Re: Welfare For The Rich


"Iceman" <oneofcold@xxxxxxxxx> wrote in message
news:96a2173e-fabc-438d-9069-6065c8427f20@xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
On Mar 17, 9:11 am, "Schmedley" <schmege...@xxxxxxxxx> wrote:
"lawho...@xxxxxxxxxx" <lawho...@xxxxxxxxxx> wrote in message
Once again we come face to face with the terrible truth about
companies that are too big to fail. If you're a mom and pop operation
and you go under, well that's just tough - you're a bad manager. If
you're a Wall Street investment bank and you screw up, then the
Government bails you out. I think this is referred to as "welfare for
the rich."

I suspect we taxpayers will be paying for this mess for years to come.

I never really understood what "Investment Banks" did for a living
anyway.


Basically, an investment bank's main function is to link companies
that want to raise money with the sources of money - investors,
pension funds, mutual funds, hedge funds, etc. If a company wants to
issue stocks or bonds, the investment bank will go around the country
or around the world trying to sell the stocks or bonds, and usually
gets a 1-3% commission. This is known as "capital markets" work.

Investment banks also make money from merging companies (taking say, a
$100 million commission on a $10 billion merger), asset management
(managing rich people's money and taking usually a 1% commission), and
prop trading (using the bank's own money to trade stocks, bonds, and
other securities). Goldman Sachs, the most successful investment
bank, makes most of its money from prop trading.

In this case, Bear Stearns would buy mortgages from companies like
Countrywide, make bonds out of those mortgages, and then try to sell
the bonds to investors. This worked great for many years, and Bear
Stearns got massive commissions from selling mortgage-backed bonds.
But now that everyone knows a large fraction of these mortgages are in
trouble, and that the bonds based on those mortgages are much worse
than they appear, Bear Stearns couldn't sell a lot of the bonds and
got stuck with them.

I never worked in investment banking directly but my understanding of what
these companies do is the same as Iceman's. I am not in favor of government
bail-outs because, generally, it's the government gambling with tax payer
money. And, what they do to make things better in one area only makes things
worse in another area. This subprime collapse is a complex issue but no
doubt these big companies got greedy. They were giving home loans to people
who couldn't afford a pup tent. But because they were selling these
mortgages to other companies, they didn't give a ***. In addition, America
has developed an "entitlement" mentality combined with an insane level of
political correctness. Every one is suddenly "entitled" to every thing.
Many people buying these houses knew they couldn't afford them . In
addition, the majority of them were also in hock up to their asses in high
interest rate credit card debt and no money down car loans. But a lot of
them didn't care because part of the entitlement mentality is that, if you
can't make the payments, just walk away or declare bankruptcy. I believe
the root cause, in addition to the greed of the investment banking firms and
the entitlement mentality, is the continued loss of high paying
manufacturing jobs and businesses in this country. We send our jobs to
China so Walmart can flood our markets with cheap Chinese made goods. I
don't see any easy solutions to these problems but a return to old fashioned
money management might be a good place to start. Hold these corporate CEOs
responsible for their actions and realize that the only thing any one is
"entitled" to is an opportunity to earn the American dream.

Irish Mike




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