The Really Rich Are Doing It Again
For those of you that are not completely aware of what is going on the last few days, the government is proposing that the tax payer pay in taxes for the mistakes and risks the rich financial institutions made over the last 10 years. These people, who many have incomes at 50-100 million a year (yes million) decided to take some risks and made a pile of money doing it. Now that the market is unwinding, they want the tax payer to pay for their mistakes. This is beyond not fair, it is criminal. These people made so much money during the up times but now are going to have US tax payer pay for their mistakes in the down times.
The Big Lie
The biggest LIE going around is that this has all been caused by the sub prime mortgages. By blaming it on the sub-prime market, we as a nation have some compassion for the people that are loosing their homes. This is simply not true. Proof in point, Freddie Mac and Fannie May, who our government (read tax payer) had to bail out, only lent top credit quality loans also known as A paper. They didn’t have any subprime mortgage loans. This whole thing has been caused by the derivatives market.
The Derivatives Market is the Real Problem
What the financial institutions did with derivatives was the same thing as this analogy. You own a house that has a $100,000 in equity in it. Lets call that house 1. You then go and buy another house for $100,000 using as collateral the $100,000 equity in house 1. Then you go and buy house 3 for $100,000 using the equity in house 1. Do this 64 times. So the $100,000 in equity from the first house is being used as collateral for $6.4 million in houses. Now, what happens when the payments can’t be made? Where is the collateral??? As you can see a single house can bring down foreclosures on 64 other houses. This is what the financial institutions did with loans using derivatives. And to make it all look good, they got an insurance company (AIG) to insure the whole package for the downside risk. And these brilliant financial people then took the money from the derivatives and bought commodities and drove those prices (like oil and gold) high to further make a profit; but that is another story.
I have been asked several times over the last couple of days, how much are we talking about so I have done some rough calculations on what we would be paying.
Here is where we are at:
Bear Sterns: 20 billion (They say 20 billion but it will most likely be in the 100-150 billion area.
)
Fanny May and Freddie Mac: 1.2 trillion (They didn’t even put a price tag on this but they are holding about 6 trillion in loans. Estimates are around 20%. This could be much much higher.
)
AIG: 85 billion (Considering they are the largest if not only insurer of these derivatives and the entire derivatives market is at about 64 trillion, I am afraid this is may be closer to 200-500 billion)
Banking Bailout: 700 billion (Considering that they this is the government estimates, this will probably be closer to 2 trillion)
The total cost for the low side of the estimate is $2.005 trillion and the higher side is around $4.35 trillion. BTW, there are some doomsayers out there that think the the total cost could be a large percentage (20-30%) of the entire derivatives market of 64 trillion.
What Is The Effect To Everyone
Our team and most people we know are going to pay somewhere between $28,099 and $60,963. This has been determined based on the fact that 50% (69 million) of the tax payers make less than $30,000 per year and pay a total of 3.3% of the taxes for the US and the other 50% of the tax payers pay 96.7% of the taxes.
Assuming these calculation, these bailouts are going to cost the following per person:
Income Low High
Under 30k per year: $959 $2,080
Over 30k per year: $28,099 $60,963
* As a disclaimer I would like to state that not all of the money coming out of your pocket will be in the form of taxes. Some will also be in the form of inflation, the hidden tax. But these numbers should provide a fairly accurate depiction of the impact to the individual.
Further Impact To the Economy
Interestingly, the difference in tax policy between democrats and republicans in the past has only been a couple of percent. Lets say 2-3% total. Believe it or not, that is about it. And that difference has arguably helped or hurt the short term economy. Can you imagine the impact on the economy if we had to pay additional taxes. $28,099 paid over 10 years is still $2,810 in additional taxes per year. Can you imagine what that would do to the economy? I can tell you it would crush it.
What Happens If We Don’t Bail Out The Banks
What is the real impact of the financial market imploding? Would it really impact any of us day to day? I don’t think so. I would speculate that within 2 weeks they would restore some order. Banks will work again; don’t forget not all banks were involved in this scam. (Thank you Wells Fargo!) People would go about there day to day lives. Some say our economy can not operate without credit. I can tell you for the last 3 months, for the most part, the public has not been able to borrow money anyways, so clearly that is not true. The credit markets will come back because there is money to be made loaning money and that is how banks make there money.
What Do We Do
It is time that we do something about our future before it is too late. This has to be stopped. The government is going to push this through by Friday. This does not leave us much time. I urge everyone on our team and anyone you know to contact your congress people
and senators TODAY and tell them that WE DO NOT WANT TO PAY FOR THE FINANCIAL INSTITUTION’S MISTAKES.
