Monday, September 29, 2008

$700 Billion Bail Out (Not Useless Information but Information nonetheless)

So I was wondering how this enormous bailout is going to affect the average taxpayer and how it may or may not change our lives. So I found this interesting website that seemed to just offer information and not partisan commenting.

http://www.fcnl.org/issues/item.php?item_id=3416&issue_id=18

The Friends Committee on National Legislation

Some of the highlights from the article are below:

How Would the Bailout Affect U.S. Taxpayers and Homeowners with Mortgages?
The Federal Reserve has so far chosen to bail out only those financial institutions whose failure would have a great impact on the U.S. economy. For example, the insurance company American International Group (AIG) was so interconnected in the market that allowing it to fail would have left many banks and business in the United States with far fewer assets, affecting everything in the economy from the availability of jobs to the price of food4. Allowing key financial institutions to go bankrupt could have dire implications for the average U.S. consumer because their failure could have a domino effect in the entire U.S. economy.

The bailout could help both homeowners with mortgages and the economy generally. Currently, many mortgages are considered “toxic” because their instability makes them untradeable. By buying mortgage loans that would not otherwise be traded, the government automatically increases their value, helping to stabilize the housing market. Once the market becomes more stable, shares can be sold back into the market at a profit for the government5.

Most important for homeowners, the government could modify mortgage loans and lower interest rates, making it easier for homeowners to simply pay off their debt. As a result, many foreclosures could be avoided, helping homeowners and further helping to stabilize the housing market and increasing the value of the government’s investment6. In addition, allowing local bankruptcy courts to make decisions on modifying individual mortgages on a case-by-case could help millions avoid bankruptcy.

Would the Bailout Simply Reward Bad Business Decisions?


f anything positive comes out of the financial crisis, it may be that both the government and financial institutions will recognize the importance of accountability for financial decisions and practices. President Bill Clinton signed the Financial Services Modernization Act of 1999 to deregulate investment banks. Advocates of the act argued that an almost completely unregulated free market would result in the largest profits for financial firms and investors. However, the recent market failures due to greed-driven financial decisions have proven to many that the banking market needs restored oversight.

Limiting CEO salaries, as proposed by Sen. Dodd, is one way to ensure that Wall Street does not receive a windfall at taxpayers’ expense. The average U.S. CEO earned $12.3 million in 2007 — 275 times the pay of the average U.S. worker7. This means that the average executive makes more in one day than the average worker makes in an entire year. In the last five years, while the markets grew increasingly unstable, CEO salaries rose by 95.8%7. Requiring financial institutions to limit CEO salaries will prevent them from exploiting the bailout and encourage them to make more responsible financial decisions in the future.

Take Action

1. Let your members of Congress know that you oppose a blank check for the Treasury secretary. Let them know that you support the installation of an oversight board that is required to report to Congress on a regular basis. Affirm that you will not tolerate the Treasury secretary acting outside the law.

2. Press for a provision to limit CEO salaries. Capping CEO salaries will protect taxpayer money from being wrongfully used through the bailout.

3. Urge Congress to include a plan to help people in the United States facing foreclosure due to subprime mortgage loans. Homeowners who cannot afford to pay back their sub-prime loans are at the center of the financial crisis. By buying their debt, the government will have the ability to modify unrealistically high interest rates allowing millions of people in the United States to get their lives back.

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