Crisis-Related Financial News

A few pieces relating to the current financial crisis in America:

• After the hurricanes, relief fundraising stumbles -- Key quote: "Across the board, relief organizations report that they are struggling to raise funds to pay for their operations in Texas and Louisiana, where thousands of people remain in shelters after the storms. The biggest reason they cite is the dearth of media coverage, which has been diverted by a raging financial crisis and presidential elections."

We haven't cut back on our giving -- in fact, we're way ahead for the year so far. But I can see how "helping others" could take a backseat when so many people are uncertain about their personal futures.

• Warren Buffett Tells CNBC He Wholeheartedly Supports Bailout Plan -- I'm not sure what to think of the Bush bailout plan. My general leanings are toward less government intervention and letting the free market run its course. Then again, if $700 billion saves us much, much more than that, isn't it a "good deal"? I don't know/understand all the issues so I really can't say. But someone I really respect likes the plan. The details:

"The Bush administration's controversial financial bailout proposal may be getting a heavy dose of criticism today from angry lawmakers on Capitol Hill, but Warren Buffett tells us he wholeheartedly supports the plan. He told CNBC's Becky Quick over the weekend, 'It's what I would do if I were there.' "

Buffett has no love for Bush, so he's not supporting the plan out of loyalty of any sort. Just having him come out in favor of the effort makes me feel better about it (though I'm still uncertain.)

• A $25 Billion Lifeline for GM, Ford, and Chrysler -- "With Congress preoccupied with the massive, $700 billion bailout plan for the financial industry, General Motors, Ford, and Chrysler have finally secured Part One of their own federal rescue plan. A bill set to be passed by Congress and signed by President Bush as early as this weekend—separate from the controversial Wall Street bailout plan—includes $25 billion in loans for the beleaguered Detroit automakers and several of their suppliers."

Yikes! How did I miss this? What's our government up to? Are they crazy? I can see that we might need ONE car manufacturer for national security purposes (aren't they used to make tanks/other vehicles in case of a major war?), but we're giving money to all three? And is Chrysler even a US company anyway?

• Your insurance policy is — probably — safe -- Good news for AIG policyholders.

• The Top 10 Foreclosure States (as of August) -- My state comes in at #5. Yikes!

Comments

[Rod Ferguson]

I am wholeheartedly against the bailout plan in any form. We've been through these sorts of industry collapses before and have had no need to bail out the fallen industries. Remember back to the days of yore - 2001 and 2002. We had many very large companies (providing valuable services that impact the daily lives of average Americans, no less) go from global powerhouses to bankrupt shells in the span of weeks and months. Enron. WorldCom. Adelphia. Many, many others. The stock market dropped nearly six thousand points. Energy delivery distruptions were felt by all that winter, with natural gas prices shooting up 400% in some cases. High unemployment, low consumer confidence. A retraction in GDP - we were in recession. Hard times, yes. But, we didn't need to bailout Enron, WorldCom or the others. We let them fail, threw some folks in jail and other businesses took their place. It's the natural order of an economy.

Why is this time different? That isn't a question that has been adequately answered in my opinion. Yes, I've heard the fear rhetoric from the administration and the talking heads with stakes in the faltering or failing companies, but no real explaination. Just that if we don't so this, we'll suffer. There has also been no discussion of alternatives. I've thought of a couple just in the last few hours:

1) Bank Holiday. Shut down banking for a short time, send Fed auditors into those banks that the FDIC has on a watch list to look at their books, determine if they are solvent, then reopen those banks that are. *poof* Inter-bank lending confidence can be restored with minimal time and cost to the taxpayer.

2) Decrease the reserve requirements for 180 days. Drop the reserve ratio to 5% for the big guys and 1.5% for the rest for six months and send the auditors in again to figure out which ones will survive and which won't. Effectively, this will lock "mark to market" value to existing assets and give the banks time to figure out how to proceed. This won't interrupt normal banking for citizens, but will take more time and run a slight risk of some "gaming the market" during the grace period. Minimal cost to the taxpayer.

