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September 30, 2008

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Christopher Sayler

Your title for this post definitely caught my attention since I've been closely following and studying the collapsing markets for the last month. I appreciated your pastoral slant on the issue and turning the current financial crisis to personal issues that all of us deal with.

However, with regard to the current situation, I would like to present a different view from what has been said. I realize that I'll probably be the last one to post a comment, so few people will read it, but I thought I'd throw in my two cents.

The bailout is not going to help individual people who are in debt. It's not going to help people from being homeless and hungry (unless it saves their jobs, which it might, but it won't save their homes, but it won't do that directly). In fact, it has virtually nothing to do with the housing market or mortgages. The current financial issue (mainly illiquid markets) does not have to do with sub-prime mortgages. That started the whole thing, but the issue has progressed and the sub-prime issue is nearly resolved, so McCain's plan to buy sub-prime mortgages for 100% of value is about 6 months too late (and makes BAD economic sense).

Currently, markets are not driven by the fundamentals of capitalism, but rather by fear. There is no fundamental problem with the capital markets that is causing the current financial crisis other than fear. Investors are acting irrationally. That is the core problem with the lack of liquidity right now. No one wants to lend money to anyone else; hence, commercial paper, bonds, and securities cannot be bought and sold for a fair price - they are not liquid. What the bailout plan is aimed to do is to alleviate those irrational fears and instead get investors to lend money, especially to buy bonds and commercial paper, many of which are selling for 20-50% of what should be their market value if the markets were functioning rationally. What the gov't is saying is essentially, "We're going to start buying paper for really cheap really quick." The aim is that investors, knowing that this paper is going to be bought, will bid it up before the government money actually hits the markets. So the point of the bailout is not a get-out-of-jail-free-card for firms, let alone financial institutions, but rather an attempt to shore up INVESTOR confidence (not even consumer confidence).

The bailout might actually be a good thing for the gov't because they're able to buy these notes for pennies on the dollar and will probably be able to sell them in a few years for a significant capital gain. That would mean a net reduction of the national deficit over the course of a few years. The downside is that there is always the law of unintended consequences, such as opening up way for the gov't to buy things they shouldn't in the future (I definitely wouldn't call this socialism... Europe's markets have far more government interference than American markets, but they're still more capitalistic as a whole than socialistic). There is also the slim possibility that the economy continues to slide into absolute depression, but then the $700 billion wouldn't be that big of an issue because the government would start printing more paper, inflation would skyrocket, and that $700 billion would fall precipitously in real depression dollars. But that is a ridiculously slim chance - it's only happened once in the last 250 years, so the odds are against it.

So that's my two cents. There's a lot of misinformation floating around (especially coming from politicians who know nothing about economics and finance but who pretend to during an election cycle), and I wanted to throw in a market/financial/economic perspective.

Carol Prentiss

Discontent is not the only issue. It's definitely a factor but many other issues can cause a family to go into debt such as illness, medical expenses, poor planning, unexpected expenses, being laid off, death or mental illness of a parent, trouble finding a job, caring for an ill grandparent, tragedy, natural disasters etc. Acts 4:35 says that money collected was "distributed to anyone as he had need." So some of the believers had financial needs. We can't become like Job's friends and try to determine why a believer is having a hard time. Many hardships can't be corrected by teaching. They just need compassion and help. The apostles determined who had needs, not if they deserved help, because none of us do--just because someone is wealthy doesn't mean they are more deserving. I believe God allows needs among Christians so that we will love each other by meeting the needs that we can meet. We all have abundance and lack in different areas at different times. The world will know we are Christians by our demonstrated love for other Christians, first of all. We are to "do good to all people, especially to those who belong to the family of believers."(Gal.6:10)How was it determined that these believers belonged to the same group? It was known that ALL of them were one in heart and mind and they met together regularly. To me this says that attendance and having the same beliefs and goals are more important factors for determining membership in a congregation than one's ability to tithe. But that's another issue...

Collin O'Bryant

Nice work Aaron!

You're absolutely right on in regards to your assessment of one of the roots of the problem. Americans carry a staggering amount of credit card debt, mostly because we have decided that it is ok to live beyond our means. No doubt about it, we're pretty sold out to the ideals of consumerism. I won't rant and rave about it, but I think it's the truth. Traveling around the world and living and working with some of the poorest of the poor has convinced me that joy is not based on the stuff we have, but much more related to the interpersonal relationships we have, and most importantly our relationship with God. I don't expect our nation as a whole to figure that one out too soon...

