Economists write a letter to Congress... looks like the whole U of Chicago crowd is against this thing.
Obviously just a bunch of elitists. What irritates me more is that the majority of the supporters of this plan are against any form of social programs, welfare, or universal health care as anti-capitalistic and anti-american. Don't help the poor and the sick, but goddammit you better help out these billion dollar corporations. Makes me just plain angry.
Interesting...Buffett came out and said its necessary and that the US could make a lot of money off it....of course he's got $5 B in Goldman as of yesterday, but he's also giving it all away, so hard to say he's just looking out after his own...
Right so Buffet invests in probably the most stable financial entity at the moment and the Govt "could" make a lot of money out of buying out the scrubs. It's necessary because the rich will not be able to get richer and a lot of the poor will end up being poorer.
What should really make you angry is if the bail out doesn't happen or it happens and doesn't work. Then guess what, its the poor and sick will get hurt a lot more than the bankers. But its ok as long as we teach these greedy SOBs a lesson.
Something will happen. I just hope it doesn't resemble the administration's proposal... the odds of that working are virtually nil.
I guess depends on your definition of resemblance, the basic plan is in place, (buying out illiquid assets) its the details that are being worked out.
Neah, I am just point out your total lack of understanding on why the bail out plan is being put together.
Thanks for posting that. I've read bits and pieces of random U of Chicago Economists' opinions, but nothing that summarizes it like this. I agree with this completely.
Oh I understand. It's to perpetuate the status quo. I'd like to think that we can come up with something better than that - but I'm sure that any such plans would benefit too many people at a marginal cost to some other people's portfolios, and would of course be branded "socialist" in turn. And no, bailing out the banks to "save the poor and the sick" is not a good counterargument. That's just a piss-poor attempt to avoid evaluating the root of the problem.
Does your "status quo" include people keeping their jobs, getting a loan for their cars and houses, not watching their 401k go down to nothing? Since we are in the thread of "Alternative Bail-out ideas", maybe you can come up with a better plan that will benefit us common folks? And bailing out the banks to "save the poor and the sick" is the argument, the plan is to put out the fire first, not install new fire codes while the house is burning down.
Preferably. As I have stated before, my original commentary was less condemnation of the "plan", and more retroactive anger at the hypocrisy of it all. Perhaps you misunderstood? A fair point. Perhaps in addition to new fire codes, we could investigate some apparent arson and issue some "community service"? Maybe we could have those people fund a hospital for the involuntary burn victims who smothered the flames to save the building?
That shouldn't be the government's responsibility those are personal responsibilities. Market forces work perfectly if left alone. Even if there is temporary suffering market forces always will return an economy to the strength of the resources, industry, diligence and wise stewardship of its citizenry. The real question we face is how we deal with our huge debt and add value and wealth to the economy. Govt. can never add value and wealth. Govt. is a service that is provided at a very high cost to an economy. Economies are built on sound market forces not government interventions.
I am very much a small government guy, but there are times that the government must step up to the plate. This is one of those occasions. I like Newt's ideas also, but they will not solve this problem. I do think those changes would make us stronger in the long-term and should be implemented separately. The real key is what we pay for these assets. I would not be opposed to paying a slight premium to the mark-to-market value because I think those values are so deflated, but Bernanke's idea of basically paying the net present value is a handout and adds to much expense. If the government is going to get our money back out of this deal, we need to be buying at close to the mark-to-market value. The financial institutions will get the benefit of liquidity and no concerns about further writedowns, which I think is what is needed. If the banks get anything more than that, then our government has failed us. Of course, it would not be the first time our government has failed us.
Your idea is so smart and simple enough that even 5th grader can understand...and guess what it is the best idea possible. Besides, aren't we supposed to be the champions of capitalism? Isn't that what America is supposed to be about? People talk so much about hand outs, an increasing welfare state, and government charity, yet the government is about to spend $700 billion to save these companies...Corporations want to be capitalists in good times, but socialistic in bad ones. Something has to give. I would much rather see another private interests or company simply buy the companies, instead of government hand out. Besides, like some of the other posters mentioned, let the investigation of companies happen first, if there is a bailout.
