The American Economy

No, this isn't about a certain politician saying the American economy is fundamentally strong, but with events that have transpired so far this week:

- The Lehman Brothers files for bankruptcy
- Merrill Lynch gets acquired by Bank of America
- AIG is saved by the federal government with a $85 billion loan.

These are big firms, so it's interesting to see Wall Street going into panic mode, but how much of it is just sensationalist or is it actually legitimately concerning? How does this affect Americans in the short term and in the long term? How does this affect everyone else globally?

Edit: A small overview

Last edited by cyanide on Thu Sep 18, 2008 6:25 am, edited 1 time in total.

we're fucked, plain and simple, enjoy the ride

Didn't we already have a thread on this?

No, this isn't about a certain politician saying the American economy is fundamentally strong

Sadly, this is one instance where Johm McCain is right. The government couldn't purchase companies if the economy was collapsing in on itself. Most of the economy is unaffected by Wall Street's panics and euphorias, energy prices do more damage to that part. (In a recent ad, Obama is attacking Johm McCain saying he's not ready to "run the economy." That's even scarier than businesses failing (which they all do) as apparently the President will again be personally running the economy. Hopefully our Dear Leader won't be picking gold prices based on lucky numbers and trying to figure out how to raise taxes above 100% this time. Of course we're basically there, what with there being no authority for the federal government to take over AIG.)

People confuse the failing of poorly run businesses with the failing of the economy as a whole. That "scary" Dow drop? It was 4-5% of the value. (Of which a third has already been recovered.) The one everyone is rushing to compare to 1987 because the point drop was around the same? 1987 was over a quarter of the DJIA value.

These state "bailouts" (which are really state takeovers) are a horrible precedent. I can't fathom why people who see an endless parade of government caused economic problems (energy prices, Freddie Mac/Fannie Mae, domestic auto industry, public education) want to have the government take over even more of the economy (including one-sixth of the economy with health insurance) to mismanage. And then they want to erect trade barriers to the rest of the world. We tried this before, it was called The Great Depression. And it was caused and made worse by government.

This stuff, this is just a blip. Baby boomers will destroy the economy and the country, not a handful of mismanaged financial corporations. The current economy is about $13-14 trillion. AIG was taken over for $85 billion. Microsoft might be a $260 billion company. Even combined, none of the major corporations are a $73 trillion liability. And none of them have police power to steal from you.

It's really too bad our first black President will be considered a failure because of it.

We might need another "bail out" though.

Didn't we already have a thread on this?

Whoops, do we? A merger should be in the works then.

Interesting points. From what I understand so far, the federal government loaned AIG $85 billion, but AIG has to repay it with interest?

I'm wondering, why did the government intervene? From what I've read, if AIG went down, it would affect the global economy and more smaller companies would also go down, causing a chain reaction. Would this situation be better than government intervention? (I'm not saying I agree with government intervention, but I'm wondering what the ramifications would be if the gov't did not intervene).

Finally, when you said that the baby boomers will destroy the economy, are you saying that in 10 years time, America will be in a great depression that they can never get out of?

That one Hefty made is the same subject basically.

From what I understand so far, the federal government loaned AIG $85 billion, but AIG has to repay it with interest?

The Fed gave AIG $85 billion to take care of liquidity problems, and in return the Fed now owns 80% of the companies stock.

I'm wondering, why did the government intervene? From what I've read, if AIG went down, it would affect the global economy and more smaller companies would also go down, causing a chain reaction. Would this situation be better than government intervention?

We're now setting a precedent where, it doesn't matter what the fuck you do, what risks you take or what books you cook, if you're big enough, the government will steal from American citizens to save you if it likes you. (This is where Microsoft failed, they hadn't involved themselves in politics before the government went after them. So there was no interest to protect them. Also, you wouldn't see this currently if an oil company was going under.) And if you're a political money laundering operation like Freddie Mac and Fannie Mae then you don't even have to hope the government bails you out, you know they will.

Finally, when you said that the baby boomers will destroy the economy, are you saying that in 10 years time, America will be in a great depression that they can never get out of?

Moar like five years amirite? And you can always get out of a Depression by freeing the markets up. But we won't. We'll demand more and more government power, and want to stick it more and more to those evil employers and businessmen who are hurting us by providing goods, services and jobs. And when they all start to leave we'll have to start making it illegal to leave the country.