However, I don't think these alternatives will be dicussed as they do nothing to prop up the investment banks and their respective Boards (and, don't forget, Paulson still has around $500 million in Goldman Sacs stock that I'm sure he's not even considering while he's pushing for this bailout.)

I believe that we're going to suffer regardless of whether or not we bail these folks out. We're in a no-win situation here; either we nationalize mortgage debt and risk our foreign creditors losing appetite for our Treasury debt through dillution, hence having our own credit line cut off and we suffer a general economic meltdown (they are already saying as much), or we don't and we suffer slightly more specialized meltdown. The question is, do we want a meltdown with an additional trillion in debt obligations we didn't have last week?

[Mark B.]

FMF,

Most of the time I agree with you, but on your 3rd point above, regarding the loans to the Big 3, I must interject.

I live in Metro Detroit and we have been hit harder than anywhere else in the nation during this economic downturn. Sure, the Big 3 have made mistakes and they are paying for them.

However, the above plan from the government is a LOAN! Not a bailout. The government is loaning money to the Big 3 to be used 100% on developing more fuel-efficient vehicles. That's it. They can't use it for anything else. With gas prices sky high, we need more fuel-efficient vehicles, and we need them now. If we expect to end our dependence on foreign oil, we need the Big 3 to lead the way.

The government is loaning the Big 3 money at a discounted interest rate to allow them to research and develop things such as batteries, hybrid powertrains, fuel cells, etc. Let me repeat, the government did not GIVE $25b to the auto industry, they loaned it to them.

Fuel-efficient technology is going to be a major industry for many years to come. Do you want America to be a leader, or do you want us to have to buy that technology from Japan? The Big 3 can develop this technology, but the downturn has beaten them up so much, they cannot afford to invest in green technology that might not pay off for a decade or more. The gov't is merely helping them out.

[Jim]

Wow I hadn't heard anything about the $25B for the auto makers. At least the money is in the form of loans. And between the big 3 they employ around 250k people in the US so there are a lot of jobs at stake. Chrysler used to be part of Mercedes but they sold 80% of it to a private US firm named Cerberus in 2007.

Jim

[Mark B.]

FMF,

By the way, Chrysler is now owned by Cerebrus Management, a US private equity firm.

Your comments above are a tough shot for a Detroiter to take. You basically just said that our entire industry and city do not matter anymore and they should just be allowed to collapse, but since Warren Buffett things that the finance companies should be bailed out, then it is ok. ???

Can you tell that you touched a nerve here?

[Kevin]

Mark B - you actually think the Big 3 will use this to produce more efficient vehicles? They are already asking for waivers for the new fuel efficiency standards not set to kick in until 2020. Hyundai or Kia have already said they will meet it by 2015. What's wrong with that picture?

If it's going to be such a great industry in the future why weren't the Big 3 doing this the past 10 years instead of continuing to produce big, gas guzzling trucks and SUVs while the foreign car makers were gaining market share? Instead they buried their heads in the sand.

I'm all for supporting American companies, but not ones that are as horribly run as these three.

[Mark B.]

You wonder why your state is No. 5 in foreclosures? Think auto industry. The same industry you just trashed. Over 100,000 auto jobs have been lost in MI in the last 5 years. And each one of those jobs impacts several others.

Folks in Michigan never saw the dramatic real estate increases that the rest of the nation saw, then their property values dropped more sharply than the rest of the nation. Think of all the losses in CA, but without all of the gains first.

[FMF]

Jim/Mark --

Thanks for the corrections.

Mark --

Yes, I can tell. :-)

Overall, I think businesses should be allowed to fail unless there is some over-riding, compelling reason that they should be saved. The case for the bailout is that it would be more costly to NOT save them than it would be to do so (not sure that's true or not, but that's the argument.) In addition, the current thinking is that with this help, they would survive and recover.

