no bearing with me whatsoever.
Taxation without representation is exactly what is happening in this country right now. I pay taxes to bail out the rich, foster graft, and keep the poor in an ineffectual, perpetuating cycle of debt and destruction. Do I get a choice where my taxes go? Heck no. Because I voted for the OTHER guy. The people in the government now do not represent my interests, yet still tax my income to the point that I live paycheck to paycheck. How is that fair?
And I don't think our system is better than any other political system out there. In theory, maybe. In execution, absolutely not. I would rather be Finnish at this point, not to put too fine a point on it.
If I could afford to emigrate now, I would. But I can't.
What good is the right to vote when your vote doesn't even count in a corrupted, outdated system? That's like saying you should feel lucky to have the right to vote in a dictatorship, but you still only get to vote for one person...
I will be voting one more time though, and hope my choice has the power to get America out of this mess before it's too late. If not, I will be in Canada before the next four years are up, faster than you can say Ontario.
I have roughly forty dollars to my name after paying my bills this week. That does not include gas or groceries, just rent and utilities. I have $16 dollars in my savings account and almost $1,900 dollars worth of credit card debt.
I can't afford groceries of any kind on this paycheck, so I'm going to have to eat rice, ramen, and any other canned goods I can scrounge out of my pantry.
I don't work a minimum wage job. I make $36,000 dollars a year. And I *still* live hand-to-mouth. Needless to say, the national economy scares the bejeezus out of me, even though I work in the defense industry.
So would I sell my vote, even though I think the current regime is unbelievably corrupt? Absolutely. $2000 bucks would be my price I think. Enough for me to pay off my debt, buy milk, and buy gas.
At this point I can't really afford political ideals...
Fantastic concept! And, up to now I just thought I was in my second career -- blogging -- but I think you're right b/c this is exactly what I would do if I was retired! Like you, Nora, I drastically reduced my spending and sold a lot of stuff (and, like your boyfriend, I aggressively paid off huge debts in a short time with that money), so I am thrilled to, at age 42, be living the life that I used to only dream of living when I'm 65! : )
Nothing can be better than a positive note. In times like this, we really need uplifting news. It is also important to count our blessings, not just focus on the recent disaster. And enjoy what those blessings are.
I see retirement as a whole new beginning, not an ending or a winding down of things. I like your way of thinking though. If I had the funds to do the things I want to do at retirement, I would definitely do them.
I am currently trying to figure out a way to fund my first piece of real estate, and get renters to start making some passive income.
Another suggestion is to do a co-birthday party. My son and one of his friends have a birthday one day apart and they are in the same classroom - so many of the same kids will be invited to both. So this year rather than making sure we don't schedule their birthdays on the same day we're celebrating it together. It definitely makes it cheaper and a lot of fun. Not to mention I will only have to do half the work too!
@Philip Brewer - I agree with what you said. "punish the wrongdoers" was tried in 1929 and it lead to the Great Depression. Moral principles are all great, but failing financial institutions aren't exactly the same as failing local bookstores. There is a huge effect on the economy and on our jobs. Yours and mine and many people who had nothing to do with this mess in either as a lender or as a borrower.... As to the "artificially low risk" - how is having your company taken over by the government is a low risk? There is a new CEO at AIG.
Also, mutual funds are major holders of AIG debt, not just banks. People who own these mutual funds are you and me in our 401K. Letting AIG fail, would've hurt our money as well.
Also is getting a loan at 11%+ and losing 80% of the company such a great bailout? I read the link posted by lghbob, but it is one person's opinion. Wall Street Journal and other papers' views are different - . One listed the break up value of AIG to be 150 billion; also that the sale of the couple of its profitable businesses could raise enough to repay the government's loan. CNBC thinks the government gets a great deal and may actually make money. We do know that the government did end up making a lot of money when they bailed out Chrysler in 1980 giving them money in exchange of stock options. At the time Chrysler stock was worthless; when the company rebounded, the government made money. We really don't know what is going to happen now.
Same with bad debt - the issue will be the price that will be determined on a reverse auction. The price may end up being 40 cents on each dollar or less. Depending on how many loans will default and on the final price, we don't really know how much of our money will be lost or if the deal will end up making money.
