Trying to Understand the $700 billion Bailout (Filipinos need a bailout, too!)

Posted on October 7, 2008
Filed Under Editorial, Governance | Viewed 456 times

I am not an economist, nor a banker nor a stock broker. I am just an ordinary citizen who observes what is happening, reads the news when I think they matter, and draws conclusions when I can. In trying to understand the $700 billion bailout, I tried first to write what it was about in my simple words and understanding.

The US President has approved a bailout—authorizing The United Stated Treasury Department to purchase $700 billion in assets from troubled financial companies to bail them out, with the objective of restoring the confidence in the market and helping stabilize the US economy—in effect saving the world economies from possible collapse.

Two facts:

(1) A number of mortgage related investment companies and financial institutions in America, most of them major players in the US economy are involved in a massive financial mess—they now form Wall Street’s bad debts. How did this mess happen in the first place? A simple accounting issue—these companies recorded profits even before they actually realized them. They overstated their future earnings, when they should not have done so. They created, marketed, and sold risky mortgages—which are now really worth nothing, and this has now boomeranged on them. Remember Enron?

(2) It cannot be denied that Americans live on credit, borrowing to make both ends meet. American families have resorted to turning to the equity of their homes as a last resort after exhausting their other income and assets to meet unexpected costs and to cope with the rising pressure of their credit card debts. A lot of these high-risk banking customers who do not have regular incomes were unable to pay their home loans, credit has become scarce, and they are in the risk of losing their homes. On the other hand, it has become difficult for businesses to borrow money for investments and payrolls and for individuals to get credit to buy a car or a home.

I was trying to interconnect these two facts, but I had a lot of questions. My banker friends and economist son seem to have run away from me, and nowhere to be found at that moment, some sort of being in in communicado.

And then came my brother, an accountant and an ordinary citizen in the US, to the rescue—we chatted through YM. Here is a transcript of our conversation. To make it shorter, I have deleted some conversations. I also translated some words in English.

.

me: how are you and how is $700 bn bailout affecting you?

him: much, but which aspect?

me: in general, the bailout, the effect, the crisis, how has it affected your life? your mortgage? parang interview ano?

him: w/o the bailout – a recession will happen. On mortgage—people pay more now, one friend is paying $3,300/mo, and another has given up his mortgage and is now renting. I heard that this will be modified to become $3,000 only. There will be tax rebates on real estate, and another round of stimulus money. Here at work there is no more overtime.

me: yes i read about that, but isn’t this $700bn bailout a lot of bs? It’s like the govt is now rewarding these companies w/c bloated their accts when in fact they should be sent to jail

him: It’s a big effect to the Phil. economy coz if the big corporations like dell, apple verizon will lose business a lot of call centers will close business too. And then there is the problem with the speculators on commodities

me: well…(sounding intelligent)

him: What’s good with America is they are down today but up the following day, unlike there in the Phil. it seems like the country is forever down

me: (quiet, dumbfounded)

him: Here, if they solve problems, there is action. Yes, there’s politics but the action is for the greater good of the masses

me: yes (was all I could say)

him: There it is all politics—they are all very good, but there is no action at all. It was yr 2001 when the economy of America was down, but after a while, they were able to recover. I guess, it will be the same this time—America will be able to recover again.

me: hopefully

him: It will. Watch when Obama wins. heheheh

I forgot all my other questions. I lost my focus on the $700 billion bailout. His words were like rubbing salt to injury.

“What’s good with America is they are down today but up the following day, unlike there in the Phil. it seems like the country is forever down.”

“Here, if they solve problems, there is action. Yes, there’s politics but the action is for the greater good of the masses. There it is all politics—they are all very good, but there is no action at all.”

Ouch! ouch! ouch! So true, but what to do?

We Filipinos ALSO NEED A BAILOUT—a bailout from greed, corruption, incompetent leaders, politicking, abuse of power, poverty, and many other social evils. God, help us!

Comments

9 Responses to “Trying to Understand the $700 billion Bailout (Filipinos need a bailout, too!)”

Vince on October 7th, 2008 10:44 pm

I guess it’s all about love for the country and its people, and what we can do for our country. I mean if our politicians really loved our counrty and worked for the better good, then we’d be in a much better state now. Well of course, we’d have to do the same. Haha!
Belle on October 8th, 2008 2:47 am

Dine, i am greatly affected by what is going on in the USA. i have to watch my expenses because as your brother said, overtime is now history, yet prices of commodities, medical bills are rising astronomically. my neighbor is possibly losing a half a million dollar house because the payment that comes every month from the house they sold in CA to pay for the mortgage of the new house quit. the buyers just quit making payment, and abandoned the house. now the bank repossessed the house, and tried to sell it through auction, but, to no avail. house sits idle for almost a year now.

i am for the bailout to save our economy from collapsing, possibly saving my job, too.
myepinoy on October 8th, 2008 3:39 pm

Lahat ng mga pangyayaring ito sa financial sectors ng U.S.A ay sa kadahilanan ng Kasakiman (greed). Maraming mga financial institutions at mga financial wizards ang nakapag-isip creative way to make money out of nothing. One clear example is the subprime mortgage that started the credit crunch and now hitting the investment and banking sectors.

Ang subprime lending ay isang paraan ng pagpapautang sa mga entities na di credit worthy. Ito ang utang na inutang ulit at pinautang ng mga financial at banking sectors.
pining on October 8th, 2008 6:41 pm

I don’t know much about economy (in fact, I flunked the subject in High school) but I think the Philippines state of economy is a different ball game altogether. I agree, we can, but pray, and hope that some miracle would happen.
Flor P. Velasco on October 9th, 2008 10:01 am

Nice issue to discuss….your brother was totally right when he said “What’s good with America is they are down today but up the following day, unlike there in the Phil. it seems like the country is forever down”....

I encountered this website “http://www.tomorrowsworld.org/...pls allocate some of your time to read this site and you will realize something…..
analyse on October 9th, 2008 8:58 pm

your bro is totally right. in fact, i seldom read news about the phils now, nakaka-depress lang. the fact that i see phils from here and almost all of my family are there, mas lalong nakaka-depress..

here in france, the crisis has already hit the financial boards too.. CAC 40 was down 6% last night and i think it will continue to go down.. but the govt is doing something, at least.. almost all of our investments are into stocks so i watch closely, hope this crisis stop soon.. nakakasakit na ng ulo..
annamanila on October 11th, 2008 4:56 pm

I was also trying hard to understand this. and your chat with your brother—bless him and his no-holds-barred answers—really helped. And yes, his commentary on how things are done in the US (compared with the lame, corruption-tainted way we solve orus) is ohsopainfully true.
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