Why the "bailout" was and is necessary.

[Peacetrain]

From a small example..maybe this will make it clearer why the bailout for the credit markets is so important.

I am from Iowa, so bear with me on this example.

A family farmer gets ready to set out the spring crop.

First place he goes is to the bank to get credit for the seed, fertilizer etc, to get the crop in.

It is on credit.

The crop goes in, and with that the small farmer goes to town to buy groceries at the local store, the implement store to buy the new tractor and hires people to help with de tassling etc of the crop.

Now this money that the family farmer borrowed through the bank on credit, has run around that little town at least 7 times..expanding 100 different people lives and buisness.

Now if the credit markets have dried up, and that is what this is all about, the dried up credit market, the bank will NOT be lending to that farmer, he loses his farm, multiply that out to multiple farms and that is the end of that small town.

Expand out that small town to a county, to a state, to the entire country. It hurts us all. It is not about the fat cats of wall street

[Tallison]

1. Cafferty's on now - he agrees with you, and so do I nt

[melody]

2. The people arguing against it aren't using reason

They're in some big "burn the pigs" pseudo-populist uproar.

I've given up explaining but I admire you for continuing to try.

[Peacetrain]

3. I hope they stop and think about credit markets

[moodforaday]

20. Here's some reason, try it

I've posted this snippet before but have yet to see a reasoned reply. So far I've only received an ad-hominem attack about my sig quote. This, however, is by a gentleman with some financial credentials:

"Harvard's Ken Rogoff, a Former Federal Rerserve and IMF official, insists that the prospect of this bailout is, unto itself, taking a manageable problem and making it into a more intense crisis. He says that credit is frozen primarily because banks want to avoid dealing with other banks that might drive a hard bargain, and instead would rather wait for free money from the government. Without the prospect of that free money, Rogoff suggests that credit would probably begin moving again, if slowly."

http://www.alternet.org/columnists/story/100700/the_fiscally_insane_bailout_bill_might_not_pass_--_here%27s_5_reasons_it_shouldn%27t/?page=entire

[riqster]

4. Nicely explained!

Heck, even I understood it. Thanks.

[mikelgb]

5. take it one step further

what happens when he loses his farm...

what happens to the land?


or...

what about the farmer who can afford enough seed to get by without credit?

what about the wealthy in the town who see an interest in keeping a staple food crop around and lend the farmer money to buy seed, knowing that they will see a return on their investment?

we don't need Washington Mutual or Goldman Sachs, I have faith in people when it comes down to the bare essentials

we can get by

[Peacetrain]

6. what??

[Barack_America]

7. I think he's suggesting that we resort to communism.

:wtf:

[Peacetrain]

8. I was wondering, I am still not sure what they are talking about

Sounds like the grace of the lord of the manner to the peons..

[Barack_America]

12. Yes, or feudalism.

Sounds like fun. :eyes:

[PVnRT]

23. I think he's suggesting that the magical "invisible hand" will help

[TwilightGardener]

14. Banks lend money to farmers, not "wealthy" citizens. Credit and insurance

are vital to most farmers. And the crops don't stay in town, they're sold to various elevators and distributed throughout the country and the world. And they're not necessarily food, either. You have a third-grade understanding of agriculture.

[Vincardog]

9. How does throwing a Trillion dollars down the rat hole help? What happens when they come back

in February for another Trillion? Exactly how big is the problem?
Exactly how will this bale out help US?

How does this bale out fix the game rigging that has occurred for the last 25 years under Ray Gun Omics?

[Peacetrain]

10. That is a fair question.. the answer is no one knows for sure.

But we have the history of Hoover to give us an idea of not stabilizing credit markets and letting the market seize up and stall out has been done.

[JuniperLea]

17. It makes more sense to throw money at Main Street

Than at Wall Street.

European banks have begun failing... nothing is going to stop this train now. This has gone global. Throwing money at Wall Street = Throwing money away.

If money is to be given out, it needs to go to families who are losing their homes. It needs to go directly to the farmers, the small business owners, the American People! Giving money to Wall Street is just a bad idea...

[Peacetrain]

24. Hey!!

hi :).. well Juniprex, the credit markets are main street.. and that is what they are trying to put supports under..that is your mtg accounts, your college school loans, the farm loans, small business loans, ..

I know what you mean about fat cats, but if I read it correctly those participating in this shore up of their assets have those golden parachutes limited.. and we as the American people will own those assets as they get resold, we should get the profit from them to offset.

Breaking it down into three payments was a very good idea, that way if not all that money is needed to shore up, we do not have to do that kind of outlay.

And banks will refigure the loans to families to keep them in their homes.

Of course the devil in that, is the price of homes are so inflated, that those who bought at that inflated rates, it will not help them, But that was what happened in the depression, peoples homes lost tremendous value, but people did not move like we do now, so it did not have as great an impact. I do not understand how that will work myself.

We will all be here next year, and typing, and hopefully we will feel we are moving forward out of the recession.. fingers crossed!!! :hi: em

[JuniperLea]

25. I think you should read this:

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=389&topic_id=4125216&mesg_id=4125216

It would be great if the bill actually did what it professes, but I'm afraid it's just a drop in an increasingly large bucket at this late date.

