Local Experts’ Views Vary on Plan of Action
By CASEY JUNKINSWHEELING - "Corporate welfare" is how West Virginia University economics professor Russell Sobel describes the planned $700 billion federal government bailout of troubled Wall Street investment firms.
But Brian Sommers, chief investment officer for McKinley Carter Wealth Service in Wheeling, believes the government must intervene to provide a continued flow of credit to banks to prevent job losses.
As U.S. senators and representatives worked with President Bush in Washington, D.C., on Thursday to finalize a taxpayer-funded bailout for certain Wall Street firms, economists and investment officers continued debating the merits of such action.
"There will not be a depression if this plan does not go through; there is no panic in financial institutions that have used sound business practices," Sobel said.
Sobel said providing the failing investment firms with a bailout will only encourage the companies to continue with the risky business that caused their problems.
"These companies will just be depending on the government to bail them out again whenever there is another slowdown. Companies that make bad business decisions should have to live with those decisions and go out of business," he said.
And though Sommers said he normally opposes significant government intervention in the economy, he believes this bailout is necessary.
"If they (government) do not do anything, the economy will slow drastically. Even though this plan is not perfect, the government needed to step in on this," he said.
Sommers also said the bailout will help stabilize the economy to the benefit of all those involved.
"This is not just a Wall Street bailout; this is a 'Main Street' bailout," he said.
Sobel said the main problem with the bailout is that U.S. taxpayers will be picking up the tab for private companies.
"(President) Bush makes it sound like he can fix this by getting money from the 'Tooth Fairy,' but this money is coming from you and me. The U.S. taxpayers should not have to pay for the mistakes of big business," he said.
Sobel believes unusually low interest rates and outright fraud are likely the reasons for the current Wall Street problems.
"The Federal Reserve held interest rates too low for too long, which encouraged people to take out loans they could not afford," he said, adding that anyone committing fraud should be punished.
Sommers said accounting rules established by Congress need to be changed to help prevent such instability.
"They (Congress) should also start regulating investment banks the way the regulate commercial banks to prevent the investment banks from getting too far off course," he said.
Sommers said commercial banks - such as Bank of America and WesBanco - fall under the requirements of the Federal Deposit Insurance Corp. that insures deposits of up to $100,000. But investment banks - such as Merrill Lynch and Morgan Stanley - are not regulated by the FDIC.
Members of Congress representing the local area shared their views of the bailout plans Thursday via news releases.
U.S. Sen. Jay Rockefeller, D-W.Va., a senior member of the Senate Finance Committee, said there are likely very tough times ahead.
"This plan is intended to prevent economic catastrophe but it alone will not put us on the path to prosperity. We must immediately turn our attention to broader economic recovery, from health care, to increased wages, to expanded job opportunities, to major public infrastructure. The people of West Virginia deserve lasting solutions."
Congressman Zack Space, D-Ohio, stressed that the welfare and well-being of American taxpayers must be of paramount importance in the creation of the final version of the economic rescue bill.
"There is absolutely no good choice in this situation, and I consider it an insult that the very (Bush) administration who have sunk our economy through deregulation is now insisting that we must help avoid the economic crisis," said Space.
Congressman Charlie Wilson, D-Ohio, said the government intends to return the assets it acquires when they can be resold to the private sector for a profit.
"Since we will be part owners, we can say 'no more' to golden parachutes for executives. In this bill we now include tough executive compensation requirements for all those who want to participate in the program," he said.
Congressman Alan Mollohan, D-W.Va., could not be reached for comment Thursday.
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EllisWyatt
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09-27-08 5:38 AM
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wonderwhy Why did the Democrats oppose offshore drilling? Here are our choices: we can either drill and develop these resources ourselves or we can wait for Russia and China to develop them and then we can buy oil from them. Given these two choices, what sane American would oppose offshore drilling? Well, the Democrats have for years. This is a well-documented fact. Manufacturing jobs have not disappeared. They have just moved to Right To Work states. North Carolina, South Carolina, Georgia, Florida, Alabama, Mississippi, Louisiana, Texas and Tennessee are getting new auto plants, steel plants, coke plants, manufacturing plants. Pennsylvania, Ohio, West Virginia and Michigan are shedding manufacturing jobs because of closed shop rules, environmental laws, taxes, legal climate and poor infastructure. A trade deficit is not a bad thing. We all have a trade deficit when we trade money for something of value. It's not as though we are throwing the money away.
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billybob
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09-27-08 12:46 AM
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Good thing West Virginia has these experts. The ones I am thinking about keep kicking back ad money to the tracks to waste as they want. Must be our poor state has more than it knows what to do with. One billboard coming east from Columbus if you know the Wheeling Island logo is a compleat waste of money. Easy come easy go. Let's go to the track and see how much we can get back! Same as bailout ZERO. All the brains have become conartists or politicos. Like bailout meetings need the lobbiests to help write the bailout! The check is in the mail to the poor rich that need it most. Maybe this paper should get some of their namesakes. Intel what?
