1) Agreed! What they are also leaving out is that any addition to the national debt devalues our dollar. So.... when we add ~10% to the debt overnight (and continue to add to it by the hundreds of billions), how do we really feel bailed out? At this rate, we'll be like those African nations who have currency of 500,000,000 that you can't even buy a Mr. Goodbar with in about 20 years.

I think you've got a good summary, Dave. Did you see what happened to the price of oil today? Largest spike in one day- EVER. 25% hike at one point. Just more evidence these bumbling idiots have no idea what they're doing.

Don't forget one other major aspect of the problem- people buying houses at the top of the bubble, who couldn't even sell them at all without taking a loss in the tens, or even hundreds, of thousands of dollars. And almost no one is buying right now anyway.

2) Here is one reply that maybe brings a bit of comfort:

http://www.usnews.com/blogs/capital-commerce/2008/9/22/...

3) Nice link, I read the whole thing. I still haven't heard anybody explain why NOT doing anything will result is a super big financial crisis. Especially since spending $700 Billion doesn't guarantee a thing. What if 6 months after doing that we're back at the same place we are now? We're screwed, but $700 Billion more screwed than we would have been if we solved the problem in the first place.

Throwing money at this only seems like it will buy some time. If I had a lot of money in the bank, I'd probably liquidate some and build an armageddon shelter in my backyard. Unfortunately I will have to stick to my crawl space and Louisville slugger (thanks Sally!).

4) The bubble is one problem, but I think the biggest one was the short term low interest mortgages that weren't regulated at all. A lot of those were 2-5 years at less than 5%, then they jumped whole percentage points at a time when the term was up. That adds up to a lot of money that people never had. The lenders knew exactly what they were doing. How can they really expect someone to be able to pay 10% or more in mortgage after 5 years when they could barely make their payment as it was?. They deserve to fail and they should live in the sewers, but neither will happen.

The sad thing is that we will probably go through this, pay the price of a depression, and then forget about the real causes in a decade or two. I don't think we'll necessarily repeat the same mistakes, but there will be new ones, that are bred from the same irresponsibility and short-sightedness...and greed.

We tend to pile on regulation and non-sensical laws after we have made gigantic blunders, all the while ignoring basic economic education and perpetuating the next great fiasco. We need to not be so greedy, and we need to be angry, or they will continue to bail out multi-billion dollar corporations while people are starving in the streets.

It makes me sick.

5) Here's why I've gathered it's necessary: Without this money, bank after bank collapses and goes out of business. Fine, we say, it's their own fault!

That's fine until people (or more importantly, businesses - other banks included) need loans to do business and make money. With everything collapsing, or looking like it's on the verge of collapse, nobody will want to lend any money because it looks like odds are high they'll never see a dime back. So entities are hording their money - and the economy seizes up. (They stared to see this a week ago between many national reserves, so they all infused some cash into the system).

Debts continue to mount there is still all of that interest on existing debt after all, and before you know it we're printing more and more money to compensate so inflation goes through the roof. And then we look up and we're in the middle of The Great Depression II.

That's my take on it, but I'm just a computer guy.

6) I have been thinking mostly the same thing, Dave. Nice to hear someone else has similar thoughts.

7) Hank Paulsen, aka Col Kurtz, is given free reign. They dont even know how much money will be needed to swap the toxic debt that the banks hold.

Details are sketchy as to how much or who gets bailed out or the cost of the bailout because

"Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency"
needs more RICO.

Compare the size of bailout with the total amount of the economic stimulus package of a few months back.

8) I propose a government bailout for my student loans. I would then be able to purchase a house, thus starting a massive shift in the housing market, eventually solving the whole problem...

9) allison & randy - I like this idea - who do we write to to get it done?

10) Good point Alison & Randy! I could use a government bailout on my student loans and I am sure every other person would too! Let's write to Congress!

