Brought to you by the reinvented two thousand twelve camera. It's ready. Are you welcome to Stuff you should know? From how Stuff works dot com. This podcast is brought to you by Audible dot com, the Internet's leading provider of spoken word entertainment. Get a free audio book download of your choice when you sign up today. Log on to audible podcast dot com slash stuff today for details. Hey, welcome to the podcast. I'm Josh. This is Chuck Nothing.
I'm here, all right? Sorry? Keep it everyone into Spence is Chuck here? Well, we need to wear the violence of correct um. Chuck. You watch Criminal Minds? I don't. Do you watch Private Practice? I don't Biggest Loser? No? What about okay? This is the fourth and last network. What about Until Death? I've never even heard of it. Okay, I watch comedy, so cartoons. Until Death is a comedy. But had you watched any of these shows, had you been a big fan on Wednesday September, you would have
been very upset because they were all preempted. I bet they were all pre empted already. You're well aware that the the economy is in the toilet. All you do, all you want to do, is sit back and watch your favorite celebrities lose weight, or watch Brad Garrett, you know, um tussle verbally with his wife, or you know whatever private practice does. I'm not I'm not fully aware practicing private things. Exactly. You want to you want to escape through these And all of a sudden, here's George Bush
laying it out there. This is a president who's avoided using the word recession in public, and all of a sudden, he's basically white knuckling the podium with the presidential seal in front, saying we're all gonna die. Maybe he just wanted to skip straight to depression just for kicks. I guess, you knowid recession go right to the oppression. I don't know that he used the word depression now, but he might. He may as well have. Right, it was bad. He
said our entire economy is in danger. Was one quote from that very um, you know, great address. Unusual. He doesn't usually do this kind of thing, right. I think he should have followed that sentence up immediately with with good luck to whoever's coming next exactly. Yeah, yeah, so long and good luck or whatever? Right? Yeah, uh so this is kind of a big deal. And I think Bush addressing on a Thursday for no other reason than to tell Americans that the economy is in danger, it
kind of really made it a bigger point. Um. And the reason he went on was because he was trying to garner public opinion for the Pulse and Plan, also known as the seven hundred billion dollar bailout. Ak A, just the bailout. I think people are calling it bailout. It is and it's not hyphenated for our listeners, it's not two words, it's one word. This is this is a p right here, Okay, not us um. So he's on there, he's talking about the bailout. Why would he care?
Why would he care what Americans think? I'll tell you why, Chuck, You didn't even let me answer, But he's uh, he has um. Earlier that week, it looked like Congress was going to pass it. Everybody was patting one another on the back bipartisan ship. You know, you remember Senate Democrat Republican.
The leaders are saying, we're passing this right and uh, it starts to go into the House and they bring it to a vote, and all of a sudden, these rank and file Republicans stay just revolt and they're like, hey, how about this. We've got another plan and it's nothing like yours. So ultimately the House defeats the bill something like that. I think it was good exactly that you're really good. It's right in front of me, a memory like a bear trap there should um okay, So the
House defeats the bill. It looks like it's sunk. There's people, you know, screaming in teror dogs and cats living together mass hysteria. Right um, and Bush has already played his one ace in the hole by addressing the the nation. The only thing next he could do would be like to kneecap somebody, maybe a figure skater on public television to get our attention. Who would do that, though? I don't know. Terrible, terrible. So it looks like the bill is defeated, and all of a sudden, here comes the
Senate on the white Horse exactly. You know, the House is usually kind of the the the congressional body that's known for shouting down things and you know, trying things on the sly, and the Senate is supposed to be wise and sedate and calm, and all of a sudden they're taking up a failed House bill basically sweetening it, like they attached a very popular mental health bill. Did you know that now U healthcare providers have to treat
mental health like they treat physical maladies. Well, that's good. Yeah, it is good, which is one of the reasons why they put it in this bill. So they passed. There's also a lot of pork in there, though. There are manufacturers of wooden arrows that I think boy Scouts favor
get some subsidies out of that. Yeah. Um. And then there's the extension of expiring tax breaks for the wealthy, although there's also some tax relief for the middle class, new tax relief in their right, and I know they One important thing that did was raised the fd I S S insurance coverage for people's banks accounts. Yeah, which is huge because banks like Wacovia and Washington Mutual are
going under. And I mean these are neighborhood branch commercial banks where you keep your money and all of a sudden, oh wait, the bank's front door is locked, and you know two pm on a Tuesday was one of them. Really, not one of the banks, but one of those institutions. I'm not going to divulge too much, but Yeah, that's good. Well, I'm not going to name my bank either, but I'm very confident in it. Recently purchased countrywide um, among other things.
