Wednesday, September 17, 2008

Analysis: Is the economy broken? Is the economy in a downward cycle? or Is the economy OK?

Treasury's Paulson Urges Quick Action on Bailout Plan
Rescue Plan Grows to $700 Billion; Similar Measures Urged Overseas

By Lori Montgomery and David ChoWashington Post Staff Writers Sunday, September 21, 2008; 10:00 AM

Treasury Secretary Henry M. Paulson Jr. today urged Congress to move quickly to approve the Bush administration's emergency plan to revive the U.S. financial system, a proposal that officials said yesterday would cost up to $700 billion as it relieved crippled financial institutions of their mortgage-based assets.

Paulson, who was making the rounds of Sunday morning news talk shows explaining the administration's plan, said lawmakers need to reassure credit markets and Wall Street quickly and should not slow the process down by adding proposals onto the emergency bill.

"The credit markets are still very fragile right now and frozen," Paulson said in an interview on NBC's Meet the Press. "We need to deal with this and deal with it quickly."

Senior administration officials meanwhile yesterday pressed their counterparts in Japan, Germany, Britain and elsewhere to establish similar programs to rescue their own troubled firms in what would be an unprecedented bailout of the worldwide financial system. The move comes in recognition that complex interconnections among financial institutions have created a global crisis that the United States cannot solve alone.

As part of his television interviews today, Paulson said foreign banks would be eligible for assistance under the U.S. rescue plan because "if a financial institution has business operations in the United States, hires people in the United States, if they are clogged with illiquid assets, they have the same impact on the American people as any other institution."

Congressional leaders responded positively to the administration's rescue plan, though the price tag they received yesterday was $200 billion higher than they had been told to expect just three days ago. But House Democrats said they would push to include a number of contentious provisions that could make it difficult to pass the plan quickly, including limits on executive compensation for firms that unload their bad assets on the government and new powers for bankruptcy judges to modify mortgages on primary residences.

Democrats also want President Bush to drop his opposition to a second round of federal spending aimed at stimulating the economy. While the administration's bailout plan would insure the money market funds of millions of ordinary Americans and help prop up the mortgage market, some Democrats worry that it will primarily be viewed as a bailout for big Wall Street firms.

"Obviously, this is of direct benefit to some people in the financial industry," Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, said of the rescue plan. "We need to be talking about direct benefits to people who are not in the private sector."

Bush, speaking to reporters during a White House appearance yesterday with Colombian President Álvaro Uribe, urged Democrats to set aside those demands. In talks with congressional leaders, Bush said he "found a common understanding of how severe the problem is" and the need for urgent action. "We need to get this done quickly and, you know, the cleaner the better,'' he said.

Bush also defended the size of the request, saying drastic action was needed because of the magnitude of the financial crisis, a cataclysm that started with nontraditional mortgage loans to U.S. homeowners, spread to the banking and financial services industry and now is enveloping markets around the world.

"This is a big package because it's a big problem," Bush said. "The risk of doing nothing far outweighs the risk of the package."

Bush, who campaigned as the nation's first MBA president and a free-market advocate, also appeared to address complaints from conservatives that the plan inserts the government too much into the economy.
This article continues at: http://www.washingtonpost.com/wp-dyn/content/article/2008/09/21/AR2008092100169.html?hpid=topnews


26 comments:

Vina A said...

The economy is in trouble. If you look at the stock market, it has record lows. If you watch Fox, CNN, MSNBC, everything is about the current economic crisis. Susie Orman guest starred on Larry King last night and she's strongly discouraging anyone to put new money into the stocks. Other financial advisers on Fox are suggesting putting the extra cash you have into a "safe haven" such as gold. I hope that the next president, whoever it is, will really work on the economy, because, as we can see, it doesn't look like a bright future for us.

Jenni F said...