11) Dave and EJ, you've really made me feel like we're damned if we do and damned if we don't. I say we don't, then we're $700B richer.
Dave, I think we can house your family in our fallout shelter, but we can't fit you. Too tall. Sorry.

12) I have been very concerned about this too Dave. I think the writing was on the wall close to a year ago when Fannie Mae was forced to put several restrictions on mortgages higher than $417,000. That was a direct result of the interest-only and variable rate loans mentioned in your blog and Matt's comment. People got in over their heads (which was their own fault for not educating themselves on the terms of the loan) and now the banks are in over their heads.

I do not support the bailout. Its going to kill the dollar and our economy will suffer far longer than it would if we let them fall. We need a clean out and we need the banks to learn from this.

13) Mrs. Shoo, I really think it's a case of "damned if we do, damned worse if we don't". I'm concerned that if they decide to not go ahead with it now, the consequences will be far worse than if they hadn't brought up the idea in the first place. The Fed Chairman has already voiced his concern that this is completely necessary, so to now say "ummm, nevermind" would really cause problems, I think (but, I reiterate that I have no financial background whatsoever!)

One thing is for sure, they need to detail to us the measures they are planning on taking. Just saying they're tossing this big chunk of money into a corner and everything will be OK is insufficient. And if they do go through with it, get it right. Don't get everything passed for $700B and then come back in a month for another $200B. Be honest and just pass the bill for the Trillion people are really talking about.

14) For those interested, Bernanke and Paulson are about to testify to Congress about their plan, so you can hear it straight from the horse's mouth.

15) I don't support it simply because it seems too much like free money rewarding poor decisions. There needs to be some kind of accountability. Let the banks fail; it won't kill us; it won't be the end of the world; we'll just have to cope one way or another.
I should be an economist!
Not.

16) I agree with LG (and Dave). If you make bad decisions, if you are greedy, that is your fault, you should suffer the consequences.

However, I do not think it's fair to tell homeowners "tough luck" because they trusted a bank. Who would figure that a bank would give them something like that that might collapse the bank? This is far less homeowners faults and more banks faults - the bankers are educated and knew what they were doing, the homeowners just wanted a place to live and knew they could handle the mortgage they were told they would have. I say, help out the homeowners (based on what the original price of the monthly mortgage would be) and let the banks burn.

I too, should not be an economist.

17) This Housing Bubble began long before the Bush Terms because Banks and S&Ls were allowed to make Mortgage Loans. When my family returned from VA in 1984, I had to make some modifications to the house which we were moving into soon. I called a friend that was a Banker and because I owned the house Debt Free I would be able to get a loan through, and it would later be transfered to an S&L. I got a loan through another S&L for 10 years. When you have no Equity in the Property you are buying you are at Risk for Banks and Mortgage Lenders. Consequently, too many Borrowers in the past Decade have had no Equity, nor no Prior Knowledge of what the consequences could be. I would be willing to say less than 10% of the Head of Households on this Site know what the Total Cost of Household Operations are every month.

18) Why would you say that? I'm not sure I understand what you mean, Bean.

19) I mean that this whole Mortgage Mess required "Zero Commitment" by the Home Buyer and The Motgage Lenders. Greed has driven this whole situation from the local corner Realtor to the Chairman of Lehman Bros. who walked away with 161,000,000. Many of you ssight users are blaming Wall Stret for this. Well a lot of you were all too happy to invest money that you couldn't afford to lose when the prices were high, but now when the Market is hurting you are all too happy to blame George W. Bush, when in reality it wasn't Bush that caused it, it was GREED.

20) Bean, we know it was greed. But it wasn't the greed of many homeowners that just wanted to own a home. it's the greed of the men that walk away with 161,000,000.

And, last time a checked, Bush could probably be considered pretty "greedy".

I also think you might be overgeneralizing people on this site. I don't own a home, I couldn't afford one - but this still pisses me off. and People on there that have homes they can afford, well, they're pissed off too. Why do we and our children and our grandchildren have to pay for the mistakes and "greed" of others?