I haven't seen the same case made for the automakers. Would it be better to NOT let them fail? I'm not sure. Do they have a good chance of recovering with the help? I'm not sure. It's just a hard case to make to most Americans. Then again, it's "only" $25 billion.

If you have an article that addresses these issues, I'd love to see it.

[Mark B.]

Kevin,

The Big 3 were horribly run, I will give you that. But that is not the fault of the 250k workers that make a living working for these companies.

Sure, management made bad decisions, but Americans were also buying the gas guzzlers, so the automakers are not entirely to blame.

Now America wants to "drop our dependence on foreign oil" without helping the very industry that can make the biggest gains toward that goal?

[FMF]

Mark --

I know that many/most of the foreclosures are in the Detroit area and am aware what's going on with the auto industry. I have two thoughts on this matter:

1. Thank you, Jennifer Granholm. It's not much help when the people of Michigan keep electing someone that knows nothing about running a state.

2. The auto companies aren't helping themselves any. Whether it's true or not (there's a lot of data that says it's not), the perception is that Detroit makes poor quality cars that don't last long. So who wants to pluck down $20k for something that's a dog when there are great coices from others for the same price? In other words, the Big Three have been out-marketed, out-designed, out-competed.

Not trying to be harsh here, but that's my take on the situation (though I'm willing to change my mind with contrary evidence.)

[FMF]

Mark --

"The Big 3 were horribly run, I will give you that. But that is not the fault of the 250k workers that make a living working for these companies."

Well, it kind of is. Isn't one of the reasons the Big 3 are having problems because their workers are paid so much more than what competitors' workers are paid?

[Mark B.]

FMF,

I will agree with your points above in that:

1) The automakers got "fat and happy" and the unions took advantage.

2) There were too many workers making too much money.

3) They lost focus of the future, and the market changed, they weren't ready.

4) They are paying dearly for it now (over 50% of jobs are now gone, stock in the toilet, etc.)

However, here are some other more positive truths.

1) The unions have taken MAJOR concessions that put the US autoworkers in line with market wages and benefits. (starting wage is now $14/hour)

2) The workforce has been trimmed to match need.

3) The domestic auto companies (especially Ford and GM)have just about equalled Toyota in almost all quality standards, but have suffered from their previous reputation. (You are in marketing, maybe you can help them change their image:-).

[Kevin]

Mark B -

America was buying "some" gas guzzlers, but obviously not enough. Employee pricing, rebates, etc have been going on for what 5 years now? Yet they kept producing those cars and didn't see the signs?

I do feel bad for the 250k workers, as I did for the local Ford workers that were laid off when the plant here in Missouri was closed and the Chrysler plant recently closed 1/2 the plant. But those same workers reaped the spoils of working for these companies for years with better than average pay and benefits with the same risks we all have. That's capitalism.

I am sick of all the corporate welfare going on in the name of "saving the economy". Most of all I'm sick of the government handing out more money by increasing the national debt that my kids and grandkids are going to have to pay off.

[Mark B.]

FMF,

I welcome the spirited debate!!! I love it.

Anyway, I have yet to find a truly "objective" article about this loan program (everything is so partisan these days).

The few anecdotes that I have found state something like this:

"Alternative fuels, batteries, hybrids, etc. are the future of the auto industry, and we have a choice, we can become dependent on a foreign nation (Japan) for these energy needs, or we can develop them right here in the US. This $10b (interest cost of this program) investment in the U.S. auto industry has the potential to yield a $100b per year industry."

I paraphrased the above.

Anyway, if I did not live in Detroit I would not be as spirited about this, I am sure. However, we are basically in a single city depression right now, and it is not pretty (houses are selling for $1, literally). It almost comes down to, do you want American companies, based in Detroit, to be driving the future of the auto industry, or do you want workers and investors in Tokyo leading the way?

[Mark B.]

Kevin,

What about the $700b bailout of Wall Street? They made poor choices, now they get help.

