Comments on: Needed: Investment in Financial Infrastructure, Not a Bailout

By: joubess

joubess — Sat, 04 Oct 2008 04:54:56 +0000

Bruce, that’s right. I didn’t go into all that because trying to explain it is difficult. Thank you for doing it so eloquently. I couldn’t find the words when I was boiling it down.

The key words to all this mess are “unregulated” and “deregulated” in the name of greed. The stock market crash in 1929 happened when stock values plunged and traders couldn’t meet their margin calls. This time it’s the same process but a different set of products, derivatives sold for premiums but no money available when a claim comes in, or several claims. There wasn’t enough cash then and there isn’t enough cash now. Deregulation over the last several decades and failure to regulate new investment instruments leads us once again to the brink of financial disaster.

Unnecessary regulations should be removed. But the regulations that keep these things from happening need to stay and they need to be enforced. New investment products need to scrutinized more carefully before they are allowed to be put on the market. The SEC is supposed to oversee this and it fell down hard on its job. I foresee some criminal investigations and prosecutions in the future over this mess.

I am for the bailout, but the government must have securities or other significant ownership in the assets until they can be sold. That is the plan, and it passed the House of Representatives today.

By: Bruce

Bruce — Fri, 03 Oct 2008 21:53:23 +0000

m understanding of this situation is a bit different. I understand that these companies are in trouble – AIG, Bears and Sterns and Lehmans and others because of unregulated derivative trading. My understanding of derivatives is that they are insurance policies issued to a borrower (big money like billions of dollars) and payable if that borrower defaults on the payment. When the subprime crisis hit, there was not enough cash (like 57 billion dollars) in the reserves of the companies issuing the derivative to pay the claim. This got them into trouble with their ability to borrow daily to cover their expenses. They got their credit downgraded and could not borrow any money. They then collapsed.

I am in favor of a bailout only if we regulate this like we do securities. It is a murky mess right now. A big house of cards, with everyone collecting premiums, but no capitol was in reserve to cover their potential losses if claims were made. When it happened, all these companies got caught with their pants down.

By: joubess

joubess — Fri, 03 Oct 2008 21:01:42 +0000

I left out an important discussion point, the minimum wage. The statistics I’m quoting are for the 48 contiguous states. Alaska and Hawaii are different because of cost of living issues from not being physically connected to the rest of the country to take part in ordinary commerce.

Even with the recent increase in the minimum wage, we are at a point in modern America where a full-time worker earning the minimum wage can barely support him/her self, let alone a family.

The current minimum wage is $6.55/hr. If someone works full-time for that wage rate 52 weeks a year (no vacation, just holidays off), that person earns $13,624 a year. That is barely above the single person poverty line of $10,400/year. If that person gets sick and has no paid sick leave, he/she is in trouble. Minimum wage employees are often fired for missing work, even if it is because of illness because the employer needs a warm body working in that job. I’m not talking about disability or a major illness or injury, I’m talking about 3 days off for the flu.

If that person is married and the spouse doesn’t work, that family is below the poverty line of $14,000. If that family has one child, it is way below the poverty line of $17,600 for a family of 3. The poverty level for a family of 4 is $21,200 per year.

Two full-time minimum wage workers are living on the brink of financial disaster and are one or two paychecks away from serious consequences. Two full-time minimum wage workers that don’t take any vacation time or get sick each year only bring in $27,248 per year. If one spouse looses their job, the family plunges below the poverty line immediately.

This is a big reason why so many people are so angry about the rescue package before Congress. They are barely getting by and the rich jerks are whining.

We need to invest in the economy because without it there will be no work at all at any wage. But we also need to invest in the economy’s engine, its workers. The minimum wage needs to increase steadily over the next several years to bring the buying power of those wages back up to what it was 20-30 years ago. The minimum wage should support at least a spouse and one child above the poverty line, in my opinion. And that’s the absolute minimum. If we truly care about our workers, the minimum wage should support a family of 4 with one worker employed full-time, with paid sick leave, family health insurance and two weeks of paid vacation time.

This kind of treatment of the least of us in our society is deplorable in the richest country in the world. How we treat the least of our people says who we are. I don’t want America to be seen in this light. I want better for all Americans because we deserve better.

No matter who is elected in this cycle, this issue goes to the very core of who America is as a nation. We’re Americans and that means each of us can make a choice to change this. It’s the right thing to choose.

Choose to care and act today. Voting your mind in the upcoming election would be a really good start.