21) There's a big difference between responsibly owning a home, and not educating yourself enough to realize that you can't legitimately afford that home a few years down the road. It's on you, when you're signing all of those contacts and papers, to realize what you're getting yourself into.

Many people (and no, I'm not saying people on this site) did realize they only way they could afford rate increases was if their house values continued to skyrocket. It was a gamble, they lost. I agree with Bean - Greed. And, no, it wasn't a perceived greed of one man.

22) Certainly I am not as educated on this topic as many. In fact, I choose not to be, or I would probably get really pissed. But there is such a thing as corporate social responsibility and these companies did not practice that. By giving out these loans to these "greedy" many, the greedy few have made us all suffer. Had the loans not been available, would this have ever happened?

23) I cant believe what I am reading..... I can't believe that you guys are writing such conservative statements.

24) Most people tend to be a little Liberal;however, when their Assets begin to erode, they become Conservative because they want to know the real truth about what is happening to their Assets.

25) hey now, I've grown up a fiscal conservative. I believe in helping people in need. But $700 billion ... I'm gonna need a better explanation. This affects my (someday) children.

26) For years and years, the only way people could afford to own a home was to save for a very long time, and have very good credit. I didn't have either. I got 100% financing, and had a credit score in the 500's, and the house was in such bad shape that we barely even got a loan because of the low appraisal. I knew what I was getting into, and set out to work on my house with hardly enough cash to make it livable. I worked on it for hours everyday after work(which was hard labor as well) and every weekend, ate take-out more than I wanted to in a lifetime, and slept fewer hours every night to make up for the time that I didn't have. I did this for 6 months before we had power, water, and enough sheetrock to call it 'livable'. I've continued to work on it for 3 years since, and am getting close to having it 'done'. I created real equity in my home. I busted my ass day and night so I could live in a house, and in a neighborhood that I could afford. I make my payments on time, and my credit score has risen over 100 points in the last couple of years. Now, I feel bad for everybody that made a poor decision, or got bamboozled, but why should I have to back them up after I worked so hard for what little I have? I am thankful for the opportunity of owning a home, which is why I worked so hard for it.

I got a Zillow(online estimated real estate values)alert yesterday that said my house value has dropped 10k recently. I've actually added more value than that in the last month, so the reality is that this will make everyone's life much harder no matter the outcome, and it may not even matter how hard I worked on my home or how much better the neighborhood is because our house isn't an eyesore anymore.

27) Good points, Matt. As usual.

Bean and Will - it doesn't matter if what we're saying is conservative or not. And I am not blaming Bush for this crisis (only the unaccountable nature of his administration's proposed bailout). Liberals are sometimes conservative, and vice-versa. It's easy to think of a person as one or the other, but I'd say we all hold a mix of values from either side. That is one of the problems with the party polarization during election time, we draw lines and assume people are on one side or the other.

We're all in the same boat. It's just that some people are paddling the boat with bibles, and some people are padding with dinosaurs.

28) HA DAVE! I love my terradactyl oar.

29) Dave, Maybe you should write for The Onion. :)

30) Stockpile with coupons while you can. These bailouts are going to send prices through the roof! However, keep your eyes open for amazing deals. When the economy goes bad people start selling their stuff-Cheap. And, the stores will be competing for buisness bigtime which means more doorbuster sales.

I'm not a fan of the bailouts. I think it was like putting gum on a leak. They are just postponing the inevitable fall of our economy.

31) I agree Kaydee - and the delayed inevitable will be worse when it comes.

Glad I learned couponing now. I'll keep stockpiling...

I have noticed coupons have been a little weak these past few weeks though.

32) Hayley, do you have a Kmart? If so you need to email me!

33) I do, near where I get my oil changed: parks.hayley@gmail.com

34) It all goes back to being prepared for a rainy day. If food prices go through the roof, you better be prepared with your chickens, gardens, and guns. I'm coming to get you, Dave.