Detroit made poor choices, but their bailout is much, much less costly, and could make our nation more secure (energy independence).

[Bad_Brad]

If I honestly believed that this was just a one-time thing, for both the financial sector and the auto industry, I might be okay with it.

But if I believed that, I would be going against everything I have come to know about human nature and especially about the American mindset. Unless we feel the pain, and unless these businesses are forced to feel the pain, of bad decisions, we are never going to change our behavior. I know it seems like a slippery slope, but I really wonder, why don't we just have the government own (and run) our financial institutions and our automakers? That's the path we seem to be headed down.

[FMF]

Mark --

Ha! Maybe I'll call GM or one of the others and offer my services to turn the entire industry around!! ;-)

[Kevin]

Mark B - I'm with you on the $700 billion (my third paragraph in my last comment was in regards to all this mess in general), I don't agree with that one either. Especially since a lot of the money are going to Paulson's former company and probably a lot of his golfing/tennis buddies.

Any company that takes the bailout money should be forced to fire it's entire Board of Directors and C-suite people and start over. At least that would show some people the government was serious about change.

[Mark B.]

FMF,

Go for it, haha. It really does come down to marketing.

Ford, for instance, has shown that a couple of their vehicles rate equal to Toyota in quality and customer satisfaction and even have a cheaper price, however, they sell far fewer of them. How can you explain that other than perception, which comes down to marketing, correct?

[FMF]

Mark --

Yep. But it's hard to break a perception that's so ingrained -- especially when the purchase is a high-dollar one. Why take the risk?

[Mark B.]

Kevin,

The Big 3 had actually already fessed up for their mistakes, cleaned out the boardroom, restructured their businesses, laid off thousands, improved quality, etc. Their turnaround was being labeled an early success until gas prices spiked and the housing bubble burst and dragged the economy down.

The Big 3 were too early in their turnarounds to weather such a setback. Ford was poised to turn a profit in 2009, and was actually ahead of schedule, when the "perfect storm" of economic events stopped the progress.

They were forced to mortgage all of their assets to stay liquid. They are a much better company than they were 10 years ago, but they have had external forces too great to overcome.

[Jim]

FMF,

"Isn't one of the reasons the Big 3 are having problems because their workers are paid so much more than what competitors' workers are paid?"

Not so much. WHo's beating the 3 US makers right now? Toyota. My Toyota was made in USA and its harder and harder to find US built Fords, GM's or Chryslers.

The efficiency of production makes more of a difference in total vehicle costs.

THe US auto makers do pay their labor more, but not by that much. Average wage for GM is $31 an hour and Toyota its $27. Toyota vehicles take 28 hours of labor to make and GM takes 34 hours. So the difference in labor is about $300 difference per vehicle. But since each Toyota takes fewer hours they could still have lower labor costs if they paid their workers more than GM.

The big 3 US auto companies are just getting beat across the board. Interestingly Chevy is thriving in China. *shrug*

Jim

[Mark B.]

FMF,

They may never be able to overcome the sins of their past, unfortunately, because of the perception it has left behind.

Is America ready to embrace the Detroit 3 again, I hope so. If they are building quality, desirable vehicles, I sure hope the American public will embrace them.

Maybe the Chevy Volt will start to change the view of American cars.

[doog]

I am opposed to the "bail out." Let the free market dictate the winners and losers. Thin the herd.

[Jim]

Here's a reference on labor costs:
http://www.uaw.org/barg/07fact/fact02.php

"In 2006 a typical UAW-represented assembler at GM earned $27.81 per hour of straight-time labor. A typical UAW-represented skilled-trades worker at GM earned $32.32 per hour of straight-time labor"

"The total labor cost of a new vehicle produced in the United States is about $2,400,...This represents 8.4 percent of the typical $28,4513 price of a new vehicle in 2006."

