The Instigator
brian_eggleston
Con (against)
Losing
7 Points
The Contender
LR4N6FTW4EVA
Pro (for)
Winning
9 Points

The US Government should not allow failing financial institutions to go bust.

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Voting Style: Open Point System: 7 Point
Started: 9/19/2008 Category: Politics
Updated: 8 years ago Status: Voting Period
Viewed: 1,734 times Debate No: 5465
Debate Rounds (3)
Comments (15)
Votes (3)

 

brian_eggleston

Con

Pity the poor little rich boy. His father was away on business for the week and on Monday night he borrowed a big wad of his daddy's cash and took it down to the casino. On the roulette table he staked high value chips on obscure bets such as voisins du zero, finales en plein and tiers du cylindre. For nights on end, he was wildly successful, raking in the chips hand over fist. That week he lived an even more lavish lifestyle than he was used to, spending his winnings on the finest food and wine available to mankind and on entertaining high-class prostitutes in luxury hotels. However, come Thursday night his luck changed and he did his brains by placing all his chips on black and when the ball landed on red he lost every last cent of his daddy's money.

Well, his father was due back on Friday night and our profligate playboy had only hours to replace all the cash that he had gambled and lost. But what could he do? There was no way to earn it – he hadn't done an honest day's work in life. No, the only answer was to go to the local social security office and ask them to bail him out.

If you were the cashier at the social security office, would you give the troubled playboy a big pile of taxpayers' cash to save his bacon? I don't think so.

This is a metaphor, of course, for what has happened in the finance industry. A lot of very greedy, highly irresponsible investment bankers made incredible amounts of money chasing short-term profits (rather than investing in long-term gains), and now the chickens have come home to roost and the entire industry is in meltdown.

Well, that's capitalism for you. You take the rough with smooth. The winner takes all and let the devil take the hindmost. There's no room for losers in this society.

But wait. What's this? No, it can't be? The American government is riding to the financiers' rescue and are splashing out hundreds of billions of taxpayers' dollars on shoring up failed investment bankers in their hour of need.

That's not capitalism; it's socialism, except that the financial safety net is there just for the rich – ordinary hardworking families have to take their chances as per normal.

The US Federal Government is, in effect, playing Robin Hood in reverse – taking from the poor and giving to the rich.

This action is contrary to all norms of social justice. Failing financial institutions should be allowed to go to the wall – the taxpayer has no obligation whatsoever to cover greedy bankers' losses.
LR4N6FTW4EVA

Pro

The little rich boy spoken of by my opponent needs something else added to this debate. You see, the little rich boy, he wasn't just using his daddy's money, he borrowed trillions of dollars from the American people. If his gamble paid off, he and the rest of the American people would be very rich. Unfortunately it didn't. This not only caused him to lose his daddy's money, but America's money. So, if I were the clerk, I would pay him back in a hurry. Otherwise, the American people are going to get pissed.

Bailing out the rich boys may seem unfair, but it is necessary, so that the regular guys whose money the rich boys gambled away can get their money back. Bailing out financial institutions is the best way to do this.

"This is a metaphor, of course, for what has happened in the finance industry. A lot of very greedy, highly irresponsible investment bankers made incredible amounts of money chasing short-term profits (rather than investing in long-term gains), and now the chickens have come home to roost and the entire industry is in meltdown.'

The money they lost wasn't just theirs. It was the American people's. America wants it's money back.

"But wait. What's this? No, it can't be? The American government is riding to the financiers' rescue and are splashing out hundreds of billions of taxpayers' dollars on shoring up failed investment bankers in their hour of need."

The American people gain in the long run. Anyways, it is actually only 2 trillion dollars, most of which would come from overseas. We'll save in the long run.

"The US Federal Government is, in effect, playing Robin Hood in reverse – taking from the poor and giving to the rich."

99% of that money is coming from the top 5% of America. The poor aren't really hurt.

"This action is contrary to all norms of social justice. Failing financial institutions should be allowed to go to the wall – the taxpayer has no obligation whatsoever to cover greedy bankers' losses."

