In the end I have faith in our system and our economy and it will heal but watching the planners pick up their phones is kind of painful right now.

Get screwed, get screwed, or get screwed more.

I’ll take #1, because it screws ME less. Yes, others might get screwed too, but since we’re all going to get screwed, at least I’m not getting stuck with #3 while others get #0, not getting screwed.

And one time that it did not help the markets – in 1929, it backfired in a really major way. Also, some industries bailout (like Chrysler’s in 1980) did earn money for the government.

Incidentally, 1929 was also in part caused by credit i.e. margin trading. It was also a bubble bursting. Yet the burst took everyone with it.

Incidentally, you noticed how the bailout talks affect oil prices. Do you also notice how markets react? Incidentally, company share price doesn’t just affect the investors, it affects the company itself. Company can use it shares, for example, to finance expansion. When the shares fall, the company is affected. Did you notice that it’s not just the banks whose shares have taken a beating lately? Good solid companies that have nothing to do with real estate are suffering too.

There were other reasons for the oil jump last Friday – options expiration and short squeeze. The prices fell down Monday morning long before there was any news of bailout. Yes, the oil fell when the talks appeared stalled, but since most on wall street still believe the some form of bailout will go through, it is not entirely clear. Also, the reason for oil falling is the fear of global slowdown. Could it be that this is the one of the reasons for oil going up – that the bailout can help the economy and prevent global slowdown?

As to credit, you are really simplifying. Yes, maybe some people buy some things they cannot afford and it improves the balance sheet of some merchants; but it doesn’t do much for other industries like a large computer company selling its hardware to banks. Nor does it affect much outside of the US since most people in China or India don’t use cards. Yet, this crisis affects their economy too. And yes, real estate bubble was caused by easy credit. The problem is – when it collapses, it takes a lot of us with it.

Additionally, not all credit is bad. There is credit that some people use to live beyond one’s means and there is credit all businesses rely on for day-to-day operations. Has always relied on. Imagine a company that employs 1000s of people and sells and rents some equipment to other companies. Every two weeks they need to pay salaries, yet they earn income when they sell equipment and maybe when the money they get for rental comes. The money for contracts and sales don’t come at exactly 2 weeks interval. So what they do is to borrow money e.g. from a bank, then pay the loan when they get the money and invest the rest in the business. What do you propose they do, keep payroll money on a checking account earning 1% instead of investing in the business? Do not buy parts for the equipment until you actually make a sale? But if you don’t buy parts you cannot build whatever you are selling, right? No company other than maybe your local bagel shop can operate without credit.

Similarly, transportation companies get money when they deliver something, but they need to pay people and to pay for gas before they can make the delivery. So they borrow to cover the expenses, make the delivery, then repay the loan and invest the rest in future transportation means that can bring them more money. If they cannot get credit, they cannot pay their people, so they cannot make the delivery. This is what is happening right now world-wide as the link I included in my post above shows. Note that these companies have absolutely nothing to do with the US or mortgages. But because banks are afraid to loan money now, every business is hurting. It is a whole lot more serious that you realize.

Similarly banks don’t keep your deposit in a vault. They also invest it e.g. in mortgages. If too many people come in to withdraw money, more than they have inside a branch, they borrow from another bank. Then they repay. If many people try to withdraw and the bank cannot get a loan, it goes under. This causes further credit problems. Not to mention massive unemployment.

@Preston, the bailout is meant to protect others – our economy, our jobs, our savings. I personally couldn’t care less if some people who bought places they cannot afford lose their homes. IMHO, they’ve never owned them to begin with.
But foreclosures affect businesses. This credit crunch affects businesses many of which had nothing to do with mortgages. There are less orders for home improvement, for example, so companies like Home Depot suffer.

Your idea about increased police patrols doesn’t really do much — police also has budget. Plus when neighborhood becomes less attractive, education suffers as well. People who have been responsible can’t move because nobody wants to buy their homes.

That being said, ANY “bailout” should go to protect those who are still in their homes from that sort of activity (squatting and whatnot). Increased police patrols for those neighborhoods, perhaps.

For those only concerned with financial matters, how much do foreclosures & vacancies amplify the losses on everything we are backstopping? The paper losses feed on themeselves, but you could argue there is a natural bottom somewhere. Fine. What about the physical structures which give meaning to the paper? If they are neglected, vandalized or totally gutted, where is our ROI?

Perhaps folks who are overly concerned with home value need to put things in perspective: You’re getting exactly what you agreed to.

That is it. I don’t want to get into a theological discussion, but if you swing that way (and hey, polls show most of the US does): Matthew 20:1-16 explains it just fine.

The folks get what they agreed to. It isn’t about fairness, it is about getting what you signed on for. The folks who put their money in the stock market signed up for that (like it or not). The folks who bought homes signed up for it. The folks who wrote bad loans signed up for it.

Yes, there are now more people invested in the stock market. Doesn’t it also mean that more people get to lose their money and savings when the market goes down? It seems to me that the fact that we have more people invested in the market would mean that the effects of the market continuous decline may have a stronger effect on everyone and may cause panic. Why do you think more people invested can make this situation better than in 1929?

Yes, the world is more interconnected. But if you notice, there is a global slowdown everywhere. Credit freeze affects everyone. In my post above I posted a link that shows the effect of this on the shipping industry world-wide. This is just one industry example, but what I’ve seen there – and I own a couple of stocks – is that good solid companies, that have been showing excellent earnings and that have contracts at a specific price going as far as 2010 and 2011 lost a lot of their value. Stock value affects companies.

Every crisis is different. So, of course today is not 1929. But it doesn’t mean that what happens today is less serious or cannot have similar devastating effects.

Sean I agree with you on 1. and 3. I am ambivalent about 2. for the reasons mentioned by Leslie: yes, these owners made bad decisions and are largely to blame for this situation. But falling home prices and foreclosures affect all of us and contribute to further decline. Without the bailout even for some homeowners, we are likely to lose a lot more.

This is just one industry, but do you seriously think other industries will not be affected. Think what will happen if this continues.