So I'm feeling pretty good about my bank, which is your under your mattress. Knock on wood there. I don't want to attempt the gods. Uh So, Okay, the Senate takes up the bill and they add the sweeteners, and they cough up Senate Amendment fifty five, which is the pulse and Plan with the mental Health Bill, the f d i C Increase Plan Plus is what I like to call it. It's a great name for it. You
should have called it that. This is the same day they passed it, the same day that they took this up, right, but the Congress never acts this fast. Even more amazing, two days later the House gets it. That day they pass it. I think they passed it at like twelve thirty and they started deliberating on it at ten in the morning. They passed it two and a half hours later. Yeah,
I wondered when it happened. If no one really knows this, probably, but if it was the sweeteners actually, or if the House kind of ended up with some egg on their face with the first vote and realize said everyone was really freaked out by the fact that they defeated it. Well, I think number one. I think Bush's address actually did have a real impact. I watched a lot of CNN. I actually watched CNN live as the House was voting
on this UM, this amendment and UM. There were a lot of congressmen who are congress people who said that they switched their vote because the calls that they were getting from their office changed from you know, I don't like this bailout package to you've got to vote for this bailout package. And that actually changed votes. And you can probably directly link that to Bush, you know, looking very tired and haggard and scared on you know, Wednesday,
September four. So I think that's one of the reasons why the House actually passed. You know, my uncle's a former congressman. I should give him a call and see what he thinks about the whole thing. Where is he from. Yeah, he's a congressman in Tennessee to two or three terms.
I think that's great. Yeah, good for him. Okay, so it passes right, right, and it's actually no longer a seven billion dollar bailout, the bailout seven hundred billion, but this bill actually hiked it up to an eight hundred and ten billion dollar bill. Did you know that? You know, I didn't know that all that all that, like it matters.
And the weird thing is, as taxes these days, you you don't you don't really feel a pinch like you think about the government showing out seven hundred billion dollars? How how how are we going to feel that pinch? And you know, actually for every American that's I think twenty three hundred dollars a person, every American taxpayer. Non, so we're gonna feel a pinch somewhere, or are we. Let's get into this bill, Chuck, Let's get into the
meat up. Let's do it. So you want to you want to lead off with what are some of the things that are inside? I see by you burying your teeth, are you? Are you cool? Well? No, I know that it's that one of the things they signed off one was an immediate three hundred and fifty billion. They kind of did it in stages, which I'm not a I'm no economists, but seems to be kind of the smarter
way to go. Three D fifty billion upfront and taxpayer money, and then the new newly created Office of Financial Stability, which we hope it ends up living up to its name. Another three hundred and fifty I'm sorry, another hundred billion after that, and then another two fifty after that. But both of those need approval by Congress. Yeah, and I think the first one, the hundred billion, has to get approval from the House, and the second two fifty billion,
uh is is contingent upon some approval I think. But either way, yeah, Congress has to approve these, and they have to. They'll approve them if this whole thing is working. I don't see them saying no though. No, I don't either. I mean, I think in for three billion right plus, it would be it would kind of be a sign that, hey, we did the wrong thing by allowing this first three hundred and fifty billions. I don't think they would do
that yet. Yeah, I agree, I agree. So um, like he said, this, this bill establishes a brand new office. We're gonna have a brand new office, right, like you said, the Office of Financial Stability. And this is led by the Treasury Secretary, not necessarily Henry Paulson, but whoever is. Well, they just named actually yesterday the new bailout chief. Oh really who Yeah, you don't even know this? No, yeah, his name is Neil kash kash Karai. And this guy
is thirty five years old, Holy cow. Yeah, and he's going to be in charge of doling out the cast. He's overseeing the Office of Financial Stability. He was previously a vice president of Goldman Sachs and before his career in finance, he developed technology for NASA space missions. So this guy was clearly doing things in college that I wasn't doing. Yeah, thirty five, that's not a very long existence that he seems to be sharp guy. Okay, so we have a brand new TSAR of Economic Stability. I
guess fresh fresh meat. And what with this Oh I'll bet you he ages twenty years over the next months. Um. So, basically, what this guy is going to be in charge of, essentially, UH is buying up terrible investments that that you know, banks and investment banks and and other kinds of firms have on their hands. What a weird job. It is a weird job. It's never been done before as far
as I know. Basically, there's certain types of investments that can be bought, and all of them are related to mortgages. You've got like mortgage backed securities. UM. I think collateral debt obligations would be purchased under this and mortgages themselves, which I thought was kind of cool. Yeah, because this is actually one way that it could directly benefit a homeowner.