Besides, when banks fail, FDIC takes over. Isn't FDIC' money also taxpayers money? If FDIC reserves dry up, the government will need to spend more taxpayers money or print more money. Either we pay for bailout or we pay for deposits at failed banks via FDIC.
I have gotten nice shampoo and hair products like mousse/makeup/soap/body wash and lotions like eyecream at the 99Cent Store! I have also gotten good deals on sale at places like Ross and T.J. Maxx. There are also discount deals on the internet. Whenever I see a good deal, I buy in bulk to the extent I can at the moment. I am still working on a stash of colored shampoo/conditioner from a dollar store a few years ago!
We have also gotten items on clearance/sale at both the grocery and drug stores. The 99 Cent Store has even had some nice small colognes...Again, I am still working on a cache of cologne I got a few years ago. You can even find toiletries at yard sales and thrift shops(new, unused stuff, too). Just pick up deals when & where you find them!
And remember that there are lower-priced "teen" lines of makeup like Wet N Wild that have nice inexpensive lipstick and other makeup. Especially good deals when they are on sale (not too much over a dollar!). I stock up on the colors I like then. And you could check out the E.L.F. makeup collection on the net - quite inexpensive!
There are even deals on Avon products! Check those out, too!
The part of this whole sad story that bothers me the most, is that no one except a few serious bloggers with a legal background, have even suggested the mechanics of an alternative to the bailout.
Do you think it's because there "IS" no alternative?
My personal vendetta rests on the rules change... midstream, so to speak. After working my way to and through retirement with extra conservative savings through FDIC guaranteed (low interest) IRA's and IBonds, I look at others who bet on high risk... lost the bet, and now are being saved... What will the NEW RULES be?
Life, Liberty, and the Pursuit of happiness... I don't remember the word "guarantee".
Remember Jean Valjean? Prison for theft of a loaf of bread. And now, conciousless bankers and manipulators who have stolen our future, and the futures of our children... and no one yet, at any level of government has mentioned the word "JUSTICE".
by the way.... total cost so far (including the $700Bn) = $15,000 per American Family.
One reason capitalism works is that entrepreneurs risk their own money, property, time and effort in the hope of reward, and the awareness of risk leads to a certain degree of caution when it comes to taking on enterprises.
But when you throw tax rebates, government subsidies, and a history of governmental bailouts into the mix, you cut that risk to the point where people get both careless and greedy. Take off the safety brake of a reasonable degree of government regulation and watch out!
High reward, artificially low risk and--surprise--we have the kind of irresponsible behavior we're been seeing in the lending and capital markets for years.
And now, another bailout? I would just like to know if the managers and CEO's responsible for marching their companies off the cliff are going to be left with nothing, like so many ordinary Americans who are seeing their homes and savings disappear....or are those who played financially roulette with investors' and depositors' money going to walk away, their pockets full of chips, while the American taxpayer gets shafted once again?
I was around for a while in the aftermath of the depression (which really didn't end until 1954 when the market regained its 1929 highs). While we didn't live in tents, there were many days when potato peel soup was featured on the household menu du jour.
Interesting about the FDIC reserves... in fact, they're already gone... as is the Pension Benefit Guaranty Fund, the Social Security Fund, and the Medicare/Medicaid fund. They exist on paper, but in reality the funds will come from the same place the "bailout" funds will come from. DEBT.
About AIG... As far as I can tell, no one knows how many dollars are involved. Since AIG was working with derivatives, and swaps, no one has been able to say just how far reaching their transactions went.
The push is to "Save the Banks", to "Save the Brokers" and maybe to "Save the Foreign Investment Banks. And so far, Mr. Paulson et al, have not said that the $700B would fix the problem.. Estimates go to $3.6 Trillion.
We DO have laws that cover bankruptcy, and procedures to follow to insure the residual assets.
This is very complex, and there are no certain answers. Given that, my personal feeling is that putting off the inevitable will result in compounding the problem. Had we taken the "hit" back in 2003, it might have been much , much less than it is today.
