Some cool economic disaster images:
The Economic and Human Impact of Disasters* in the last 12 years
Image by UNISDR Photo Gallery
– Economic Damage (USD)
– People affected
– People killed
For the PDF version, visit this page: www.unisdr.org/archive/25831
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Past Economic BAILOUT BUBBLES
Cost in 2008 U.S. Dollars.
? Penn Central Railroad
1970 .2 billion
In May 1970, Penn Central Railroad, then on the verge of bankruptcy, appealed to the Federal Reserve for aid on the grounds that it provided crucial national defense transportation services. The Nixon administration and the Federal Reserve supported providing financial assistance to Penn Central, but Congress refused to adopt the measure. Penn Central declared bankruptcy on June 21, 1970, which freed the corporation from its commercial paper obligations. To counteract the devastating ripple effects to the money market, the Federal Reserve Board told commercial banks it would provide the reserves needed to allow them to meet the credit needs of their customers.
? Lockheed 1971 .4 billion
In August 1971, Congress passed the Emergency Loan Guarantee Act, which could provide funds to any major business enterprise in crisis. Lockheed was the first recipient. Its failure would have meant significant job loss in California, a loss to the GNP and an impact on national defense.
? Franklin National Bank
1974 .7 billion
In the first five months of 1974 the bank lost .6 million. The Federal Reserve stepped in with a loan of .75 billion.
? New York City 1975 .4 billion
During the 1970s, New York City became over-extended and entered a period of financial crisis. In 1975 President Ford signed the New York City Seasonal Financing Act, which released .3 billion in loans to the city.
? Chrysler 1980 .9 billion
In 1979 Chrysler suffered a loss of .1 billion. That year the corporation requested aid from the government. In 1980 the Chrysler Loan Guarantee Act was passed, which provided .5 billion in loans to rescue Chrysler from insolvency. In addition, the government’s aid was to be matched by U.S. and foreign banks.
? Continental Illinois National Bank & Trust Co.
1984 .5 billion
Then the nation’s eighth largest bank, Continental Illinois had
suffered significant losses after purchasing billion in energy loans from the failed Penn Square Bank of Oklahoma. The FDIC and Federal Reserve devised a plan to rescue the bank that included replacing the bank’s top executives.
? Savings & Loan
1989 3.8 billion
After the widespread failure of savings and loan institutions, President George H. W. Bush signed and Congress enacted the Financial Institutions Reform Recovery and Enforcement Act in 1989.
? Airline Industry 2001 .6 billion
The terrorist attacks of September 11 crippled an already financially troubled industry. To bail out the airlines, President Bush signed into law the Air Transportation Safety and Stabilization Act, which compensated airlines for the mandatory grounding of aircraft after the attacks. The act released billion in compensation and an additional billion in loan guarantees or other federal credit instruments.
(What happened after the bailout?)
? Bear Stearns 2008 billion
JP Morgan Chase and the federal government bailed out Bear Stearns when the financial giant neared collapse. JP Morgan purchased Bear Stearns for 6 million; the Federal Reserve provided a billion credit line to ensure the sale could move forward.
? Fannie Mae / Freddie Mac
2008 0 billion
The near collapse of two of the nation’s largest housing finance entities was yet another symptom of the sub-prime mortgage and housing market crisis. In an effort to prevent further turmoil within the financial market, the U.S. government seized control of Fannie Mae and Freddie Mac and guaranteed up to 0 billion for each company to ensure they would not fall into bankruptcy.
? A.I.G. 2008 billion
When AIG was unable to secure a private-sector loan, the federal government intervened by seizing control of the insurance giant.
? Auto Industry 2008 billion
In late September 2008, Congress approved a more than 0 billion spending bill, which included a measure for billion in loans to the auto industry. These low-interest loans are intended to aid the industry in its push to build more fuel-efficient, environmentally-friendly vehicles. The Detroit 3-General Motors, Ford and Chrysler-are the primary beneficiaries.
? Troubled Asset Relief Program 2008 0+ billion
The Bush administration has proposed a rescue plan to ease the current crisis on Wall Street. If approved by Congress, the Treasury Department will be authorized to purchase up to 0 billion of distressed mortgage-backed securities and other assets and then resell the mortgages to investors.
Why should responsible Americans be forced to pay for the mistakes of others?
A bailout is morally irresponsible because it encourages reckless and irrational behavior. Here’s a short list of the many "moral hazards" a bailout enables:
A bailout sends the wrong message about personal responsibility. It tells Americans in no uncertain terms that their financial decisions have no consequences; the government will pick up the tab.
A bailout tells responsible Americans that they are suckers. If responsible American had been smart, they would have overextended themselves, purchased homes they could not afford, and taken out home equity loans based on the paper value of their property. Then, when the bill came due, they could just pass it to the government.
A bailout allows banks, mortgage brokers, speculators, and re-financers to benefit from their abuse of the system. By doing so, it encourages these people to act irresponsibly, in future.
A bailout will force Americans who acted responsibly to pay for those who did not. The average American – who saved and scrimped for years to buy a house, but could not because speculators and over-extenders boosted home prices beyond affordability – will now be forced to pay for the homes of those who were less scrupulous.
A bailout will have a disproportionately negative affect on minorities and youth. Minorities and Americans under 35 are disproportionately underrepresented among homeowners. While non-Hispanic whites enjoy a 75% homeownership rate, less than 50% of blacks and Hispanics own homes. Similarly, only 42% of Americans under 35 own homes, compared to 80% for Americans 55 and older. A government bailout will perpetuate this race and generation gap by propping-up inflated house prices, thereby permanently pricing minorities and a generation of youth out of the market. And, in a Kafkaesque irony, these folks will actually have to pay to prevent themselves from buying homes (i.e., taxes).
A bailout is also fiscally irresponsible:
A bailout props up over-inflated housing prices, thereby putting homeownership out of reach for young families and responsible Americans who recognized that there was a bubble. The housing market needs the correction that the bailout seeks to prevent because the average American cannot afford to purchase a home. "You cannot be both in favor of affordable housing and in favor of propping up home prices!"
A bailout creates perverse incentives. Rather than punishing their behavior, it encourages fiscal irresponsibility among bankers, mortgage brokers, speculators, and refinancers. These folks made money hand over fist in the past nine years (remember, home borrowers who tapped their home equity received cash money to pay for Escalades, vacations, and stainless steel appliances; now they want you to pay for it!). Why change your behavior when you benefit from it?
A bailout shifts the risks of falling market prices from financially secure banks to the American taxpayer. As a result, either taxes or the federal deficit will skyrocket! This is a government handout we simply cannot afford & moreover, It Is Wrong!
A bailout is contrary to the free market principles upon which our economy is based. It jams a huge wrench into the market correction, with negative effects that will be both severe and long-term.
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