One of the provisions in this act is that when this guy what's his name again, uh Neil kash Karai or Kashkari, I'm not sure you pronounce it, let's call him Kashkari, Okay, when Kashkari is negotiating with these investment banks and other people to purchase their bad securities. UM, he's going to try to force down their throat restructuring
of of the mortgages the hope for a Homeowners Act. Yeah. Now, the big problem with that and what it is is, it's it's it's basically congressional support for restructuring loans, knocking down the principle, which is pretty radical. You borrow four hundred thousand for a house you can't afford it, and all of a sudden, we're just gonna pretend like you only borrow two hundred thousands. That's huge. The thing is
is it's it's a it's a voluntary program. I think you probably get, like you know, tax rebates or right off if you're a company or a lender that engages in this um, but you can't force anybody to do it. If the US government actually owns your mortgage, chances are they're going to be very hesitant about foreclosing on you.
Number one, that's just a huge pain. But number two, um, they actually have a vested interest then to keep you in your house, right, Okay, the reason being the if they can stem the tide of foreclosures, then the market starts to come back up, and these mortgage backed securities and mortgages themselves increase in value all of a sudden They're worth more and the plan works. Right, So if if the government buys your mortgage, you should probably thank
your lucky stars. Right then this is all This is all theoretical. None of it's been put into practice yet, right, which is I think why a lot of people are kind of nervous about this bail All right, Right, I know, I am, I do know that that foreclosures Actually nobody wins in foreclosure. It's not like because I did some reason. Actually I wrote an article on it last year. And it's not like banks foreclosed on people and they're just we kick you out of the house. Banks lose money too.
But you know, like we've mentioned before, the mortgage back mortgage backed securities. Sometimes the banks don't even own that house. They turn around and sell it to securities and it gets fractured off. And so maybe that's kind of where the problem is starting. Well, you know who does win in a foreclosure. Someone who's renting right now. If you are a renter and you don't buy in this in this climate, you're you're a total sucker. Yeah, it's probably
good time to buy. Oh, it's an excellent time to buy. It's like a fire sale out there. I've said it before, I'll say it again. Get your act together, buddy, get in a house. Yeah. Thanks. Okay, So that's not the only thing that this this cash car he's going to be doing. This guy's got a lot of responsibility. I'm not sure he's he knows what he's getting into. And frankly, I have to say I find a little fishy that Henry Paulson is one of the former high level executive
at Goldman Sacks and he taps this guy from Goldman Sacks. Yeah, and you could say, well, he knows him, he's worked with them, he had, he respects him. But I believe he already know that. I like one investment bank being so entrenched in this bail act. Actually I think he actually worked in the office in the Treasury office. Uh, he was previously with Goldman Sacks. But you know, I know what you mean. I got you his influence. Is
he like Paulson's protege or something? I don't know. Yeah, Okay, So there's other things that cash Car is going to be in charge of, like, um, when when the government purchases three million dollars or more of bad investments from a lender whoever, Um, they're automatically, they automatically take a warrant in your company. This is a non voting block of shares, just common stock shares, right, And this is actually really ingenious, Chuck. You want to tell everybody why,
Well I don't know why. Let me tell you why. All right, You're you're the econ mask. This is straight from Coshkari to me to you. Okay, Uh, actually that's not true at always should probably cut that part out. The reason why it's such an ingenious UH provision is because no one has any idea how how to value these mortgage backed securities. I read an article with the guy who who is like this expert at valuing a stock that you found in like your grandfather's closet from
nineteen twenty three or something. This guy could value. This guy and everyone else is totally lost at at properly valuing mortgage backed securities and c D e O s and and just all these other bad investments. Right, So whatever the government, whatever price the government sets to buy these at, it could be way too low. So if you are a company selling this to the government and you end up experiencing a windfall profit from the sale, which you're not supposed to be, the government's covered on
the back side because they own shares in your company. Now, so if you experience a profit, your your price per share rises, and the government gets something out of it because they own those shapes, and in theory, ultimately the taxpayer, it would come back to us. I'm not holding their breath, but what we want is for this bailout to work. Yeah,
and and technically it could work. I mean, if you think about it, right, If the government meant buys up seven hundred billion dollars worth worth of mortgage backed securities or mortgages or whatever, and all of a sudden the market stabilizes because of it, and maybe over the course of a couple of years, maybe a decade, who knows, the market comes back into full swing. These things don't