So, I'd prefer to let nature take it's course.... to abide by the existing rules, and to avoid the creative 3 day plan to "Fix it". Instead of leaving the revaluation of the mysterious bank assets to the same people who built the problem, we should do it by using government personnel without a vested interest in the results.
My feeling is that if we are going to spend the money, it should go towards making the innocent victims whole.
As far as "Fixing the System"? I believe that the private sector will find a way to return to the market economy, and that it would be better built from the ground up, than by Government intervention.
but that's
my opinion only
Thanks for that tip. We have done it in the past for the kids. They use WAY too much hand soap, and this makes sure they don't abuse the privilege.
Linsey
Lindsey, I'd love to see an accounting of how much you spend per homemade loaf. I have a Goodwill bread machine ($4) and we love the fresh bread, but I am not really sure if I'm saving much or any money.
Then again, I don't have a membership at a warehouse store so I have to buy the flour and yeast on sale at grocery stores.
I just recently heard about the Walgreens free-after-rebate deals, and I'm going to start incorporating those into our shopping routine soon. I have a road warrior husband too, and we've completely given up buying shampoo, bath soap, or conditioner. We just use whatever he brings home. He's now well trained to snap up every bar and bottle available to him. I even make our laundry detergent with the free bars of soap he brings home.
I do water down the liquid hand soap we buy in bulk. I started doing this because I noticed that very often a pumpfull of the full strength soap would slip right off my wet hands and into the sink. Diluting it slightly fixed this problem. Besides, a single pump of full strength soap was more than I usually needed to clean my hands.
"The fact that the Great Depression was hard does not change the fact that it was necessary"
Really? Virtually every analysis I read and every historical account criticized the actions of the government then and said that it could've been avoided had the government not tightened the credit. How can you be sure that different policy in 1929 wouldn't have prevented it and maybe indirectly could've saved saved millions of people? The Great Depression spread abroad and hit other countries, specifically Germany, and, well.. you know how this turned out. Your post contains much general discussion, but very little concrete proof that different actions in 1929 wouldn't have prevented it.
It is also totally unclear - as pointed above and in many newspaper article - if all this money will be lost or if government ends up actually making money... Again, historically bailouts (like Chrysler's) worked out to the taxpayers' advantage. We don't know how this will turn out.
It also took over 20 years for stock values to reach the same level they were at in 1929 before the crash. Which means most of us would lose our savings. I am 49, so sorry if I am not that anxious. If you are younger, and maybe if you have all of your money in gold, you may be fine. Oh wait, there was gold confiscation in the 30s....
The large house where I grew up 20 years ago saw its property tax increase from about $3,000 to over $12,000 in the last 20 years.
Mom sold it for $550,000 back then, and it recently sold for $1.1 million.
I'd hate to think what property taxes will be on it 20 years from now.
The fact that the Great Depression was hard does not change the fact that it was necessary (I'm sure I can only say this because I was born 50 years after it ended)
Nevertheless, when businesses (and consumers) become too leveraged and have engaged in too many risky behaviors, the market needs to correct itself. The sooner it does so, the smaller and less devastating the cleanup is.
In just about any scope of life, there are infinite parallels where consistent maintenance is better than remedial solutions How about: " A stitch in time saves nine?"
When the market is not allowed to correct itself, it merely postpones that pain to some point in the future. At this point, it looks that it may be quite a few years until we have to deal with the predicament since the government keeps shouldering more and more of the debt. As a result, our financial system won't be the only thing to collapse. Now that these are inter-twined, our financial system won't go down until our government systems collapse as well. I think most everyone can agree that this will be a bigger problem to contend with than just the downfall of our banks.
The reason our government is crippling our market system and pushing back reality is because we have elected officials, but the real power of our country lies in our corporations. They exercise so much power on our officials because they've all been bought and paid for to get them to the place of power they are. If companies can rig up a system that allows them to continue to make consistent profits while the government shoulders their risk, that is exactly what they will do.
My "forefathers" were not citizens of this country. They were Irish, and they only came here out of desperation, not desire. The peeps from the American Revolution hold no bearing with me whatsoever.