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wonderwhy
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09-26-08 7:27 PM
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ellis, i believe warren buffett is a brilliant business man, and yes, my retirement fund is in the market, i was only relaying a story on the front page of the biz section of the wall street. i didn't understand it but did some checking adn the story held up. i wish we were all warren buffett's, but since we are not, we still need to face the fact that this country has lost it's base of manufacturing jobs. mind you, not in the last just 8 years but in the past 20. i still stand on my statement/question if we need the mimmediate tools , steel , manufacturing, for a crisis on are soil, are we going to buy the stuff from china or russia? i also beleive the current is adminstration has hurt the general public of the usa, and have made million or billions off the taxpayer back
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EllisWyatt
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09-26-08 6:49 PM
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wonderwhy Don't stocks have to be low for people to buy them at low prices? Do you know that there are more Americans who own homes and stocks right now than at any other period in our history? Yes, those pension plans, IRA's and 401ks you hold actually invest in stocks-including blue chips. Warrent Buffett made most of his fortune taking insurance pool float money and buying quality blue chip stocks. His company, Berkshire Hathaway, accepted just over $9 billion from an asbestos company in return for taking responsibility for legal liability not to exceed $16 billion over the next few decades. He did his homework. The $9 billion, invested, will grow faster than the claims. At the end of the term, the liabilities will be finished and Berkshire will be sitting on billions in cash. THAT is how you make a fortune.
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vietnamvet
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09-26-08 5:36 PM
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The news is reporting (at 5:00pm)that there is no plan agreement, so how can anyone comment on a non-existing plan???
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wonderwhy
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09-26-08 1:04 PM
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exactly. the wsj reported several weeks ago that the market does better (since 1926) when a democrat is in the presidency. i ahve been researching this and so far this is what i have found. when a democrat, who typically looks out for the middle american, the stocks of small markets exceed their potential, hence, middle class can affor dto invest in small markets tht yeild a higher profit, but when the repubs are in , the middle class is non existant, meaning the only funds that are invested in are the blue chips wich yield about 3, ..............so really the repubs should be hoping that the dems win, so the market prevails. isn't that an interesting concept.
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SphinxRising58
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09-26-08 11:59 AM
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First they bailed out the failed S&L scandal, now this. As far as job losses are concerned, the only jobs I see that will be saved are the jobs of the people that got them into this mess to start with. Maybe one day, the government will learn that if a company takes too many risks, it is better to let them suffer the consequences than bail them out, as like was pointed out in the article, this will only encourage them to do it again.
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wonderwhy
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09-26-08 11:40 AM
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simply put- GREED
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acousticportal
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09-26-08 11:15 AM
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The one question that keeps nagging me is why is it imperative to bail out Wall Street in a capitalist society, yet some American people still have no health coverage and are homeless. How is it that capitalism vs. humanism, capitalism always wins?
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wonderwhy
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09-26-08 11:04 AM
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how many years?
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Georgetwin
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09-26-08 10:36 AM
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NancySUV, President Bush voiced concern in 2003 and The NYT reported that he did so. John McCain did likewise is 2005. Plastic Surgery Pelosi and Harry Fife…er…Barney Reid…er…Harry Reid have had the whip for going on 3 years, why didn’t they fix it?
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EllisWyatt
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09-26-08 6:11 AM
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Mortgage holdings are a small portion of the assests of any investment bank. What we are doing with this bailout is allowing CEO's and their companies to unload their burdens on the taxpayers while saying to the idiots who borrowed more than they could afford "it's alright. We'll pay for your stupidity". The liberals have gotten their way. We now have a society in which personal responsibility is a thing of the past. Great job, Dems. If these banks want this money, it should be as a loan. Let people lose their houses. Perhaps housing will drop to where the average American can afford a payment. Let the banks lose money. These investment banks don't control your life. If you are invested in stocks, you will still have your money tomorrow. What happened here is that a few greedy banks and many dumb Americans gambled and lost. And all of us are paying for their mistakes. This is unacceptable.
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EbZane
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09-26-08 5:46 AM
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The gov't needs to get out of the way and let the chips fall. There is no assurance that the 700-800 billion bailout will provide stability, so let the corporations pay for their wrong doings and incompetence. If the gov't wants to intervene, then they should loan the corporations the capital at a very low interest rate, so they can become viable once again, and not shift their burdens onto the taxpayers.
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atoddh
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09-26-08 2:06 AM
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While the bail outs will enhance the value of financial stocks by removing bad assets,it may not result in more lending to the US public.Removal of bad assets is not the same as increasing capital.The banks are not obligated to increease lending under the plan. Sommers is really very naive and out of touch. This is surprizing for someone from such a grand, global-class "wealth" operation. Morevoer, as of this week, there are no more US investment banks.All have been converted to deposit banks to cash in on the Federal bonanza.I'd guess he has not yet heard. Sobel, a trained expert, makes some excellent points.
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