Explain to me: Federal Bank Bailout

[asterroc]

Oh wise LJ-friends, explain to me this Feds bailing out / buying out the banks thing. Preferably in 3 sentences or less (so as to boil it down to what's most important).

I really do appreciate y'all's ability to boil down these topics I find remarkably complex and filled with too many details for me to grasp, into simple "here's what's important about the thing, and here's what you can ignore" sort of summaries. And I've a tag for them too.

So. Fannie May, Freddie Mac (what's with the names anyway?), and AIG. Three sentences. Go!

Comments

[marquiswildbill.livejournal.com]

Basically all of these financial companies are taking a beating because of the sub-prime mortgage crisis, which in turn effects all of their other lending. Then the insurers like AIG who had insured the mortgages started taking a beating, and they had to put up more collateral as they were paying out a lot on the mortgages they had underwritten. So all of these major companies are dragging the stock market, and consequently all of our economy down, which makes everything worth. The government had to step in to prevent a financial collapse, by bailing companies out and issuing a ten day ban on short selling stocks (which would drive everything down as well), the likes of which has not been seen in 79 years.

That was 4 sentences, and is really simplistic. The ultra simplistic one sentence response is: They had to do it because all of these major financial institutions where going to tank and the US economy was going to resemble the Afghani economy without someone stepping in to stop the losses.

Frannie May and Freddie Mac are government subsidized lenders for student loans and low income mortgages, the government is pretty much obligated to bail them out anyway. Even so it's going to be really hard to get student loans and low income mortgages for awhile. It's going to be a bumpy two years. Keep your 401K contributions at the same rate (they're buying more now and they will adjust as the market corrects itself), but any investments you have that aren't in guaranteed CDs get out of and keep the money in cash in an FDIC insured savings account (if you have more than $100,000, split it into multiple accounts at different banks b/c FDIC only covers 100k).

[jennekirby.livejournal.com]

A good summary--thank you.

Also your icon looks like the inside of a migraine. (Which I say to mean it's cool to see that pattern outside my head and without the accompanying pain, not that it gives me a headache.)

[marquiswildbill.livejournal.com]

I just like it because it's trippy. Granted it's kind of like what bright white looks like to me. I don't see solid color without my brain injection noise into it.
I don't visualize a migraine as looking like that. In fact I don't think I can associate an image with a migraine. The closest to a visual I could give is a feeling of almost electrical pain in my optic nerves, especially if there is light. I personally find the nausea/vomiting from a full on migraine to be worse than the pain. Then again I'm a chronic pain patient so I'm used to pain (or coping with it at least), and I always have pain meds in my system. Whereas I don't handle vomiting well. And it seems like every time I have severe nausea/vomiting I either have no zofran or i forget I have it. I usually manage to catch a migraine before that starts and I can take action to keep that from happening. But I have been getting migraines a lot more frequently in the past year (from 2-3/yr to about once a month, including two that totally incapacitated me for a period, one of which I nearly went to the ER over because the nausea was SO bad. I probably should have because I was so weakened from vomiting all damned night. And a shot of zofran or phenergan and IV fluids would have taken care of that nicely.)
I'm glad you found my summary useful.

[zandperl.livejournal.com]

It sounds like you're saying "failure of a few banks due to housing loans" inevitably turns into "failure of all retirement plans". I'm not getting that.

[marquiswildbill.livejournal.com]

No I actually said 401k will remain safe because it is a long enough term investment for young people that it will recover from this.
What I was saying was that the chain collapse of large financial institutions would create a panic among investors, leading to a loss of market confidence, and a downward spiral of the stock market in general. That is why the government had to step in, to halt a chain reaction. Some major players have already been brought down. And more would follow w/o a government intervention. Hopefully the SEC will make new rules to keep this from happening.
I personally blame out of control oil speculation for being a major part of this starting, it shifted the economic balance further than it could go.