I belive the economy is on a downward sprial. With the value of the dollar going down and the foreclosers and bailouts of banks and the stock market lows, the economy is a very, VERY big issue in the upcoming Presidential race!!! I think what the candidates propose to do about the economy will sway some undecided voters. Also, I agree with Vina and whoever the next president is going to be must work on fixing the economy and that they will be remembered as the president who will either "make or break" the economy.

belmarez said...

The economy is just fine. The dollar is at a 6 year high, actually my econ homework is to explain why the dollar's stock is so high, and the GDP is still positive. In fact our GDP is bigger than the EU's right now. With that considered we are not in a recession. Also the unemployment rate hoovering around 5-6% and the lowest inflation rate in years. The economy is still growing at the same rate that is had been for over the past decade. The problem is with the consumers. People are consuming less, so the economy LOOKS like its in bad shape.

The media is to blame with peoples fear of the economy. With how often the bring up the word depression people start to worry. When people worry, the consume less which makes the economy LOOK bad. Right now is a great time to invest in stocks that aren't in the financial industry. Also with the dollar being worth so much, it is a great time to invest in foreign markets. The Dow Jones was up 400 points today all because people felt more secure that the government would help. The economy is just fine, the people need to consume to help it or otherwise it will become a recession.

A great article that explains the media's portrayal of the economy.

http://www.washingtonpost.com/wp-dyn/content/article/2008/09/12/AR2008091202415.html

Vince Tomczyk said...

I beleive the economy is in a downward spiral. There are so many companies cutting back on jobs and hours that more and more people are becoming unemployed. The stock market is quite low and and flirting with the fact that we could soon be in a recession. In these next few weeks the presidential candidates really need to come up with and share their plan for saving the economy. Having a solid economic plan could really help a candidate become president

Ryan K said...

The economy right now is in a downward spiral and very close to breaking. The other day Lehman Brothers fell and AIG almost collapsed. If giant companies like this are on the edge of bankruptcy it won't take much to push them over that edge. When this happens with giant companies a domino effect will follow. Other companies that depend on these giants will fall into bankruptcy. This is when the economy will be "broken." Stocks will crash more than they are now and inflation will skyrocket. The next president MUST focus on this.

Alli B said...

In my opinion the economy is on a downward spiral. This is proven by the fact that President Bush sent a proposal to Congress today to spend up to 700 billion dollars on buying mortgage assets. This is a big decision made by Bush which could have a huge effect on the economy. Though I think the economy is in trouble I agree with what was said above about the media making the economy look worse off than it really is. People thinking the economy is in drastic trouble only makes the situation worse.

JeremyL said...

I think that the Economy is in trouble in a few areas...but ok in others...When it comes to the Stock Market the economy is going down...however the US Dollar is doing just fine. I hear that the dollar is weak all the time when its actually higher than it's been in years... With gas prices going up and unemployment somewhat on the rise the economy could take a huge fall in the near future...but could also rebound with good planning.

Addie said...

Maybe, I'm being paranoid, but when Henry Paulson said, "The economy is just fine" all I could think was, "What news have you been watching?"

The Lehman Brothers and the AIG situations are scary: I've always thought that huge banks were infallible and indestructible, so it's odd (at best) to see them tumbling down.

I would like to think that some elbow grease will fix the economy, but I don't think there's going to be an easy solution. I'm predicting more heavy, far reaching losses before things get better.

I don't know how one fixes the economy. There's not a switch or a button obviously. I think the first step is going to be finding what tipped the spiral in the first place. And I don't know what that is.

nathanl said...

I know I lack the background knowledge necessary to properly judge the economy, but from what I can see, I'd say our economy is hurting, but it's too early to call it broken. But if we want to keep things from getting any worse, action must be taken now. But, of course, partisan squabbling will prevent this. Healthy deliberation is necessary and sensible. House Democrats pushing to "include a number of contentious provisions that could make it difficult to pass the plan quickly" is not.

Kyle K said...

