Can someone please explain to me this bail out thing

**pollypurebred39** · 09-17-2008, 05:17 PM

I've been reading tons of articles on it and everyone differs as to what it really means. I'd like to know what it really means, in simple terms. Normally I would never ask you to talk down to me but I am not an economics major and I've always found it very confusing. Now don't misunderstand me I know what a buy out is, I just don't really get what that means to my bottom line, America's bottom line, who really benefits, does the CEO's walk away from this mess with cash in their pockets, does it really help or hurt our economy to bail these big businesses out?

Thanks,
Polly

**Gabe** · 09-17-2008, 09:30 PM

two words... [ame="http://en.wikipedia.org/wiki/Corporate_welfare"]corporate welfare[/ame].
Almost inclined to vote for Nader...
He looks like the best of the lot out there.
Haha!

**monkeywrangler71** · 09-17-2008, 09:48 PM

A bail out is not the same as a buy out. Merrill Lynch was a buy out - another company bought them with hopes of doing a better job, AIG was a bail out - they were given a loan to stay afloat.

Typically the investment world does not like bail outs. A bail out normally prolongs the agony, so to speak, by propping up a company that can not stand on it's own. People who work in the markets usually prefer that companies go under or get taken over when they can no longer compete during a crisis period. Cut the dead weight and hit the bottom as fast as possible, rather than have a long decline. This is why no one saved Lehman's.

However, AIG was an extreme case. This is the largest insurance company in the world. Letting AIG go under would be catastrophic to the global economy.

People tend to think of corporations as a handful of fat rich guys sitting in a boardroom collecting money, but large corporations are owned by millions of average people through their pension funds, mutual funds, insurance policies, and bank deposits. AIG is not being bailed out to line the pockets of CEO's, it is an attempt to prevent your bank from collapsing, your insurance from disappearing and your pension and investments from becoming worthless.

**pollypurebred39** · 09-18-2008, 12:10 AM

Thanks.

Okay, what does that mean to me? to America? How are we going to pay for this exactly? I understand it comes from taxes, but how exactly? And I'd really like to know if CEO's are going to walk out of this with their pockets fat.I know you said that's not what this is about, but are they? And how would it be catastrophic to the global economy? I'm seeking details that make real sense to me. I'm just trying to make sense of it all. In all our union investments they state very clearly that our pensions are a gamble and that we need to be very careful what plan we pick because we could just lose it all. I never thought for a second that someone would come bail us out for our retirement if we made a bad choice. Isn't that what investments are a risk you take? Just asking, not trying to be difficult.

Thanks,
Polly

**frugalbabe** · 09-18-2008, 12:13 AM

They were extended a loan that they are required to pay back in two years. In the meantime they will be selling off some of their companies and reorganizing others. I see why it had to be done but AARGH! This is the natural course of a company that gets too bloated and has made bad investment choices I think by bailing them out the natural course of the market is thwarted. What do you do let a company that literally has significant roots in 130 countries and is a major economic player collapse on itself causing a potential worldwide depression? Or do you prop it up although there are still major major problems internally?

**frugalbabe** · 09-18-2008, 12:19 AM

Will their CEO's walk away poor? No. They are being replaced but I am sure they will by no means walk away to the poorhouse. Actually, from what I am hearing this could actually be proitable to us as taxpayers but I do not know the details of that. It would be catastrophic to the global economy because AIG is a major insurance provider to millions (life, auto, the usual) but also they act kind of like the FDIC for investments from what I understand (which is murky in this area!) their collapse would cause a domino effect.

**pollypurebred39** · 09-18-2008, 01:52 AM

Okay, a bit confused. I thought the government covered the FDIC insurance. So then I ask about the other, what "IF" we didn't bail them out and life insurance, auto, ect. didn't get paid out and everyone was forced to find new policies? And about the CEO's? That does not make any sense, if you or I screwed up so bad that we caused our companies to fold we would be fired, no money would be coming our way. How can they get paid for running a company into the ground??? shouldn't that money go to repaying the loan? Why would the government let them do that?

That domino effect, well I heard somewhere that their are a lot of other companies in the wings that are in just as bad as shape as AIG, and soon they will show their cards. I wonder just what we will do then?

I still don't understand how the tax payers will pay for this. I wish our government would just put it all in black and white. Spell it out for folks like me. I would like them to explain exactly how much my individual taxes would increase, will there be any hidden taxes. You know like those little surprises that suddenly show up on your pay check and you have know idea what the new tax is for. What it all means in the short and the long run. And heck if it is going to benefit us Americans why aren't they shouting that from the roof tops? Everyone seems so fired up about this if that's true and I were Bush that's what I'd be telling everyone.

