The $700 Billion Bail-out: Why It Was Good to Say No

In my previous entry I discussed the fall of the Lehman Brothers and what this entailed for graduates seeking jobs. Given the growing concern of the current economic crisis many students felt that employment after graduating would now be harder. This week, I chose to write on another predominant issue of the economy, the $700 billion bail-out I felt it was extremely important to put the situation of the bailout and why it was voted against into perspective. I explored the blogosphere to find many bloggers and posts regarding this topic and focused on posts that contextualized the fundamentals of the plan. Through critical insight into the bailout, such as the fact the figure of $700 billion was admittedly chosen at random creates a better understanding while also revealing the many problems of the bailout. The first blog I commented on, Top 5 Reasons to Vote Against the $700 Billion Bailout gave extremely thorough and educated reasons why the bailout was a bad plan. Written by David Sirota, widely known for his coverage of political corruption and working-class economic issues, his immense knowledge and use of solid sources made his post extremely credible and influential. The second post I commented on was written by a Douglas Rushkoff, an extremely educated teacher, author and graduate from Princeton, Douglas focuses on people and institutions and how these influence one another. In his post Bail In or Bail Out? offers a more neutral and simple take on the plan that concluded that the bailout was not the right fix. In the case of the complicated bailout, I felt this blog allowed the reader to gain full understanding of the issue as it summarized the bailout and its effects in a simple but yet educated manner. Aside from publically posting my comments on each of the author’s blogs I have also posted them below.

“Top 5 Reasons to Vote Against the $700 Billion Bailout”
Comment:
Thank you for a concisely and clearly structured post regarding the complex issue of the $700 billion bailout. You are clearly extremely knowledgeable regarding this topic and have used extensively critically chosen facts and analysis to argue your case. By numerically ordering your points, you have made an extremely powerful, educated, and understandable case of why “every single member of Congress” should have voted against the convoluted issue of the bailout. Each differing factor you numerically examined kept straight to the point and therefore was understandable which is extremely important when discussing such an intricate issue. I fully agree with your opinion of not supporting the bailout and thought your use of examples both enhanced your ability to engage with the reader and to influence them. The example of “using a new credit card to pay off astounding debt from an old credit card … which is illegal” allows to reader to contextualize the concept of the bailout and engages them in thinking of the repercussions. Also by starting with such an example in your first of five reasons, immediately grabs the readers’ attention. Having read many articles both for and against the bailout, I was extremely glad to you wrote on the “clearly better and safer alternatives”. I agree with your point that many are under this ‘White House spell’ of “fear”. Many people who do not quite understand economics and the financial situation, especially those who are in powerful positions miss the point that several financial firms have began to work their way through the crisis even without the governments help. Furthermore, your point that increasing government debts will only harm us more is again something I agree with and see that many people forget to yet need to think of this important point.

Your choice of sources such as the U.S. Department of Treasury, Harvard’s Ken Rogogg, CEPR’s Baker and the NY Times reflects your wide spectrum of knowledge and your strength in analysis. You extract excellent evidence to further support and development your argument such as using Baker, someone who predicted the crisis, giving your post more credibility. Overall, a highly enjoyable post to read although I wished you expressed more of your opinion and thoughts on what policymakers and financial firms to do in order to resolve the crisis.

“Bail In or Bail Out?”
Comment:
I would like to begin by thanking you for blogging about the bailout in such an informative yet understandable way. By simply stating the fundamentals of what a bailout would mean you have constructed your post in a more open-ended fashion allowing to reader to either agree or disagree with the decision of not having the bailout. I especially enjoyed reading your blog as unlike many others, took a more neutral stance on the issue. Your explanation of the mortgages being currently extremely under-valued gives the reader more insight into the crisis revealing that in time these “depressed investments” will “earn out” and thus are solvable themselves. By describing that these “debts that are selling way way below their longterm value” you have also conveyed to the reader the governments reasoning as to why they began the debate of the bailout. Although this may seem obvious, many other blogs that I have read forget this point and see that the government was being irrational in even thinking of such a plan. I also thought your last paragraph of the need to invest “our time, energy, and remaining money in productive industries, education, and renewable resources” was insightful and showed your understanding of the economy. I agree with you on this and think that although the financial crisis has had detrimental effects on the economy it so far has proven to be more solvable than the problems of a lack of investments in renewable resources. Therefore, the bail-out is not necessary for relieving this crisis.

However unlike the general neutrality of your post you seem to focus more blame on McCain as to why the bailout did not go through. Instead, I feel that this was a minor reason as to why bailout was voted against. You do not mention the failures of the bailout itself such as increasing an already enormous debt as the main reason why the House voted against the plan. Although I found that your post importantly contextualized the bailout in a simple form which is extremely important in the case of such a complex issue, I would have liked to read more about your views and opinions.

Lehman Brothers Bankrupt: A Worry or An Opportunity?

Graduating has always been a time to celebrate. It signifies more than an end to an educational era, but also ones commitment to learning and attainment of knowledge. Most importantly, it marks the transition from childhood to adulthood and the working world. Today’s graduates however, are more daunted by the difficulty of finding a reliable and sustainable job than relieved to be finishing their education. Beginning from the sub-prime and credit crisis which offset the economic recession, Wall Street has not been as unstable as it is today since the Great Depression. Wall Street, the most influential powerhouse towards businesses from all industries, has seen dramatic and worrisome changes this past year. With major financial firms and markets in turmoil, firms and businesses are now facing harder times than ever giving graduates a reason to worry that employment may be harder to come by. With rising prices, the pressure is now greater to secure a job. “The Lehman Brothers has become the biggest firm in U.S. history to declare bankruptcy” as stated by The Economist, causing greater panic among those employed and those seeking employment. Although Lehman’s fall has created a major loss in the market and a great loss of jobs, their declaration for bankruptcy has also opened up opportunities for graduates who offer fresh perspective and lower expectations. The question remains whether Lehmans’ fall is a sign that the economy will continue in a downward direction making it harder to attain a job, or whether Lehmans’ demise is good for the industry and thus employment.