They also discuss why the auto makers cite such higher numbers for labor costs. I've seen GM saying labor costs them $80 an hour. For that number GM includes anything and everything remotely associated to labor costs including : all benefits, all taxes, overtimne, vacation and holidays, pensions, the amortized cost of the kitchen sink in the break room. They also will throw in the cost of the pensions for retired workers as a labor cost, which is pretty bogus since it isnt' related to new car production.

Jim

[Jim]

Heres one more reference on wages for auto makers:
http://www.aftermarketnews.com/default.aspx?type=art&id=80833
"Toyota Motor Corp. gave workers at its largest U.S. plant bonuses of $6,000 to $8,000, boosting the average pay at the Georgetown, KY, plant to the equivalent of $30 an hour. That compares with a $27 hourly average for UAW workers, most of whom did not receive profit-sharing checks last year"

OK I'll stop doing google searches now. :)

Jim

[Jim]

"Let me repeat, the government did not GIVE $25b to the auto industry, they loaned it to them."

Banks didn't GIVE money to poorly qualified home buyers, they loaned it to them. How did that end up working out?

[3:58-PM-Jim]

(I should note that I'm not the same Jim that has been participating in this discussion already -- I'm the one that made the wisecrack at 3:58 pm. Sorry for any confusion.)

[Jake]

Note -- $700 billion is not the cost of the plan, it is the maximum amount of securities that can be held at one time. It seems highly unlikely that the ultimate cost would be in the same area.

[Rod Ferguson]

So, I decided to poke around the Fed to find out just how severe this credit squeeze is:

http://research.stlouisfed.org/fred2/

Hitting the Consumer Loans data:

http://research.stlouisfed.org/fred2/fredgraph?chart_type=line&s[1][id]=CONSUMER&s[1][transformation]=pch

(you'll probably want to select "percent changed" and shorten the timeframe to just a couple of years versus the last 50)

it looks to me like banks are lending to people just fine. Small downtick, but not as low as the dip in early 2007. Of course, the data only reflects until September 15th, so we must have had an enourmous drop in the last couple of weeks. I decided to look at the overall Credit of all Commercial Banks:

http://research.stlouisfed.org/fred2/series/TOTBKCR?cid=49

(because the data was updated Monday, and though contains all credit, should reflect the kind of momentous drop that would establish the need for a bailout. Here I saw that we did seem to be hitting a plateau on lending. If you will look at the Year Ago Change in Billions of Dollars, you will see a nasty-looking drop starting in about July (you'll also see the same sort of nasty drops at other times - look between 1998 and 1999 from July through July, for example). The same holds true on the Percentage Change from a Year Ago chart, but if you just look at the overall Percent Changed, it's looking pretty normal. You'll also see the same thing on all the Compounded Change charts. Yeah, we had a decrease in credit availability recently, but not anything extraordinary. It's not even hitting any sort of historical bottoms or even really returning to any mean; we're just not growing/lending as fast or as much as we were last year.

I did notice this, though:

http://research.stlouisfed.org/fred2/series/ADJSBASE?cid=50

(manipulate the dates and such to get a clearer picture of that unusual-looking spike at the end of the series)

and I'm not sure what to make of it. It *looks* like just the effect of the first few bailouts (this is the Fed Source chart; the assets the Fed holds to offset the currency in "circulation") where the Fed took assets and handed out cash, but the periods of the S&L collapse and the failure of LTCM didn't show this sort of spike (check percentage changes to see this). What is happening here, I wonder? Does it relate to the bailout? I don't know.

But, based on the reasons given so far as to why we need to do this, it doesn't look to me like the perpetrators of the bailout are being entirely truthful.

[mysticaltyger]

The underlying spiritual problems of this crisis are not being addressed.

I am not sure of all the issues involved either...but trying to prop up a corrupt system and run by a corrupt elite doesn't sound like a good idea.

I wonder if it wouldn't be better to have an economic crash so that we all come down to reality about what's important in life.