35) Will, I can only assume by saying "I'm coming to get you," you mean that you're going to come and save me and take me under your gun-toting wing (right as it may be). You obviously realize that I won't fit in any bomb shelters and also are keen to my lack of personal firearms. I will gladly accept a ride to everlasting salvation in your freedom van, which I can only imagine will soon take on an appearance slightly more akin to the A-Team van.

Speaking of 'akin,' did anybody else hear the news about Clay Aiken? OMG, he's totally gay. Like literally. And happily.

36) I've been calling him Gay Aiken for years. What do I win?

37) Good Blog, Dave. Over three years ago I worked for a relatively large bank in the area. There are some really "unsmart" practices going on daily. While I was there the bank started offering 40 year mortgages, with little or nothing down. Why does this make sense? How can anyone know that they can afford the same monthly payments for four decades?
Another problem, realtors who tell first time buyers that, "based on your income you should be able to afford "X" house." Word of advice - Take that figure, throw it out and try again with something half as high. I've got some other expenses like food, electricity, and gas for heat.
I'm not up for bailing out anybody! Try harder next time and don't screw up the whole operation..

38) Joe, your buddy Ron Paul had a nice essay on CNN today:
http://www.cnn.com/2008/POLITICS/09/23/paul.bailout/ind...

The more I keep thinking of this bailout, the more furious I become. It's totally retarded, for lack of a better word. There is plenty of criticism going around in Congress, yet nobody has stepped up to the plate in an effort to block the bill. I'm hoping that will change in the next day or two before this thing passes.

If we get sucked into a crap vortex because we didn't throw money at this problem, so be it. I'd rather fix this problem the right way than cover it up with money and unaccountability.

The Iraq war to date has cost about $550 billion (says Reuters). That puts this into perspective.

39) Oh boy, Dave. There are several better words you could use. I'm just going to pretend you said, "ridiculous" instead.

40) lol, me too.

41) No Dave... I'm not coming to get you was not meant as in me coming to save you. You have to save yourself, remember.... I am a far right wing nut job!!! I simply just meant I was going to come shoot you. Yay!!! I am going to ride my Donkey up there with my pellet gun and shoot you twice in the knee cap, give Courtney a High Five, and then of course I will give Ethan and Mia a double shot of espresso and 2 free puppies. How do you like that!?!?!?!

42) Will, your Shock 'N Awe approach will not work in Illinoise. Our state is nearing completion of a border-long "donkey ditch." I think you will find it quite effective and will appreciate its brilliance as you fall into your pit of doom and despair.

Oh and also hippies aren't allowed this side of the Mason-Dixon line. You're gonna have to shave off that hippy beard and change those hippy clothes and clean up your hippy image.

Who am I kidding. We love hippies. Especially gun-toting hippies on donkeys with rebel flags.

43) YYYYYYEEOOOOOOOOOWWWWWWWW!!!!!!!!!!!!!!

44) Hear, Hear! to this... http://www.youtube.com/watch?v=S27yitK32ds

45) That was a great video - thanks for the link. That chick has my vote for President!

46) Awesome. She knows this will be just like she remembers it was in the twenties. jk I'm glad someone has stood up to this.

47) All of the secrecy and 'you won't understand this because you're just simple-minded Americans' is exactly why I think this is mostly bs. It makes me wonder who is having their pockets lined and what the real motivation is. I do not trust the administration with change that I found on the street, much less 700 billion. I really hope that we will all stand up to this and demand some real information. I want to see their yachts and mansions on craigslist before I will get behind any bailout.

48) Matt, I listened to the congressional hearings yesterday about the bailout and the Fed Chairman and Treasurer aren't taking the mindset of "simple-minded Americans". Rather, the perceived secrecy is because right now they don't know details. Not that that really gives anyone a warm and fuzzy...