When the 158 year-old financial-services firm that had "survived the Great Depression and two world wars" filed for bankruptcy protection on September 15^th, 2008, it was "an indication that the U.S. economic and financial crisis was far from being over" as an employee of Lehman said. Its collapse created a further loss of faith in American stocks as the stock market and Dow Jones Indexes plunged. The damage has been widespread among businesses all over the nation as millions of both corporate and individual shareholders of Lehman have lost out. With such factors in place, graduates fear that the demand for jobs will sufficiently decrease.

What also comes along with a decreasing state of the economy is an increase in unemployment. Looking into this increase, it can be seen that the number of persons who lost their last job rose by 417,000 to 4.8 million in August 2008. Corporations are therefore now having to taking a more wary and cautious stance causing the great concern that businesses will be decreasing their recruitment. Furthermore, the ramifications of the such an enormous increase in the number of jobs lost means that graduates are up against those who have had years of work experience. New graduates are now fundamentally facing a higher and stronger level of competition in their respective professions. Lehman alone has approximately 26,000 employees who have now started to apply for other positions. A new worry has now arisen that diplomas graduating students have gained are questionably not be enough to give them jobs they would have originally qualified for before the crisis. However, firms are still hiring. Even more surprising is that after filing for bankruptcy Lehman posted four new job vacancies. Positions such as Foreclosure Specialists and Investor Accounting Specialist were placed on Lehmans’ website. Although these positions would be risky to take up, the sheer fact that a bankrupt firm is posting these listings show that firms are now preventing further problems they previously turned a blind eye to. Had the mortgage and credit crisis been resolved earlier, financial firms would have not been in the fragile positions that they are in today. These jobs therefore are a huge step towards stabilizing the economy and are targeted for more senior and experienced job applicants. Graduates therefore should not worry as this relieves the competition of lower level positions. Although there has been an increase in strength and quantity of those seeking jobs, within the graduate level the number of applications and competition remain the same. Moreover, Lehmans’ stance of posting jobs give an optimistic outlook that change for the better is soon to come thus installing more confidence in the markets and economy.

However, firms are still hiring. Even more surprising is that after filing for bankruptcy Lehman posted four new job vacancies. Positions such as Foreclosure Specialists and Investor Accounting Specialist were placed on Lehmans’ website. Although these positions would be risky to take up, the sheer fact that a bankrupt firm is posting these listings show that firms are now preventing further problems they previously turned a blind eye to. Had the mortgage and credit crisis been resolved earlier, financial firms would have not been in the fragile positions that they are in today. These jobs therefore are a huge step towards stabilizing the economy and are targeted for more senior and experienced job applicants. Graduates therefore should not worry as this relieves the competition of lower level positions. Although there has been an increase in strength and quantity of those seeking jobs, within the graduate level itself the number of applications and competition remains the same. Moreover, Lehmans’ stance of posting jobs give an optimistic outlook that change for the better is soon to come thus installing more confidence in the markets and economy.

Although comforting for graduates to know that major firms are still hiring despite their times of hardship, recruitment for many of these vacancies are usually first done within the corporations themselves. However, graduates need not to worry as recruitment for first year positions are of the lowest professional level and will always begin with graduate students. These positions remain to be filled by graduates as firms understand that experienced workers are unwilling to take up first year positions due to the lower pay. Therefore, as long as firms are still posting positions for firs year positions, there will always be a demand for graduates. Those who are seeking higher senior positions as an outsider to the company must worry about companies recruiting from within. Furthermore, during the course of this summer, many firms including Lehman Brothers, Citigroup and Merrill Lynch laid off several executives and directors. By laying off just one director or executive, firms could hire at least two or more graduates at a lower cost. Thus, with the unfortunate dismissal of thousands of senior directors, firms are able to maintain the recruitment of these lower level jobs.

Lastly, other firms and banks have taken the fall of the Lehman Brothers as an opportunity. On September 22^nd, Nomura bought out Lehman’s South-East Asian sector and European share. At the same time, “Barclays Capital completed its acquisition of Lehman Brothers’ North American Investment Banking and Capital Markets businesses” as stated on Lehman’s website. This potentially saves “roughly saves at least nine thousand jobs” as stated on Forbes’ website thus keeping many from having to look for new jobs. Lehman is an example to graduates that firms can revive extraordinarily quickly so that recruitment for graduates in the long run will not be hindered. Furthermore, the bankrupt state of the Lehman Brothers has forced the overall financial system now to mitigate through the crisis making itself and the markets more viable.

The Lehman Brother’s filing although a crisis itself, is an opportunity for graduates. Graduate level positions are not directly affected by the crisis. Although many businesses on the whole may be reducing their current recruitment, this is done to ensure that their company is stable and will not fall into a ‘Lehman crises’. A Forbes financial analyst states that the "demise of Lehman is a good sign for the industry". With financial firms recovering, Wall Street too will follow and thus so will businesses and firms of all industries. Therefore, in the long run, they will continue to be able to continually hire. There are still an abundance of graduate level positions and with the acquisition of Lehmans’ this creates an opportunity for new jobs. Prospects for graduates are clearly not wilted by the fall of the Lehman Brothers and instead a window of opportunity has been created for those who are at last departing from institutes of education. However, with inflation at a twenty seven year high, senior students may have to quickly learn how to really budget.