Social justice requires that the American people get their money back. I want to go to college, my parents want to retire. If their investments are lost by greedy bankers, is it fair to make me have to drop out of high school to work in Chilean guano mines? No. It's not. America wants its money back.
Debate Round No. 1
brian_eggleston

Con

With thanks to my opponent for taking up this debate, I should like to respond as follows:

If my opponent's extrapolation of my profligate playboy scenario were to hold true, by bunging the poor little rich boy "trillions of dollars" the American taxpayer would be ripped of not only once (as they have been), but twice!

However, my opponent does concede that the money lost through highly speculative and risky deals made on Wall Street wasn't just the bankers', but the American people's, and that they want their money back. I agree, if I were an American taxpayer, I would be hopping mad – I wouldn't want my tax dollars spent on keeping a bunch of incompetent spivs in Manhattan in caviar and champagne.

My opponent then states that most of the money required to feather the investment bankers' beds will come from abroad. He is wrong in this assertion - the US Federal Government is stumping up an extra $700 billion using American taxpayers' cash, not foreign capital - the international community are not so generous as to donate that sort of money to the world's richest nation!

http://edition.cnn.com...

He then contradicts himself by asserting that "99% of that money is coming from the top 5% of America". Again, this is unsubstantiated and untrue. The richest 5% of Americans do not, in general, pay tax. As President George W. Bush said himself - "most rich people are able to avoid taxes" – it is decent, hardworking families that are picking up the tab for this one.

http://www.joecasaletto.com...

My oppoenent's final statement read as follows:

"Social justice requires that the American people get their money back. I want to go to college, my parents want to retire. If their investments are lost by greedy bankers, is it fair to make me have to drop out of high school to work in Chilean guano mines? No. It's not. America wants its money back."

Damn right, America wants its money back. My point is that it should not dole out charity to loss-making financiers in the first place. If greedy, incompetent investment bankers go broke as a result of their own foolish mistakes, in a laissez-faire economy such as exists in the US, somebody more proficient will take over (as was the case last week when Barclays Capital bought Lehman Bros' investment banking business) – there is no need whatsoever for the American taxpayer give charity to failed stockbrokers.
LR4N6FTW4EVA

Pro

"However, my opponent does concede that the money lost through highly speculative and risky deals made on Wall Street wasn't just the bankers', but the American people's, and that they want their money back. I agree, if I were an American taxpayer, I would be hopping mad – I wouldn't want my tax dollars spent on keeping a bunch of incompetent spivs in Manhattan in caviar and champagne."

The "spivs" you speak of are the guys who keep us out of the next Great Depression. If they don't have money, they won't invest, and the economy will bust, permanently. They need money so they can get our money back.

"My opponent then states that most of the money required to feather the investment bankers' beds will come from abroad. He is wrong in this assertion - the US Federal Government is stumping up an extra $700 billion using American taxpayers' cash, not foreign capital - the international community are not so generous as to donate that sort of money to the world's richest nation!"

The United States doesn't have that much spare capital. The only way they can get it is by borrowing. The United States is considered the world's safest investment (Marketplace, NPR). We can easily get that money.

"He then contradicts himself by asserting that "99% of that money is coming from the top 5% of America". Again, this is unsubstantiated and untrue. The richest 5% of Americans do not, in general, pay tax. As President George W. Bush said himself - "most rich people are able to avoid taxes" – it is decent, hardworking families that are picking up the tab for this one."

Do you need me to substantiate it, here you go: "the top 0.1% of taxpayers by income pay 17.4% of federal income taxes (earning 9.1% of the income), the top 1% with gross income of $328,049 or more pay 36.9% (earning 19%), the top 5% with gross income of $137,056 or more pay 57.1% (earning 33.4%)," Okay, so not 99%, my old data was misread, but this is a quote from Wikipedia. BTW, the bottom 50% pays only 3.3% It's the taxes of the rich that pay for this.

"Damn right, America wants its money back. My point is that it should not dole out charity to loss-making financiers in the first place. If greedy, incompetent investment bankers go broke as a result of their own foolish mistakes, in a laissez-faire economy such as exists in the US, somebody more proficient will take over (as was the case last week when Barclays Capital bought Lehman Bros' investment banking business) – there is no need whatsoever for the American taxpayer give charity to failed stockbrokers."