Taxation without representation is exactly what is happening in this country right now. I pay taxes to bail out the rich, foster graft, and keep the poor in an ineffectual, perpetuating cycle of debt and destruction. Do I get a choice where my taxes go? Heck no. Because I voted for the OTHER guy. The people in the government now do not represent my interests, yet still tax my income to the point that I live paycheck to paycheck. How is that fair?
And I don't think our system is better than any other political system out there. In theory, maybe. In execution, absolutely not. I would rather be Finnish at this point, not to put too fine a point on it.
If I could afford to emigrate now, I would. But I can't.
What good is the right to vote when your vote doesn't even count in a corrupted, outdated system? That's like saying you should feel lucky to have the right to vote in a dictatorship, but you still only get to vote for one person...
I will be voting one more time though, and hope my choice has the power to get America out of this mess before it's too late. If not, I will be in Canada before the next four years are up, faster than you can say Ontario.
I have roughly forty dollars to my name after paying my bills this week. That does not include gas or groceries, just rent and utilities. I have $16 dollars in my savings account and almost $1,900 dollars worth of credit card debt.
I can't afford groceries of any kind on this paycheck, so I'm going to have to eat rice, ramen, and any other canned goods I can scrounge out of my pantry.
I don't work a minimum wage job. I make $36,000 dollars a year. And I *still* live hand-to-mouth. Needless to say, the national economy scares the bejeezus out of me, even though I work in the defense industry.
So would I sell my vote, even though I think the current regime is unbelievably corrupt? Absolutely. $2000 bucks would be my price I think. Enough for me to pay off my debt, buy milk, and buy gas.
At this point I can't really afford political ideals...
Oh, I forgot to mention how I paid down all that huge debt. I wrote a post about it called "How I Paid Off $50,000 of Debt in One Year" at http://shanelyang.com/2008/04/23/how-i-paid-off-50000-of-debt-in-one-year/ Thanks for the excellent post! Very well written and to the point!
Fantastic concept! And, up to now I just thought I was in my second career -- blogging -- but I think you're right b/c this is exactly what I would do if I was retired! Like you, Nora, I drastically reduced my spending and sold a lot of stuff (and, like your boyfriend, I aggressively paid off huge debts in a short time with that money), so I am thrilled to, at age 42, be living the life that I used to only dream of living when I'm 65! : )
Thanks for all of the responses. I can see the whole picture much better now.
"(sticker tag) was rejected by one child, shortening its life at the party."
oooh, that seems a bit harsh :p I guess no one will reject the games next year.
Great post Nora, I love that, reengaging.
We are 15 months into our 5 year plan, paying off our mortgage, debts and looking to reengage!
Nothing can be better than a positive note. In times like this, we really need uplifting news. It is also important to count our blessings, not just focus on the recent disaster. And enjoy what those blessings are.
Way to go! Thanks for a very good article.
Yes old bills are still legal tender and rejecting them would certainly be bad for business.
Great article!
I see retirement as a whole new beginning, not an ending or a winding down of things. I like your way of thinking though. If I had the funds to do the things I want to do at retirement, I would definitely do them.
I am currently trying to figure out a way to fund my first piece of real estate, and get renters to start making some passive income.
- Jack Rugile
Simple Sapien
Another suggestion is to do a co-birthday party. My son and one of his friends have a birthday one day apart and they are in the same classroom - so many of the same kids will be invited to both. So this year rather than making sure we don't schedule their birthdays on the same day we're celebrating it together. It definitely makes it cheaper and a lot of fun. Not to mention I will only have to do half the work too!
@Philip Brewer - I agree with what you said. "punish the wrongdoers" was tried in 1929 and it lead to the Great Depression. Moral principles are all great, but failing financial institutions aren't exactly the same as failing local bookstores. There is a huge effect on the economy and on our jobs. Yours and mine and many people who had nothing to do with this mess in either as a lender or as a borrower.... As to the "artificially low risk" - how is having your company taken over by the government is a low risk? There is a new CEO at AIG.
Also, mutual funds are major holders of AIG debt, not just banks. People who own these mutual funds are you and me in our 401K. Letting AIG fail, would've hurt our money as well.