just disappear. They don't just vanish. The government is not going to take these these securities and throw them in a furnace. They're gonna sit on them. Basically, I think it's Bush put it there. The the U. S. Government's the only institution large enough to buy these and sit on them for a while. Um And then once the marketiz it's these things increase in value when the government sells them. And and if they sell them well and not flood the market with these things, then we should
as taxpayers see a windfall from that. I mean, even if if the combined value of all these things double, then not all of them are worthless. There are some good mortgage backed securities out there still, but they just have a bad name and no one wants them when they increase in value. I mean, even if they double, that's one point four trillion dollars from from the sale. Uh, and half of that being pure profit. That would be pretty good. It was whether that happens or not, it
remains to be seen. You know, what I think would be interesting as if all of a sudden they put out this big plan. Buch says, we're the only people institution big enough to do this, and all of a sudden, like Bill Gates and Warren Buffetts stroll up behind him and say, not so fast, We've got our own plan, and they just bought up, you know, eight hundred billion dollars worth of bad investments. Well, Warren Buffett has been
on a buying spree right now. Of course, it's not just it's not just a good time to buy a house or for closed house. It's a good time to buy stocks. Yeah. So again, it's like fire sale out there. It's crazy. But yeah, apparently from what I understand from watching the recent second presidential debate is that Obama may tap Warren Buffett for Treasury secretary. You know, I would be all for it. It makes a lot of sense. Yeah. So, uh,
anything else in this provision, maybe of the Golden parachute. Yeah, that's the one thing that I know probably made a lot of people feel a little bit better. Is the gold the famous golden parachute. A lot of times when companies go under, like the big end run thing, you remember, the executives are the ones that come out on top
and the investors lose all their money. These executives get these huge payouts at the end and just kind of sneak out the back door and buy their island and you know in the in Bermuda and uh, I know this calls for no golden parachutes. Um, these big multimillion dollar severance packages are not gonna happen. No, and specifically your top five executives. Any any salary over five grand can't be deducted as an expense um. So that in
theory should limit companies from doing it. There's some problems with that, though, what's that that's just your top five executives. Another problem with it is that the cap there's already a cap that exists, but it's a one million. You can't you can't deduct any salary over one million. So really, for a major company, all it's gonna be is two point five million and lost deductions, which is nothing. A second problem The other problem, this is the biggest problem.
There is no provision in the Golden Parachute clause of this law, the bailout bill UM that says anything about stock options. So think about it. You let a you let an outgoing ceo go, You're like you, you did a terrible job managing. But here, take all these stock options, right, We're going to value them at today's terrible market price. Just hold off a couple of years. The market is gonna come back and you you cash in your options
and you're you're just richer than an astronaut. Right that that's I'm glad you said that, because I didn't even know that. But that's what I was just about to say, is the way these guys operate, I had a feeling there's there's always some back door where they get there's yeah, and and they will There's not gonna be any way
of going around it. The the only thing I think, uh, that that we can hope for is that there should be widespread investigation and probably you know, criminal lawsuits against a lot of the people who are running the show. Yeah, I think this will be under the microscope more than other little quieter bills that go through so I think so too. So if you want to know anything more about this, I would strongly recommend you exercise your civic duty and read how will the government spend the seven
hundred billion dollar bailout funds? On how stuff works dot com and stick around to find out one more reason why you shouldn't wear a bluetooth headset. But first chuck a message from our sponsor, Josh. What's the first reason that you shouldn't wear a bluetooth headset? I know you don't like the way awkward fashioned. Look, I'm just gonna say it. It's my personal opinion. I know a lot of people like your style right out of the Preppy Handbook, if I may say so, I do my best, which
is good. This is a good book. My sister used to have that when I was growing too. Yeah, I did you really? Yeah? I used to read it on the john. It's very cool. It's a cool book, if I remember correctly. She also had how to speak like a valley girl. I think, yeah, let's skip that one for sure. Yeah, that's probably for the best. Uh So. Yeah.
The name of the article is how Bluetooth surveillance works, and apparently, if you wear these things, people know where you are, So how Chuck, Well, Uh, if if you have a Bluetooth headset and you have it turned on UM for my understanding, you can get blue jacked. Is that right? Blue jacking? Yeah, blue jacking is the term. And uh, it admits a signal and people other people of Bluetooth can actually tell where you are. So you're
you're into privacy. And if you're into privacy, make sure you read how Bluetooth surveillance works on how stuff works dot com for more on this and thousands of other topics. Is that how stuff works dot com. Let us know what you think. Send an email to podcast at how stuff works dot com. Brought to you by the reinvented two thousand twelve camera. It's ready, are you