I was really interested to hear your thoughts on this issue. I've been following the economy very closely lately, and I've come to a place where I think this is an incredibly complex and important problem. I think some of the clearest evidence of this is the wide diversity of people who came out in both support and opposition to the bailout plan. Many socialist-leaning democrats supported the bill, as they usually do for anything that increases the government's influence. However, some democrats opposed the bill because of the impression that it would simply serve to bail out "wall street". (By the way, the use of the term "wall street" as a derogatory term by both republicans and democrats in the recent public debate has revealed an abundance of economic ignorance and scapegoating in my opinion...who exactly is this monster, "wall street"?) Republicans were more likely to oppose the bill, proclaiming their distaste for government interference, and their commitment to basic free market fundamentals. However, many notable champions of free markets, including Newt Gingrich, grudgingly came out in support of the bill because they believed the institutions in crisis were too central to the entire economy and had to be rescued lest the entire system spin out of control. I think I agree with the latter republicans. Banks and lending institutions are the grease that allow the gears of the economy to turn, and in dire cases might need to be protected.

Holly

I agree with some of what you posted but I'm not glad the bailout failed.
One reason is because there are some families really deep in debt who need the money.
They can't afford to lose their houses or jobs.

And yeah the church needs to step up and help those in need(that includes members of the church).

I'm also not the average American.

Aaron Stern

I love the interaction and thought being put into the responses here. That was one of my hopes with this post from the get go. I would like to clarify a few things I said. First, The greater reason for the post was not to dissect the intricacies of the bailout plan, but rather to look at the deeper issues of the human heart that may have led us to this crisis. If it takes some pain to look at these issues I am okay with that. Second, I am not in favor of the bailout plan but I do think something should be done to get things moving in the right direction. I am not in favor of increased government involvement because I don't see many things that the governement does that the private sector wouldn't do better (and cheaper for that metter). I think there are other things that could be done to provide short term relief and long term benefits. Things that I think we should do include rewriting the sub-prime loans while cancelling the fees and penalties that have been accrued. Insuring these sub-prime loans - similar to an FHA loan. The cost for this alone would be significantly less than the $700 billion plan and it would keep people in their homes while also giving banks liquidity and keeping them out of the real estate business.

Just getting things back to where they were in terms of consumer confidence and market value as quickly as possible is not the answer if it continues to be built on faulty, if not detrimental ideals of debt, greed and discontent.

Chris

Phil, I do understand the market, economy and also capitalism-(which our economy, government and society were built upon). I understand your desire to be compassionate and 'fair' to your neighbors, but this bailout(understanding the bill and the plan) leaves the government responsibility of the losses and gives control to the Federal Government. The profits will be given back to the corporations. But, yes the corporations are responsible for a portion of the $700 billion (which will end up being closer to a trillion when all is said and done) but the taxpayer(me) has to pay for it now and when these companies begin to make a profit again, do I receive a dividend from that profit? NO, I don't, I 'invested' to help bailout the company, shouldn't I receive something back for my risk taken?
This is SOCIALISM!
We are socializing the loses and privatizing the gains. Its a slippery slope towards socialism, saying that the government must step in and provide a public company with money in order that is stays afloat.
Socialism-an economic and political theories advocating collective or governmental ownership and administration of the means of production and distribution of goods(Merriam-Webster Dictionary)
Socialism has a proven record of destroying economies and hurting the people.
You are correct that it would have been more than a slap in the face. But do we not have to take responsibility for our mistakes as individuals(those who did not do their research and take loans that they could not afford) and as a society(based upon who has the most stuff...ie greed)?
With understanding of the financial markets, you know that they are driven by free market principles. This means minimal government involvement and that the market will correct itself. It will take time and some hardship, but we are far better off fixing it now then placing a band-aid on it and allowing it to fester for years to come only to have a great economic down turn int he future. Our market is inflated artificially and this is making it worse.

Its like you have a room that is 40 degrees, I bring a cup of hot water in to the room and put a thermometer in it and say that the room is now a 100 degrees. As long as I continue to pour hot water in the cup, the cup will remain hot but the room is unaffected. A 700 billion dollar bailout, ie hot water in a cup, does not fix the issues of our economic crisis.

If your child reaches in, burns himself and lies about it, tries to cheat you, do you not send him to his room or punish him for that? or do you excuse that part because he has hurt himself?

I understand where you are coming from, but your view has short term relief and long term consequences.

Thanks for the conversation
~Chris

phil

as much as i understand the moral and ethical reasons behind arguing against a federal bailout, it is naive to think that an economic downturn of this magnitude will be a pleasant "slap in the face" that we can learn from and then move on. do any of you who are arguing against a bailout have a remote understanding of what is at stake economically? sure, without a bailout, we'd learn that we need to be more responsible and that we need to be better stewards of our financial blessings, but at what cost?

let's say your child is greedy and decides to stick his hand in the oven to grab another cookie. he burns his hands, but since we're going "develop some discipline" and teach him the evils of greed, we do nothing and let the child suffer. right? wrong. we know there are other ways that he can learn from his actions without leaving him to suffer on his own.