I suppose I need a visual. When I was in college I used to take out videos of my courses so I could take notes and write up flash cards for tests. Reading things in text has a way of going over my head. I need to see exactly why something would happen rather than reading a line in text that just confirms it will. You know, A causes B and B causes C, ect. Just saying it would cause a domino effect, or be catastrophic to the global economy because it holds auto and life insurance does not explain the how to me. A bit slow on the uptake when it comes to this kind of stuff.

Thanks,
Polly

**cheles2kids** · 09-18-2008, 07:40 AM

Polly, you are not the only person that gets tired/even more confused of hearing CNN report it from their stock market "people".

Clear English without all the professional mumbo jumbo, would help me too.

I'll be watching your thread to see what else I can learn.

**Greebo** · 09-18-2008, 08:44 AM

AIG wasn't just given a loan - they were given a loan for 80% stake. That means AIG is now 80% government owned.

My feelings on this subject should be very clear from the quote I posted last week or so.

This feels good *now*. Long term, I have deep misgivings about what all these bailouts will mean.

**PrairieRose** · 09-18-2008, 08:58 AM

You can pretty much equate anything that our government 'does' in regards to money as money you're paying in as taxes, they're spending. So right now we're adding this bazillion dollars bailout onto our huge national debt tally. China will lend us the money, we will pay obscene amounts of interest and just keep adding to the debt. It's just like if you were very financiall irresponsible, spending like crazy, living way above your means and had a lot of personal debt, you can't meet the monthly payments and your job has cut your pay. What are you gonna do? (well we know you'd be up a creek, but we're talking in metaphors here trying to 'splain the bailout, k?). If you had a seemingly rich relative who came in and said I'll help ya out. I'll pay off your bills but I'm gonna have a say in how you spend your money for a long time, gonna look around and make sure you're not being frivolous (which I find hilarious that the gov't made this part of the deal....I mean our gov't holding someone financially responsible....

) etc.... . And later you find out they have borrowed the money to 'bail you out of your mess'! (which by the way means that this lender has liens on your debt as well....and can call in those notes at will too.....). AIG had less money than they had 'assets' (like you have less money in the bank than you have money in possessions like your house, your car, your jewelry, etc...). They couldn't meet their expenses b/c of that....like payouts for the insurance policies, etc......(and they aren't the FDIC but what the other poster was saying they cover something like the FDIC does for investments) so that made them have to admit to being broke......! I hope this helps......suffice it to say it's just a big ol' mess and if our doggone gov't doesn't stop spending like they do, they're gonna be in the exact same shape. (end of rant)
*eta* No actually, we already are in the exact same shape............

**Katybird** · 09-18-2008, 10:42 AM

I wonder if the governement loan of 85 BILLION dollars will ever be repaid and what kind of interest is on a loan of this type. I find it hard to believe that a corporation that let itself get into such a terrible financial situation that an 85 BILLION loan was needed could possibly be able to pay back a loan that size in two short years.

**Greebo** · 09-18-2008, 10:44 AM

Supposedly AIG will have to sell off its assets to pay back the loan.

Begging the question - WHAT ASSETS???

**frugalbabe** · 09-18-2008, 10:52 AM

AIG will collapse that is a foregone conclusion the loan is just to help the collapse happen in as orderly a fasion as possible (yeah I know ridiculous but trying to think like the government here) the AIG that emerges from this will NOT resemble the AIG before all of this. It will be broken down to smaller companies. The bailout, while colossally annoying, will hopefully protect its customers from personal catastrophe.

**pollypurebred39** · 09-18-2008, 11:03 AM

Well it seems to just about all of Americans have done the EXACT same thing as AIG and now are in deep waters just like AIG, so where's the government bail out for American people? This is not right as far as I can see. All investments are a risk, so people risked and now they they get bailed out? I don't think it's right, you can't bail people out we all have to suffer from our bad money mistakes. I say this knowing that it may very well mean our unions investments for our future may tank very soon.Do I want it to happen, of course not, but we knew the risks of it all when we picked our plan. Which by the way has done very poorly from the start,but we have loads of money it it(something that gets taken from your pay(you have no choice), used to be a high interest savings but someome got the bright idea of investing). Somehow this just does not seem right and it seems like it is just delaying things if more companies are to follow. Will we bail them out also? and if we don't or can't then what? So many Americans right now wish they hadn't been so free with money they didn't have, I see no difference. If we took all of these Americans collectively wouldn't they too be in dire need of a bail out?

And WHY????would we borrow money from China for this? What happens if they call in their loan?

**PrairieRose** · 09-18-2008, 11:28 AM

Originally Posted by pollypurebred39

And WHY????would we borrow money from China for this? What happens if they call in their loan?

Because we're borrowing billions from China....on a daily basis right now. When they call in their notes....they will own us. Lock, stock and barrel if something isn't done about it and quick (Nov. 4th is coming up, please VOTE!).