Also is getting a loan at 11%+ and losing 80% of the company such a great bailout? I read the link posted by lghbob, but it is one person's opinion. Wall Street Journal and other papers' views are different - . One listed the break up value of AIG to be 150 billion; also that the sale of the couple of its profitable businesses could raise enough to repay the government's loan. CNBC thinks the government gets a great deal and may actually make money. We do know that the government did end up making a lot of money when they bailed out Chrysler in 1980 giving them money in exchange of stock options. At the time Chrysler stock was worthless; when the company rebounded, the government made money. We really don't know what is going to happen now.
Same with bad debt - the issue will be the price that will be determined on a reverse auction. The price may end up being 40 cents on each dollar or less. Depending on how many loans will default and on the final price, we don't really know how much of our money will be lost or if the deal will end up making money.
Besides, when banks fail, FDIC takes over. Isn't FDIC' money also taxpayers money? If FDIC reserves dry up, the government will need to spend more taxpayers money or print more money. Either we pay for bailout or we pay for deposits at failed banks via FDIC.
I have gotten nice shampoo and hair products like mousse/makeup/soap/body wash and lotions like eyecream at the 99Cent Store! I have also gotten good deals on sale at places like Ross and T.J. Maxx. There are also discount deals on the internet. Whenever I see a good deal, I buy in bulk to the extent I can at the moment. I am still working on a stash of colored shampoo/conditioner from a dollar store a few years ago!
We have also gotten items on clearance/sale at both the grocery and drug stores. The 99 Cent Store has even had some nice small colognes...Again, I am still working on a cache of cologne I got a few years ago. You can even find toiletries at yard sales and thrift shops(new, unused stuff, too). Just pick up deals when & where you find them!
And remember that there are lower-priced "teen" lines of makeup like Wet N Wild that have nice inexpensive lipstick and other makeup. Especially good deals when they are on sale (not too much over a dollar!). I stock up on the colors I like then. And you could check out the E.L.F. makeup collection on the net - quite inexpensive!
There are even deals on Avon products! Check those out, too!
I haven't bought toothpaste since I started requesting the samples listed on the freebies for moms blog
Everyone can benefit from this book not just families. and everyone should live like the book advocates: recycle, reuse, educate
I just can't believe you thought "Strange WIlderness" looked good...
The "laughing" comment was from the Aussie, but there's a lot of sentiment out there that agrees.
http://www.alternet.org/workplace/99660/wall_street_is_licking_its_chops_at_the_bush_team's_multi-hundred_billion_dollar_giveaway_plan/?page=entire
The part of this whole sad story that bothers me the most, is that no one except a few serious bloggers with a legal background, have even suggested the mechanics of an alternative to the bailout.
Do you think it's because there "IS" no alternative?
My personal vendetta rests on the rules change... midstream, so to speak. After working my way to and through retirement with extra conservative savings through FDIC guaranteed (low interest) IRA's and IBonds, I look at others who bet on high risk... lost the bet, and now are being saved... What will the NEW RULES be?
Life, Liberty, and the Pursuit of happiness... I don't remember the word "guarantee".
Remember Jean Valjean? Prison for theft of a loaf of bread. And now, conciousless bankers and manipulators who have stolen our future, and the futures of our children... and no one yet, at any level of government has mentioned the word "JUSTICE".
by the way.... total cost so far (including the $700Bn) = $15,000 per American Family.
my opinion only
One reason capitalism works is that entrepreneurs risk their own money, property, time and effort in the hope of reward, and the awareness of risk leads to a certain degree of caution when it comes to taking on enterprises.
But when you throw tax rebates, government subsidies, and a history of governmental bailouts into the mix, you cut that risk to the point where people get both careless and greedy. Take off the safety brake of a reasonable degree of government regulation and watch out!
High reward, artificially low risk and--surprise--we have the kind of irresponsible behavior we're been seeing in the lending and capital markets for years.
And now, another bailout? I would just like to know if the managers and CEO's responsible for marching their companies off the cliff are going to be left with nothing, like so many ordinary Americans who are seeing their homes and savings disappear....or are those who played financially roulette with investors' and depositors' money going to walk away, their pockets full of chips, while the American taxpayer gets shafted once again?