the country's largest, most established financial corporations have been decimated and you think a bailout will be a "get out of jail free card"? free for who? more like get out of jail after paying hundreds of billions of dollars. yes, the CEOs and top execs of those companies still made off with more money than we could ever dream of having, but what about the normal joe? you think having the value of your house dropping by 40% isn't enough to learn a thing or two about greed and discipline? do you really think that allowing millions of foreclosures to occur is the only way to get the message across?

i respect your teachings, but in this particular case, i am disconcerted to see such a lack of compassion. my hope is that it is your lack of understanding of the financial markets which leads you to conclude that a bailout would be a bad idea, rather than a real desire to see millions of americans suffering tremendously. i have zero debt and will remain largely unaffected by the recent economic turmoil, but i would never wish that anyone lose everything they have in order to see the fault in their greed. you have an immense influence on the thoughts and opinions of the youth in this city, and i would only ask that you reconsider what you are teaching with respect to the current financial crisis. should i let my neighbor go hungry and homeless when his house is foreclosed upon because that way he will learn his lesson? if not, why can't we use a bailout to ease his suffering a little earlier? who are you to say how much suffering is enough for someone to learn their lesson?

lastly, i would rather be heavily taxed to fund this $700 billion bailout than to live in a country where no one has any income to pay taxes on.

James Carton

My father sent me this link... which has a pretty good forum going about why this happened. The video is good if you can find one that hasn't been deleted. Scroll to the bottom for more recent links to the video

http://www.jimdemint.com/blog/2008/09/what-caused-the-economic-crisis-watch-this/

Chris

Aaron, very well put!!! I am one who follows the markets closely because of work and I also have a degree in Finance. I agree with you on this, we have become reliant on the government to take care of us and to solve all of our problems. Our Markets are setup as a risk/reward system. Take a risk and there may be a reward. Nothing is guaranteed in them. Our "Free" market system works great until you introduce immoral behavior and unethical business practices. Those who had parts in those dealings need to be tried and jailed. This is the reason the government needs to play a role in our "Free" markets but a limited role. Anotedher large piece to the puzzle that was not mention is the Federal Reserve. They have to power to produce money...at free will without any checks and balances by the Federal Government or the citizens. They printed over 4 trillion dollars in the last 36 months. Our money is not backed by anything except for the goodwill and faith of our Government. Economic hard times are to come, even with the Senate approval of the Bailout this week or next.
Thanks for the Post!!! cya Friday

Katie

Amen! Preach it Aaron.

Cameron Schaefer

Aaron, great post! I agree that government bailout is not the best answer to the solution. Not only for the reasons you cited, but also because I am a huge believer that when the government sticks their hands in the market bad things happen.

Sure, it gives us warm fuzzies to think that a quick $700 billion could keep the economy from getting worse, but this short term solution just lays the foundation for an even gloomier long term problem, a market with no consequences for poor decisions

Free markets are defined by the "freedom" they give participants. Freedom to save a dollar or spend it, to buy college education or a new stereo. If the market is left free then people must deal with the consequences of their decisions. And yes, the consequences effect other people as well, people who made good decisions with their money, and it's no fun.

But, the alternative of government manipulation is far worse than any short term turmoil. Free markets make people responsible for their actions, but when governments bail them out when things go wrong it takes away any incentive to do the right thing. Why save when I can spend and trust in the government to help me out when I'm in debt up to my eyeballs?

Brett G

Your thoughts about our greed and need for more, more, more are spot on. I actually disagree with Liam there. I think a 'crash' in our economy is what we need. We need a hard slap to the face to wake us up. (besides, I already have a good mortgage and a car. I won't need any credit for a long time anyways. haha, is that selfish or what!)
This link addresses the problem with the American idea of MORE, but with a different twist. (http://storyofstuff.com/)

Timothy Stillman

I agree with what your saying, and I have a yes and no feeling about it. True, we need to learn a leeson on saving and spending, but also we need to make make certain that that type of lesson does not also affect people who already know what it means to spend carefully. They could very well be the people who suffer for others mistakes, and I think that would be worse than quickly fixing this.

Nate Schneider

I really like your perspective Aaron. There are so many moving parts in this economy that it is truly mind boggling. I am uncertain of a solution but I would agree the root of the problem is from consumers financing things they can't pay for. Getting a house can be an American dream or nightmare in disguise. It is my prayer that our country would learn from this economic event and start living according to what they earn. "The Joneses are broke" - Dave Ramsey

Rob Birch

How do they calculate the national saving rate?

Liam Lefkowicz

"...but even if the bailout plan passed and the credit markets came unstuck, is that really what we want?"

YES...not only yes, but HELL YES.

This crisis has gotten a lot of us thinking and to your point, there's more to this life than the material things we acquire -- but a crash in the economy isn't what we should be hoping for to drive the point home.

Cory Staudacher

it was funny too cause I was readin rob bell's new book called "Jesus wants to save christians" the day it hit the all time low. We as the church need to reach out if we truly want to make a lasting impact.

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