Here's an interesting link:

http://www.saintgermainfreedom.com/H_CURRENTEVENTS/ECONOMY/StGErmEconomy092108.html

[Sarah]

Warren Buffett just took a significant stake in Goldman Sachs...of course he's going to be in favor of the bailout.

[kitty]

" We've been through these sorts of industry collapses before and have had no need to bail out the fallen industries."
This is much bigger than what we had before at least since 1929. 2000s crisis mostly affected one industry. In S&L crisis, only a subset of banks were affected. Now it seems most banks are affected. A lot of analysts I heard describe this as the worst crisis since 1929.

"I wonder if it wouldn't be better to have an economic crash so that we all come down to reality about what's important in life. "
This was already tried in 1929. Sure, a lot of people came down to reality about what is important. Including those who had nothing to do with the stock market and crash. What followed had serious political implications as well, as the crisis spread to other countries and one of those countries that was hit the hardest was ... (you guess).

Rod Ferguson - interesting data. But it's not exactly current. They looked at some charts today on CNBC and it did look really bad. I think 2007 was still OK, it indeed got significantly worse during the last couple of weeks.

I think the alternative to the bailout is much worse. Also, when you talk about "punishing the guilty" think about how many of people who lose their jobs when banks fail are actually those responsible. Sure, executives are responsible, maybe those involved in mortgage applications. But there are many others - accountants, IT, actuaries, secretaries, financial consultants, brokers, tellers. All of these people lose their jobs. I know a couple of people who are unemployed now in tri-state area: a 50-something database administrator and a 20-something woman with a degree in Actuarial Sciences. Both of them cannot find a job -- too many like them unemployed. The 50-something guy isn't poor; he is depressed that he cannot find a job, but at least he has savings. The young woman hadn't worked long enough to save, but at least she has no debt and small amount of savings - she went to a (very good) state university and her parents paid. How many older people out there who have less money in savings? How many young people with student loans? And there will be more as more banks fail.

I also don't understand why everyone is so sure the bailout will not work. We don't know that. It has a good chance of working, maybe even making money. Chrysler bailout ended up making money for the taxpayers. Why wouldn't this one?

[kitty]

"But if I believed that, I would be going against everything I have come to know about human nature and especially about the American mindset. Unless we feel the pain, and unless these businesses are forced to feel the pain, of bad decisions, we are never going to change our behavior."
Whose behavior? Tellers on Wall Street? Computer programmers who worked for Lehman? What behavior they are supposed to change? Most employees of these banks had nothing to do with these bad decisions. Most Americans haven't taken bad loans: are those who are still renting, those who bought in the 90s, those who bought homes they could afford. What about employees of companies that, for example, sell computers to banks? Small businesses that may be struggling because they cannot get credit or because with so many unemployed nobody will be buying? Home Depot and its employees because few people have money for home improvements and few people are buying homes? What about you? Are you so sure your job is secure? What about people who will lose their savings?

What does it mean for businesses to feel pain? Is a business a one person?

As to learning from bad decisions, isn't it what the government is trying to do - learn from the bad decisions made by the government in 1929?

[Bad_Brad]

Whose behavior? Tellers on Wall Street? Computer programmers who worked for Lehman? What behavior they are supposed to change? Most employees of these banks had nothing to do with these bad decisions. Most Americans haven't taken bad loans: are those who are still renting, those who bought in the 90s, those who bought homes they could afford. What about employees of companies that, for example, sell computers to banks? Small businesses that may be struggling because they cannot get credit or because with so many unemployed nobody will be buying? Home Depot and its employees because few people have money for home improvements and few people are buying homes? What about you? Are you so sure your job is secure? What about people who will lose their savings?

What does it mean for businesses to feel pain? Is a business a one person?

As to learning from bad decisions, isn't it what the government is trying to do - learn from the bad decisions made by the government in 1929?

---------------------------------------------------------------------------

Whose behavior ... are you serious? Borrowers who borrowed more than they could afford, lenders who allowed them to do so, and investment banks who bought these things up and packaged them and sold them without any real recognition of the level of risk involved. I honestly can't tell if that question was asked in jest or not.