In my opinion the economy is in a downward cycle. With the fallout of the Lehman brothers and the near fallout of AIG. These giant companies are the backbone of many smaller companies, if they go a massive ripple effect will take place and cause the economy to break.

- Kyle Krahn

Addie said...

I found this nifty website called "U.S. National Debt Clock" where it reports the public debt as of today!

http://www.brillig.com/debt_clock/

Check it out :D

But it raises an important question: How are we going to bail all these banks when we're in one of the biggest deficits of our country's history???

Uh-oh!

This very moment, my mom is yelling at my little sister about the next Great Depression and how she "better get used to oatmeal once a day"

Double uh-oh!

Jessie R said...

The economy is definately not doing okay.Even John McCain no longer thinks it is. The economy seems to be on a downward spiral, because both Democrats and Republicans seem rather concerend about it, and the value of the dollar has been just dropping. Also, the stock market is at record lows, and just seems to keep dropping.

Tyler L said...

To call the economy broken is an over statement. I belive the economy is just correcting itself. Bcause the prices of houses were so high, people took out loans they could not afford. They forclosed on the loan and the banks suffered. The economy is slow now, but will eventually pick up as people recover from their loses and start spending money again.

mlowe1191 said...

well i think the economy is broken. the stock market is way up or way down, gas wont go down, 6.5% unemployment rate, pays are being cut, benifits being cut, food prices up, houseing markets down. what more is there to say?

kylem27 said...

Ya I believe that the economy is in serious trouble. I still think that we have a few "safety nets" underneath it that were set up after the Great Depression though.

Sergeant K. said...

I too believe that our economy is in a downward spiral. I think we are as close to the "pits" as we are going to get and that it will begin to fix itself. i think a bailout could help, but 700 billion dollars is a little much. as for the value of the dollar, I think its safe to say it will not lose too much value. Like kyle said, we'll see a ripple effect but after the ripples a nice calm moves in.

-Erik K.

mevanoff said...

The AIG situation is very scary and I believe that the buy out was a smart idea. The bankruptcy of AIG would have driven our economy into a downward spiral with no clear end. The economy isn't as good as it should be but the causes of that can be debated back and forth.

BrandonSh said...

Belmarez- The 6% unemployment rate is the highest it has been in 5 years and the GDP doesn't take into account the fact that people's wages have stopped increasing while inflation, whether it's low or not, keeps increasing prices.

People consuming less isn't because they think the economy is in bad shape, it's because they have no money.

Also, McCain refused to admit we were in a recession on 60 minutes tonight and just dodged around it to explaining how he would fix the economy.

PS: Nobody is listening to me and I know how to fix the economy. Everybody invest in downward spiraling charts and foreclosure signs!

JakeK said...

I belive Dennis Miller said it best on "The O'Reilly Factor" when he said we are headed in the direction of a "bare economy". These bailouts and trends are only salt on an open wound which will devastate the economy in the upcoming months. With speculation now being such a large part of our markets, the current market hysteria is sure to continue to plumet the market.

kylem27 said...

Just gonna throw this tidbit out there. Back during the Great Depression, when the stock market fell, and people tried to get their money out of banks as fast as they could (which caused the banks to go under), government didn't bail them out... and look what happened.

MattC said...

The economy is on the verge of another major dip, because it's been a long time in the coming. Besides the credit crisis, other factors are converging together with that to make the economy what it has become. Inflation has been increasing and the dollar has been lowering in value. What is the direct result of the weak dollar? Higher commodity prices such as oil; thus higher gas prices. As for the bailout, 700 Billion is A LOT to ask from a people who have been battered with all around high energy bills, especially with natural gas. I think that if the economy will truly witness a collapse, then we must proceed with bailout. I do not want to see people who have worked so hard for so long to lose it all. This is not acceptable.

We have come to a point in America that will prove to be a major turning point in voter trends and culture as we know it. America is changing and we're along for the ride. The changing market is a big part of the change; feeling the effects of bills legislated over 60 years ago.