What I took away from watching:
* The problem is so large, impacting so many varying types of mortgage securities, that one single plan won't work for all of them - they can't all be treated the same.

* The plan is to purchase these bad mortgage securities, hold them for a while, then figure out the best way to sell them - presumably/hopefully/whatever in a better market where some money will be recouped. Apparently the difficult part will be figuring out how much they are really worth since they're all backed by a wide variety of callatoral.

* They repeated over and over and over that they want oversight and transparency. I wish the media would get this part right and stop portraying it as them wanting to go it alone.

* It sounds like they were asked for a general proposal on a plan of attack, and that's what they came up with in a week. Now they're being hammered for lack of details.

* It reminds of me of the movie Apollo 13 where they manually have to guide the LEM without computer assistance. Full manual. Except there are two guys at the helm here. :)

I highly recommend watching the parts where Bernanke and Paulson get to explain things. I think cspan.org has the video from yesterday.

49) If they don't know details then I have no idea why they'd be in a rush to pass a ginormous bill that we will be responsible for for decades, or generations. The whole shoot now, ask questions later mindset is what makes me uneasy. There will be some inevitable failures and financial downturns, so I would rather weather some of that right now and take a few weeks to hammer out what is really happening. The thing that scares me about taking too much time is that congress may turn this into a bill that is full of pork and unnecessary additions that eventually perpetuates the failings of government and ends up being more of a burden than a benefit. There has to be a balance, and right now, I think we are that balance. I will listen to the whole hearing when I get time this evening, but I heard a bit of it on npr, and what I was hearing didn't constitute much in the way of what I would call evidence or even a truly compelling argument to pass this thing right away without any more thought. It sounds a lot like the wmd argument to me right now.

50) I have a Bible in my right hand and a dinosaur in my left on my boat. This way, I can row faster.

51) Wow- I love that you all put in your three cents on this issue. I was all a-twitter over this issue as well, and then I looked asked around and one guy explained the "bad mortgages" problem kinda well. I don't know the fix for the whole thing, but I wanted to share this little bit that helped me understand things a little better.

Banks have to report their balance sheets and these balance sheets are used to rate them as a "safe bank" [Oh! sidebar- you should really know the ranking of your bank, I was told where you could check on it, but essentially if your bank is rated poorly, they are at risk to fail. Now your accounts should be FDIC insured so if you bank does fail you will still get your money back(up to $100k) there will just be a delay. end of sidebar] The current state of the rules says that your balance sheet must reflect the value of your assets as of today. Thats now really a fair way to value "paper" meaning loans because there is a limited and sometimes finicky market for people buying loans (ie the right ot collect the mortgage payment from the homeowner).

An illustration of this: Its like if you're super rich and you collect cars. You could buy a rare car and spend $2 million on it. If you had to value it, you'd like to think it's worth what you paid for it. However people willing to spend $2 million on a car aren't really plentiful, but they exist. Finding a buyer might take some time, but the item is still valuable.

So the bank, having valued a loan (or more likely, a bundle of loans) at todays price has to declare a much smaller value for the bundle even though, in reality they could get more for it given time.

Also, the rate of foreclosures and people defaulting on their loans are up, but they're not super high. I read somewhere that less than 10% of home loans are in default, so just statistically, if only 10% of a bundle of loans is "bad debt" there's still the 90% that's valuable. Yet, from what I understand, because of the value-right-now thing banks have to delcare value much less, like 50 or 60 cents on the dollar.

Its not an answer to whats wrong, and it's not illuminating to the whole sitaution, but I found this info enlightening. Hope that helps.

52) Good input, Lionheart. I'm reading Alan Greenspan's book right now to try and get a grip on this. I'll let you know when I get through all 563 pages. There's a bonus though - It has pictures!

53) Hi Dave,

Did you notice you could be getting a monthly tax credit for biking to work:

http://thelede.blogs.nytimes.com/2008/10/06/cyclists-at...

I don't know much beyond this article, but let us know what you find!