The market needs capital. We need to give it capital. You can't make money unless you spend money.
Debate Round No. 2
brian_eggleston

Con

With thanks to my opponent for his continued interest in this debate, I should like to respond as follows:

My opponent wrote:

"The "spivs" you speak of are the guys who keep us out of the next Great Depression. If they don't have money, they won't invest, and the economy will bust, permanently. They need money so they can get our money back."

Not all investment bankers are spivs, but many are. The way the markets and annual bonus systems are organised encourages traders to undertake deals that have the potential to make short-term profits but are not necissarilly beneficial to the long-term interests of their companies or, indeed, to the wider economy.

A good example of this is short-selling, whereby a broker borrows shares he doesn't own and sells them later at a lower price, thus making a profit. It is, therefore, in his interest to talk the share price down and bankers often do this by spreading false rumours around the trading floors. This way, an unscrupulous trader (and in the world of de-regulated capitalism, ethical traders are, indeed, a rare commodity!) makes a profit from other peoples' misery.

That's why the Fed have suspended the practice and why the FBI have been sent in to investigate a large number of suspected dodgy traders.

The money they have gambled and lost in unwise trades was savers', pensioners' and investors'. Now they want the taxpayer to throw good money after bad. If Congress refuses to hand over the cash, banks might go belly-up, but their business dealings would be taken up by more scrupulous and reputable financial institutions.

My opponent then continued:

"The United States doesn't have that much spare capital. The only way they can get it is by borrowing. The United States is considered the world's safest investment (Marketplace, NPR). We can easily get that money."

In a sense this is both true and untrue. US Government Bonds, along with gold are, indeed, the safest investments in the world, especially since the credit crunch, which is why the USFG has a lot of liquidity. However, the cash received from sale of bonds has to be repaid, sooner or later, to the investor – they are not gifts to the US taxpayer from kind international benefactors!

My opponent then detailed how the majority of tax is paid for by more prosperous people, but I wouldn't call them "rich"; just "hardworking middle-class people".

His final point was that the markets need capital to invest in order to make money. True. However, there is a lot of money out there – the problem is, nobody knows exactly who has got how much and so are reluctant to lend it to the markets in case the investment bank concerned sinks, taking their money with it.

That's why the only place these financial institutions are likely to get their money is from the taxpayer. My point is that the taxpayer shouldn't be expected to invest their money in institutions that the market considers are bad risks.
LR4N6FTW4EVA

Pro

You know, I'm Pro, and you're Con. That means that you and I are arguing the wrong sides. Oh well, I assume that we should just stick with the old way.

"Not all investment bankers are spivs, but many are. The way the markets and annual bonus systems are organised encourages traders to undertake deals that have the potential to make short-term profits but are not necissarilly (sic) beneficial to the long-term interests of their companies or, indeed, to the wider economy."

We need investors. If they don't have money, that really sucks for us. I kind of want to go to college.

"The money they have gambled and lost in unwise trades was savers', pensioners' and investors'. Now they want the taxpayer to throw good money after bad. If Congress refuses to hand over the cash, banks might go belly-up, but their business dealings would be taken up by more scrupulous and reputable financial institutions."

Again, it's also foreign investors we could use. It's not all on us taxpayers.

"In a sense this is both true and untrue. US Government Bonds, along with gold are, indeed, the safest investments in the world, especially since the credit crunch, which is why the USFG has a lot of liquidity. However, the cash received from sale of bonds has to be repaid, sooner or later, to the investor – they are not gifts to the US taxpayer from kind international benefactors!"

You know how we have been doing this since the 1790s? We have been borrowing more money. Alexander Hamilton came up with this idea. That's why we have a $9 trillion debt. We don't have to get out of debt, we have so much credit, we're fine. So, later, more people will buy bonds, and we'll pay off that debt.

"His final point was that the markets need capital to invest in order to make money. True. However, there is a lot of money out there – the problem is, nobody knows exactly who has got how much and so are reluctant to lend it to the markets in case the investment bank concerned sinks, taking their money with it."

Yes, bailing them all out will increase confidence, which will bring up the economy. If we have confidence, which the bailout would provide, there will be even more investments."

Vote for me.
Debate Round No. 3
15 comments have been posted on this debate. Showing 1 through 10 records.
Posted by scissorhands7 8 years ago
scissorhands7
In a perfect world the government should have let the financial institutions go bust.