I think the economy does need to change at its core, but also the average American must change their perception of government for the idea to work. Instead of more regulation, I believe the economy cannot efficiently work when it is faced with federal intervention. A truly free market will value whatever the consumer values, and so the economy will reflect the character and desire of the public; we must change. We can have clean air without regulation at all. Free market will bring rise to great alternatives; the people can all buy the alternatives and thus force other companies to offer the alternative and improve upon it.

The decision to go through with the bailout depends upon how much harm will be done to the public. Imagine a man who has worked 14 hours a day, 5 days a week, for 25 years. He works hard all his life to provide for his family no matter what, and hopefully to save up enough to retire at a decent age and relax. Now imagine that all that he's worked for is now gone. He has no way to retire. He is doomed to work for the rest of his life. I say forget ideologies and little one word descriptions and lets really think about protecting our fellow citizens from personal disaster.

MattC said...

The economy is on the verge of another major dip, because it's been a long time in the coming. Besides the credit crisis, other factors are converging together with that to make the economy what it has become. Inflation has been increasing and the dollar has been lowering in value. What is the direct result of the weak dollar? Higher commodity prices such as oil; thus higher gas prices. As for the bailout, 700 Billion is A LOT to ask from a people who have been battered with all around high energy bills, especially with natural gas. I think that if the economy will truly witness a collapse, then we must proceed with bailout. I do not want to see people who have worked so hard for so long to lose it all. This is not acceptable.

We have come to a point in America that will prove to be a major turning point in voter trends and culture as we know it. America is changing and we're along for the ride. The changing market is a big part of the change; feeling the effects of bills legislated over 60 years ago.

I think the economy does need to change at its core, but also the average American must change their perception of government for the idea to work. Instead of more regulation, I believe the economy cannot efficiently work when it is faced with federal intervention. A truly free market will value whatever the consumer values, and so the economy will reflect the character and desire of the public; we must change. We can have clean air without regulation at all. Free market will bring rise to great alternatives; the people can all buy the alternatives and thus force other companies to offer the alternative and improve upon it.

The decision to go through with the bailout depends upon how much harm will be done to the public. Imagine a man who has worked 14 hours a day, 5 days a week, for 25 years. He works hard all his life to provide for his family no matter what, and hopefully to save up enough to retire at a decent age and relax. Now imagine that all that he's worked for is now gone. He has no way to retire. He is doomed to work for the rest of his life. I say forget ideologies and little one word descriptions and lets really think about protecting our fellow citizens from personal disaster.

Ryan K said...

If we need to donate 700 billion dollars to the economy then it is definately near broken. We should not do this at all. To me it sounds kind of like a second attempt at this years economic stimulus. By the way haven't heard exactly what that did yet.

On a different note this idea sounds like socialism to me. If government starts helping business on this scale then it seems as if the government will then be controlling the business. That sounds kind of like a socialist system to me.

Lastly what will this do to inflation? If the government donates 700 billion dollars that they don't have inflation MUST go up. This will end up hurting the middle and lower class even more than they are hurtng now. If the economy cannot be considered broken yet then it sounds like it will be broken soon.

JeremyL said...

The Economy looks bad right now....but this isnt only a U.S. problem...Half the world is in a downward spiral...Things will balance out in time and the economy will be fine in the future...If history has tought us anything it's that things always rebound...

ScottW said...

Our current economy is in trouble. As we have all discussed the buy out by the government are very contriversial. All diffrent people pushing for their beliefs are all saying "WE NEED TO ACT NOW." The situation is becoming cloudier by the minute hopefully in the next upcoming election the problem is solved and we can go back to when our economy was a power house of the world. The country needs to pull together and fix this problem.

KurtO said...

at this point the economy has gone through the worst of the economic crisis and is now heading to a recovery. we are not done yet, and there is a dabate as to how to improve the economy from here. but as of now we are done with the worst of the crisis.