Economic Geniuses - Please Answer Some Questions!

[RoadRage]

(Hi Everyone - I'm cross Posting my OP from GDP as requested - thanks!)

Alright- there seems to be a lot of chatter about the $500 Billion - $1 Trillion dollar bail out today.. and I have a lot of questions. I don't pretend like Palin to have a friggin clue about this kind of stuff - so instead of faking it, I figure i'll just ask some questions in an effort to actually learn something.

1. Who "approves" this bailout? The Fed? Bush? Senate? Congress? I see a lot of people blaming Republicans on this - but aren't some democrats going to be complicit in helping this go through?

2. Is this a loan that these financial institutions that would receive the bailout would someday need to repay when they are again making profits?

3. Is this like the AIG bailout where the government just now owns a percentage, and will take profits and losses? Does the government then put managers in place in these institutions? Again - who decides this?

4. What impact does this have on the elections? Is Bush at fault for this directly or indirectly? How are McCain and Obama differing on their opinions on this situation? Frankly - what ARE their opinions of this situation?

5. Is any accountability being discussed? Like ENRON, will the CEO's of these organizations be prosecuted? Did they actually make illegal decisions that profited for themselves while causing others to lose money - or did they just make very stupid decisions based on the mortgage industry?

6. Where is the money coming from on this bailout (and that of Freddie, Fannie & AIG)? Is it stashed up in some "Use this money only if the economy is seriously fucked" savings account - or are they pulling it from other programs, etc.? How does this effect money for Social Security, Medicaid, Education, etc.?

I think that's enough questions for now. Thanks to all who can help answer.

[sti08dem]

1. I'll take a stab at it

1) Looks like Congress is going to grant powers to the Fed and the President to conduct this bailout. The Fed will draw up a plan this weekend and it will be voted on next week, so Dems do have a say. This would be a good time to attach anything that would have a hard time getting through a filibuster as it is going to be "must-pass" legislation. Don't be too hard on Congress, the reasons we got here may be shitty and unfair but this may be the best of bad options now that we are here.

2) It looks like its not a direct loan, the government is going to buy illiquid mortgage assets from banks. This combined with the decision to outlaw short-selling, is intended to stabilize capital at banks and prevent further large institutions from failing. The government could theoretically make or lose money depending on what price they buy the assets at and what they actually turn out to be worth in the long run. These are complicated derivative assets so its impossible to say.

3) The government is not taking over institutions. When they took over AIG they basically took ownership of the company and diluted the equity holders, they are not doing that here in the current plan. Hence the equities of all big financials flying high today.

4) This should help Obama if he frames the issue right. This is absolutely Main Street bailing out Wall Street and should be portrayed as such. The entire debate should be Obama hammering McCain with "a trillion for Wall Street, but X amount of people without healthcare thanks to eight years of Bush-McCain"

5) Nothing about CEO's or board members going to jail. Its going to be hard to prove they broke criminal laws currently on the books AFAIK

6) The money for this, if needed, is coming from John Q Taxpayer. The government has made money on bailouts before (see Chrysler). They theoretically could here although its highly unlikely (although parts, such as the AIG buyout, they will make money on. AIG which the government owns is clearly helped by today's news). Realistically, up goes the deficit or up goes taxes and down goes spending as this will most likely be a 12 figure expense. Expect a sudden return of the Reps into deficit hawks as they complain that we cant afford more spending or national healthcare. Sucks, but its coming.

[RoadRage]

2. Thanks! I appreciate the info.. and that makes sense. ;)