However if you factor in consumer fear, and since 3/4 of economic activity is consumer spending, then I agree with the Federal Reserve's recent moves.
Posted by RoyLatham 8 years ago
RoyLatham
I would have taken the Pro side of the debate. It is mess that we should have not gotten into in the first place. Stupid government and greed investors worked together over a long period of time to make the problem. The government part was encouraging the making of no-down-payment no-job loans, and refusing attempts to regulate the practice. This was done for the altruistic purpose of enabling poor people to buy homes, homes they could not afford and for which there was inadequate security. The financial institutions invented the mechanism of reselling loans, so that the loan originator had no vested interest in the loan being fulfilled. This was stupid, but greed trumped common sense. To compound the problem Ginnie Mae and Freddie Mac were allowed to grow to a size too large to be allowed to fail. If they have been broken up into regional operations, one of regions could have blinked out, which would have caused the others to get their act together.

The reason that the government had to intervene is that panic psychology had overcome market forces. It is like someone yelling "fire" in a crowded theater. People get trampled on the way to the exits, even though if everyone behaved sensibly the problem would be much better resolved. What the government is doing is (well, mostly) buying assets at very cheap prices. There is a good prospect that when sanity returns, they can turn around and sell those assets at a profit. The executives in charge of the financial institutions should be put on the street, and the stockholders should not retain more equity that the fair value of the assets, Chris Dodd and Barney Frank should be voted out of office, and the regulators who requested the authority to prevent the stupid loans should be replaced with ones that have enough courage to go public in the fave of charges that they hate the poor. Letting the system collapse in an emotional panic, however, is not the right idea.
Posted by LR4N6FTW4EVA 8 years ago
LR4N6FTW4EVA
I'll take this just for fun. I don't agree at all with what I'm saying though.
Posted by Rezzealaux 8 years ago
Rezzealaux
yessir :D
Posted by FoolsBeBroken 8 years ago
FoolsBeBroken
"Posted by Rezzealaux 3 minutes ago
Rezzealaux
"Let the vicious cycle begin."

I'm pretty sure this isn't the first time :D"

My apologies...

Let the vicious cycle begin...again.

Or

Let the vicious cycle pick up right where it left off.

:D
Posted by Rezzealaux 8 years ago
Rezzealaux
"Let the vicious cycle begin."

I'm pretty sure this isn't the first time :D
Posted by FoolsBeBroken 8 years ago
FoolsBeBroken
I agree. I don't think there should have been a bailout. It is time we ended personal and corporate welfare. I grabbed some fresh drawers and was ready to buckle up and brace for the downward ride. The market has always been able to correct itself without blowing through tax payer dollars. Now we have seen an immediate spike in the DOW but we will suffer over time. This was an extremely costly error. We just went from a real estate bubble to a government funded bubble. Tax hikes, although illogical under any circumstances, are inevitable as the American public will view it as the only viable solution to dig our way out. Let the vicious cycle begin.
Posted by LR4N6FTW4EVA 8 years ago
LR4N6FTW4EVA
Who's dumb enough to take this? Besides Bernanke that is?
Posted by brittwaller 8 years ago
brittwaller
I would agree, brian. Ride it out. Over time, real estate and precious metals are the only things that have true value, as in, even if all credit and fiat money disappeared/became worthless tomorrow, like Weimar Germany, real estate and precious metals would still have actual worth. What do you think, brian?
Posted by brian_eggleston 8 years ago
brian_eggleston
I agree with you USAPitBull63...those with nothing have nothing to lose...it's the middle classes that lose the most. The Robin Hood thing was just an analogy.

My sister has property in London which she rents out. They have lost 20% in their value in the last few months. She was asking me tonight for my advice. Sell up now and cut her losses or ride out the storm?

I say ride out the storm...
3 votes have been placed for this debate. Showing 1 through 3 records.
Vote Placed by Willoweed 5 years ago
Willoweed
brian_egglestonLR4N6FTW4EVATied
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Reasons for voting decision: history proves pro correct
Vote Placed by cmrnprk07 8 years ago
cmrnprk07
brian_egglestonLR4N6FTW4EVATied
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Vote Placed by Mangani 8 years ago
Mangani
brian_egglestonLR4N6FTW4EVATied
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