There's a reason Social Security and Medicare are considered the Third and Fourth Rails. No one is daring enough to plainly state to people that they have to take them away. It is political suicide. Congress won't touch it, and President Obama says there isn't even a problem.

This is what happens when you live in a fascist country with no regard for rule of law. Europe is facing the same thing on a smaller scale, we're already seeing it in the States as their pensions fail, and we're ignoring it while demanding and promising even more of it.

EDIT: Update with clearer picture out now.

It looks like the Fed has zero intention of saving AIG as a business. Instead they floated it $85 billion in a two year loan so that the company can liquidate the assets in a more orderly fashion instead of a panic sell-off. During this draw down of the company, the proceeds will be used to pay off the loan. In the meantime the government is most certainly taking over the company to force it to sell itself off.

The government will install new management and will have veto power over all important decisions, including asset sales and payment of dividends.

Last edited by benji on Thu Sep 18, 2008 4:30 pm, edited 1 time in total.

part of Russian reserve stocks are in US dollars, but we won't be hurt much! America has printed too much dollars to be covered and supplied with gold! hope this problem could be solved quickly!

US currency is not backed by gold.

Is any currency backed by gold?

Moar like five years amirite? And you can always get out of a Depression by freeing the markets up. But we won't. We'll demand more and more government power, and want to stick it more and more to those evil employers and businessmen who are hurting us by providing goods, services and jobs. And when they all start to leave we'll have to start making it illegal to leave the country.

I'm a little confused with that statement. America takes pride in being a "free" country, but the trend you're describing sounds more and more like a Communist nation!

This is what happens when you live in a fascist country with no regard for rule of law.

When you say "you," are you referring to Canada (me), or the States?

Europe is facing the same thing on a smaller scale, we're already seeing it in the States as their pensions fail, and we're ignoring it while demanding and promising even more of it.

To put it simply, the world's demanding Big Brother?

I'm a little confused with that statement. America takes pride in being a "free" country, but the trend you're describing sounds more and more like a Communist nation!

And dictators hold elections, it doesn't make them democrats.

When you say "you," are you referring to Canada (me), or the States?

The latter, but I don't see why it couldn't be both.

To put it simply, the world's demanding Big Brother?

Not Big Brother. But Big Mother. (Although I suppose the security cam fetish would be the former.)

Brave New World, not 1984.

Oh, and I said:

That "scary" Dow drop? It was 4-5% of the value. (Of which a third has already been recovered.)

Yeah, the rest of it was recovered today.

I heard Washington Mutual (The bank) is in trouble too. maybe I should clear my accounts before they go down.

Yep, that's exactly what we need, bank runs.

If you have less than $100,000 there is no reason to withdraw your money from banks. If you have much more than that sitting in one bank, you're doing it wrong anyway.

Correct, this is only concerning for people with actual investments, but not so much for regular banking accounts, that shouldn't have any effect.
Still, all of this current turmoil is definitely not a good sign, and it looks like it'll get worse before it gets better.

Brave New World, not 1984.

Gotcha.

Yeah, the rest of it was recovered today.

Made me happy. My investment jumped 17% today.

If you have less than $100,000 there is no reason to withdraw your money from banks. If you have much more than that sitting in one bank, you're doing it wrong anyway

Agreed, though I'd love to have $100 000 to start off with.

yeah i got less than 1000 bucks so it's all good.

all i know is i will never be able to retire, wohooo

Woah, Milan's stock exchange went up like 8% today, which hasn't happened in more than ten years. Has the situation gotten any better in the US?

Woah, Milan's stock exchange went up like 8% today, which hasn't happened in more than ten years. Has the situation gotten any better in the US?

Yeah, it made a huge rebound on Thursday, and yesterday wasn't too shabby either. No reason to panic I guess.

If you have less than $100,000 there is no reason to withdraw your money from banks. If you have much more than that sitting in one bank, you're doing it wrong anyway.

benji's right. You should spread your money to different banks so the insurance can cover the savings you might lose.

What $700 billion could buy your company

so are we fucked [s]now[/s] yet?

Benji, is Ron Paul our saviour?

No.

This is actually good. Bailout was bad.

Because it failed, Fed did this. Notice the price tag.

Instead of the government owning a bunch of shit loans, and the Treasury Secretary having insane unconstitutional power, now the banks will have to deal with them but they get some extra Fed cash to help. (Which, was part of the House Republican plan. And now we see the Dem coalition was a farce if they had no cover.)