For those of you that are not completely aware of what is going on the last few days, the government is proposing that the tax payer pay in taxes for the mistakes and risks the rich financial institutions made over the last 10 years. These people, who many have incomes at 50-100 million a year (yes million) decided to take some risks and made a pile of money doing it. Now that the market is unwinding, they want the tax payer to pay for their mistakes. This is beyond not fair, it is criminal. These people made so much money during the up times but now are going to have US tax payer pay for their mistakes in the down times.
The Big Lie
The biggest LIE going around is that this has all been caused by the sub prime mortgages. By blaming it on the sub-prime market, we as a nation have some compassion for the people that are loosing their homes. This is simply not true. Proof in point, Freddie Mac and Fannie May, who our government (read tax payer) had to bail out, only lent top credit quality loans also known as A paper. They didn’t have any subprime mortgage loans. This whole thing has been caused by the derivatives market.
The Derivatives Market is the Real Problem
What the financial institutions did with derivatives was the same thing as this analogy. You own a house that has a $100,000 in equity in it. Lets call that house 1. You then go and buy another house for $100,000 using as collateral the $100,000 equity in house 1. Then you go and buy house 3 for $100,000 using the equity in house 1. Do this 64 times. So the $100,000 in equity from the first house is being used as collateral for $6.4 million in houses. Now, what happens when the payments can’t be made? Where is the collateral??? As you can see a single house can bring down foreclosures on 64 other houses. This is what the financial institutions did with loans using derivatives. And to make it all look good, they got an insurance company (AIG) to insure the whole package for the downside risk. And these brilliant financial people then took the money from the derivatives and bought commodities and drove those prices (like oil and gold) high to further make a profit; but that is another story.
I have been asked several times over the last couple of days, how much are we talking about so I have done some rough calculations on what we would be paying.
Here is where we are at:
Bear Sterns: 20 billion (They say 20 billion but it will most likely be in the 100-150 billion area.
)
Fanny May and Freddie Mac: 1.2 trillion (They didn’t even put a price tag on this but they are holding about 6 trillion in loans. Estimates are around 20%. This could be much much higher.
)
AIG: 85 billion (Considering they are the largest if not only insurer of these derivatives and the entire derivatives market is at about 64 trillion, I am afraid this is may be closer to 200-500 billion)
Banking Bailout: 700 billion (Considering that they this is the government estimates, this will probably be closer to 2 trillion)
The total cost for the low side of the estimate is $2.005 trillion and the higher side is around $4.35 trillion. BTW, there are some doomsayers out there that think the the total cost could be a large percentage (20-30%) of the entire derivatives market of 64 trillion.
What Is The Effect To Everyone
Our team and most people we know are going to pay somewhere between $28,099 and $60,963. This has been determined based on the fact that 50% (69 million) of the tax payers make less than $30,000 per year and pay a total of 3.3% of the taxes for the US and the other 50% of the tax payers pay 96.7% of the taxes.
Assuming these calculation, these bailouts are going to cost the following per person:
Income Low High
Under 30k per year: $959 $2,080
Over 30k per year: $28,099 $60,963
* As a disclaimer I would like to state that not all of the money coming out of your pocket will be in the form of taxes. Some will also be in the form of inflation, the hidden tax. But these numbers should provide a fairly accurate depiction of the impact to the individual.
Further Impact To the Economy
Interestingly, the difference in tax policy between democrats and republicans in the past has only been a couple of percent. Lets say 2-3% total. Believe it or not, that is about it. And that difference has arguably helped or hurt the short term economy. Can you imagine the impact on the economy if we had to pay additional taxes. $28,099 paid over 10 years is still $2,810 in additional taxes per year. Can you imagine what that would do to the economy? I can tell you it would crush it.
What Happens If We Don’t Bail Out The Banks
What is the real impact of the financial market imploding? Would it really impact any of us day to day? I don’t think so. I would speculate that within 2 weeks they would restore some order. Banks will work again; don’t forget not all banks were involved in this scam. (Thank you Wells Fargo!) People would go about there day to day lives. Some say our economy can not operate without credit. I can tell you for the last 3 months, for the most part, the public has not been able to borrow money anyways, so clearly that is not true. The credit markets will come back because there is money to be made loaning money and that is how banks make there money.
What Do We Do
It is time that we do something about our future before it is too late. This has to be stopped. The government is going to push this through by Friday. This does not leave us much time. I urge everyone on our team and anyone you know to contact your congress people
and senators TODAY and tell them that WE DO NOT WANT TO PAY FOR THE FINANCIAL INSTITUTION’S MISTAKES.