Let the borrowers who borrowed too much face the consequences - foreclosure, bankruptcy, financial pain. Let them learn a lesson, be better for it, and move on.

Let the others of us who have not borrowed too much benefit from this whole mess - we can now buy 3000 sq ft McMansions in suburbs across the USA (or 1200 sq ft condos with stainless steel appliances and granite counters in urban areas) on the cheap if we so choose.

Let the lenders who loaned too much face the consequences - go out of business or be acquired in totality or in parts by someone willing.

Let the lenders who behaved responsibly benefit from this whole mess - there is a lot of market share to be had now and in the future, with a bunch of lenders failing.

Let the i-banks who failed to understand the risks of the mortgages they were dealing with bear the consequences - no one wants to trade with you any more. Boohoo.

Let the i-banks who have not made this mistake benefit.

Why oh why is that so hard to understand?

Are we really so bound to the nanny-state that we can't just let those who made the right decisions (or abstained from the wrong decisions) benefit from that and those who made the wrong decisions face the consequences and learn?

[kitty]

"Whose behavior ... are you serious? Borrowers who borrowed more than they could afford, lenders who allowed them to do so, and investment banks who bought these things up and packaged them and sold them without any real recognition of the level of risk involved ... Why oh why is that so hard to understand?"

Why is it hard for YOU to understand that a bank is not one person or a garage-like operation that employs 5 people where every single one of them participates in all decisions. That some of these banks employ thousands of people that lose their jobs when a bank goes under? That most of these people who lose their jobs had no involvement in "buying these things up". Have you ever worked for a company that employs over 1000 people? If so, do you know all the decisions made by everyone in your company? What if some top executives of YOUR company made some bad decisions, do you think you deserve to be punished for it? Like lose your job, and not be able to find another one because there are too many companies like yours laying off a lot of people. I think it was totally clear from my post what I meant, but you chose to ignore it.

Let me make it simple for you, since you clearly cannot grasp it. Let's look at Lehman, for example. Lehman employed over 1000 people in different capacities. Some of these people worked, for example, in human resources and were involved in hiring decisions. H&R aren't normally asked their opinions about loans or securities. Others worked in back office writing computer programs that displayed payroll and account information - again they aren't on "need to know" list of decisions that don't apply to them; some designed user interfaces for such programs; some maintained systems. Yet others managed the database or network. Then there are accountants, actuaries, secretaries. Most of these people LOST THEIR JOBS when Lehman went under. Some may stay employed for a couple of months to integrate, for example, a computer system with the buyer's, but most lose their jobs. By the way, I know a few of these people personally, and no, none of them worked in lending or security trading. Since no bank in NYC is hiring, and many banks/insurance companies/brokerages are laying off people it is difficult for them to find a new job. You are willing to make all these people suffer because you want to punish a few executives? Is it suddenly fine in your book to punish thousands of innocents so that you can punish a few guilty ones?

On the other hand, those who are really responsible for these decisions - like top executives - are those who suffer LEAST OF ALL. They have already made millions and can now nicely retire. You want to punish them and you don't give a damn about average people who lose their jobs when it happens. Newsflash. You aren't punishing them, you punish those you deem "responsible".

Then there are companies that for example sell computers to banks. When a bank goes under, these companies lose a large customer. What do these companies do in this case? They cut expenses. Then they lay off people. Again, people WHO HAD NOTHING TO DO with this mess. Then there are companies that sell parts to these companies. This is a chain reaction, and eventually many companies that aren't involved in lending are affected.

Oh, and in case you don't know, unemployed people don't pay taxes. They collect unemployment. If they cannot find a job for a while and don't have savings, they may go on welfare. They also don't spend much money, so other businesses suffer. They also lay off people. Does this sound good to you?