[Peacetrain]

29. The one thing we know for sure, is we don't know for sure

:).. The only thing that I can be solid about, is that is the credit markets dry up..then everything dries up.

[JuniperLea]

31. I agree with that, no question...

I just think this has gone on too long, and this "sudden crisis" and fear-mongering and demand for money "or something very very bad will happen" is too suspect.

I think the people in trouble should be bailed out, and let the goodness trickle up:) The trickle down thing didn't work for Reagan, and it didn't work again for Bush.

[Vincardog]

22. Let the government take over the failed banks. Turn their assets good and bad over to a Bank Trust.

Then suspend all dividends until the bank buys all their assets back from the trust.

The new rules say that all executive pay has to come out of After Tax Profits.

[jillan]

11. Great analogy!

This effects us all.

[walldude]

15. No it doesn't. I have explained this in other threads but not everyone

is going to be affected by this and that is why you have a debate. Luckily on DU we have reasonable debates and everyone treats people who disagree with them with respect.... Bwhahahahahahha :rofl: :rofl: :rofl: :rofl: sorry... There are people out there with no investments, no money in a bank, job security, and no debt who unless we hit a depression and are waiting in food lines are going to just sit back and watch this play out. Hoping that the government isn't going to take $3000 for every man woman and child in their household to bail out Wall Street or people who live beyond their means.

[Peacetrain]

40. The credit markets are not about wall street. Different animal. Can wall street

be abusive with credit markets. yep. but this is about us, main street if you will. Lets keep our credit markets open, so the economy can keep going, and the do a perp walk with the wall streeters ..but first solidify the credits

[backscatter712]

13. _A_ bailout is necessary, though Paulson's bailout is a very suboptimal solution.

A lot of people here on DU have explained that yes, this is a potential catastrophe - a liquidity crisis can cause a ginormous economic train wreck.

So, yes, I know. A bailout is necessary. But not Paulson's bailout. Not Bush's bailout - that's just bailing out the rich fuckers that caused this mess.

What we need is a bailout of Main Street. We need to take some action to stop the foreclosures, which in turn would stop the banks from bleeding and avert the liquidity crisis.

Hopefully, now that the mutated, slightly regulated Paulson bailout failed its vote in the House, and our Congresscritters can turn around and try bailing out Main Street this time.

[JuniperLea]

16. Now you're talking...

Yes, bail out Main Street. That is a good idea.

With European banks now failing, there isn't enough money or credit in the US coffers to save the stock market now.

People need to remember that the US is broke, so even if we did bail out Wall Street, it would be with money borrowed from another country.

[apnu]

18. There is one tragic flaw in your example...

...the farmer buying seed. Thanks to Monsanto and Cargil, farmers are trapped in an endless cycle of expense and hell. Starting with the purchasing of seed. Why should a farmer have to purchase seed in the first place? Well because the technology agreement with Monsanto says they have to destroy their seeds at the end of the season.

That's totally insane.

None of it is the farmer's fault really, and well, it doesn't matter anyway, because we live in the world that we live in and the system is set up, right now, that the farmer has to buy his seed instead of saving seeds at the end of the season.

But other than that, you displayed the basic economics of small towns and small businesses very well.

[izzybeans]

19. Is there a link somewhere that shows the extent that this has happened?

Farmers I know had no trouble planting crops because of their credit. It's the weather that has killed them.

It's harvest season, btw. So you might want to discuss how tight credit markets will impact the price of foodstuffs in order for this analogy to work.

[DeadManInc]

21. I have no problem helping main street,

but I say wall street can go to hell.

[Coexist]

26. I don't think some people realize how credit drives our economy.

[Peacetrain]

30. That is true...

[Fractasticlicious]

27. I'm not buying it.

And neither did my rep Nancy Boyda, certainly swayed by mine and many other phone calls opposed to this legislated theft of our Treasury to benefit Warren Buffet and his buddies. Forget it, let the banks crash!

[Peacetrain]

28. You are trashing Warren Buffet,

one of the great democratic investors of all time. The same Warren Buffet who thinks the tax system is skewed to the rich at the detriment of the middle class..I don't think so!

[Fractasticlicious]

38. So what?

Because buffet has done some things for the democratics we should fling open the Treasury doors to him and his thieving pigmen cronies on wall street? Nope, not me, let the banks collapse and eat the rich. Bring back the Guillotine!

[Peacetrain]

39. Bring back the guillotine and let the banks collapse?? why that sounds downright republican

:rofl:, you made me laugh this morning. How long did you think about that before you posted it? Only the republicans would trash an economy because they got their nose out of joint.

[lostnotforgotten]

32. Saw Article Here At DU That Said Farmers Are Having No Problems With Crop Credit

So the premise does not wash!

[Peacetrain]

33. Its a symbolic story..

[lostnotforgotten]

34. If It Deos Not Ring True - Call It The Way It Is

eom

[Peacetrain]

35. huh?

[morillon]

36. Dupe (deleted) n/t

[morillon]

37. Thank you.

I have given up trying to explain this. It's like people got that initial proposal -- which WAS a non-starter -- locked into their brains and haven't paid attention to anything that else that has happened since then.

Now I guess we'll just see what plays out. I'm very, very, very worried. Those credit seize-ups are a HUGE deal.