Then there is impact on global credit and global economy. Do you know that the current credit freeze affects industries THAT HAD NOTHING TO DO with mortgages or even the US like for example shipping industry. http://www.guardian.co.uk/business/feedarticle/7830087 Tell me how is a Greek shipping company responsible for the US mortgage mess? Notice that the Greek CEO who is quoted in the article in a British paper has no reason not to be truthful - he can't exactly influence the bailout. This article by the way provides nice illustration to a post above where somebody claimed there are no problems with credit nowadays.

Are these companies and these industries also responsible for "packaging these things"?

Let's talk about homeowners. I couldn't personally care less if somebody who bought a place they cannot afford loses their home. As far as I believe, they haven't really owned it in the first place. But foreclosures affect neighbors who had been responsible; they affect the whole neighborhoods. They affect real estate prices in the US. Real estate prices fall, there are more foreclosures. This leads to more banks failing. These leads to other companies that sell stuff to banks to suffer. This leads to unemployment, and unemployed people don't buy too much stuff. Then more industries are affected.

"Are we really so bound to the nanny-state that we can't just let those who made the right decisions (or abstained from the wrong decisions) benefit from that and those who made the wrong decisions face the consequences and learn?"

Have YOU learned anything from history? Like from 1929? Your post sounds very similar to what was said then. Sure, these investors that lost money in 1929 may have well deserved to face the consequences of their actions. Except for a year later, a whole country had to face the consequences. Do you know that it took the Second World War to get the country out of the recession and that it took until 50s for the stock market to reach the same level it had in 1929? Not to mention that the whole of second world war may not have happened if not for the effects of the great depression on other countries. You talk about learning a lesson, tell me what lesson you've learned from this period.

This crisis is about a lot more than a few banks.

[Bad_Brad]

kitty - I think I can appreciate where you are coming from - you obviously don't get that I have worked for three different companies in the past ten years, all of which employ over 50,000. From the first, I was in fact RIF'ed. My lesson learned - even if you are doing your job well, it doesn't mean you are safe. You need to look hard at what your company is doing, what its financial results are, and whether or not what is going on is sustainable. If it's not, then the onus is on you as an employee to do something about it.

As for this crisis being more than about a few big banks, let me call BS. It is all about Bernanke and Paulson bailing out their friends on Wall Street who made bad decisions and now have bad balance sheets. No more, no less.

Otherwise, let's just agree to disagree.

[kitty]

Bad_Brad - so your point is that every employee of any of these companies had to figure out what was happening with their companies and find a new job. This is easier said than done. First, new jobs in a bank that does good financial decisions aren't necessarily available. Second, for somebody over 50 these jobs are more difficult to find. Third, I doubt it most people like tellers would have enough knowledge to read financial statements, learn about lending practices. Incidentally, were all details of lending practices available in company statements - this is an honest question because I don't know the answer. Even if they were, how many of us knew enough to take our equity investment outside of stock market last year? How many of us, regular people not financial specialists, really saw this coming three years ago and acted accordingly?

Sure we can agree to disagree - we are all entitled to our opinions.

Regarding its being an issue of a few banks. If this is the case, how come all indicators last week were showing that credit markets were frozen? http://money.cnn.com/2008/09/26/markets/bondcenter/treasury_prices/index.htm

Is top executive of a large Greek shipping company also on the take from Bernacke and friends (see link in previous post) when he talks about credit freeze hurting global shipping world-wide? He has nothing to do with the US or lending, nor does he have any assets to sell the US government. This is one industry, but isn't it fair to think that other industries have the same problem getting credit? If a large company like this one is having problems, what does this do to smaller businesses?

This is an article, by the way, that explains the credit issue. It is balanced in a sense that it also shows different opinions if a collapse is eminent, but it nicely explains the issues:
http://money.cnn.com/2008/09/28/news/economy/main_street_impact/index.htm

You are very sure that this is just about Bernacke and Paulson helping their friends. Is it because you actually looked into credit issues and whether they hurt small businesses, or is it because you simply dislike these guys and Wall Street?