Didn't see this thread earlier... I don't agree, but this article might spark some debate. My problem is that from a psychological standpoint, government intervention by Big Daddy has already been "priced in". A reversal would cause it's own ripple on top of ripples.... From NakedCapitalism.com: Banking Expert: Bailout Not Necessary, Industry Can Take Losses One of the premises of the bailout bill is that the banking industry must have government help to get back on its feet. A banking industry expert, Bert Ely, who has a stellar track record in predicting crises and calling false alarms says that the banking industry can handle this mess internally and does not need subsidies. The comments from Bert come in an interview at Institutional Risk Analytics (the entire newsletter is wide-ranging and very much worth reading), First, IRA's recap of Ely's qualifications:To get some perspective on the evolution of the last remaining large investment banks into commercial banks, we now turn to Bert Ely, one of the leading experts on banking and finance in the Washington policy community. An accountant by training, Ely has specialized in deposit insurance and banking structure issues since 1981. In 1986, he became an early predictor of the S&L crisis and a taxpayer bailout of the FSLIC. In 1991, he was the first person to correctly predict the non crisis in commercial banking. In 1992, he predicted an eventual taxpayer bailout of the Japanese banking system.Here are the excerpts that relate to whether the banks need government intervention:The IRA: And if our internal estimates at IRA are correct about the magnitude of the losses facing the industry, then the banks may not have the resources to deal with the problems alone. What then? Ely: That is of course the trillion dollar question. I have run the numbers looking at the capacity of the industry to pay the tab. Assuming that bank insolvency losses don't get way out of line, which I don't think they will, then the industry can handle it. It's not going to be cheap, but the banks can handle it and clean up their own mess. The losses will feed back through the industry to depositors and borrowers in the form of lower rates on deposits and higher cost of loans.... The IRA: So you oppose the idea of the government putting preferred equity into solvent but troubled banks that cannot raise capital on reasonable terms? Ely: Yes, it is not necessary, even now. There is absolutely no need for the Treasury to have the authority, as you suggested, to "inject capital into solvent banks that are temporarily unable to raise new capital." If a bank truly is solvent, it can raise additional capital or sell itself, if its present owners are realistic about what their bank is worth. The reason solvent banks have a problem raising capital, or selling themselves to a stronger bank, is that they set their price too high, as did AIG. As an aside, I am glad to see AIG's shareholders getting whacked by the warrants associated with the Fed's taxpayer's loan to AIG. There is absolutely no need for the taxpayer to subsidize banks so they can stay independent, provided no barriers are erected to prevent new entrants into bank or specific banking markets. The IRA: Agreed. We were referring to banks that could not be recapitalized or sold. A sale is obviously the first, best choice. So you would let the banks resolve their problems privately. Would you agree with Ernie Patrikis ('A Change in Bank Control: Interview With Ernest Patrikis', July 9, 2008') that the Fed needs to loosen the restrictions on bank ownership in order to facilitate this process? Ely: I fully agree that restrictions limiting investors from taking significant positions in banks should be lifted. Not only is the belief in separating banking from commerce invalid in an open, competitive economy, but we need to get ruthless investors inside troubled banks to get these banks and their bad assets cleaned up and/or sold. That is what should have happened at AIG, but unfortunately did not. The IRA: Precisely. We want to see the bad assets remain in private hands, not in a government warehouse for toxic waste. But why then should anyone support Paulson's proposal to place these toxic assets in the hands of the government? Chairman Frank seems to want to declare the jubilee and engage in mass loan forgiveness in order to ensure his permanent re-election. Maybe we can just all stay home instead of going to work and Barney Frank will just mail everyone a check. Ely: Look, all of the fallout we are seeing in the markets today is part of clearing the detritus from the last speculative bubble. The housing bubble has to be allowed to collapse in order to clear the markets. We have a very necessary correction process underway. But this process creates a lot of pain and loss. I don't like that, but we have to clean up the mess and take the pain in order to get the economy back into balance. In collapsing bubbles you have collapsing companies. Japan tried to muddle through and they had a lost decade. I hope we are not going to do that... The IRA: But that is precisely the point. Why should Washington use taxpayer funds to rescue people who deliberately made bad business decisions? Ely: This is the question that comes up frequently about Dick Fuld at Lehman and Kerry Killinger at WM. When these guys were contemplating life, did they have any second thoughts, any doubts about these decisions? Did hushed discussions among the top folks in their organizations, with the senior managers and directors, include deliberations such as these or were they too arrogant, too isolated from reality?... The IRA: How do you see the Paulson plan unfolding? What should the markets expect in the next couple of weeks and months? Ely: It is likely that Congress will not pass the Paulson bailout legislation this week. However, whenever it is passed, it will be much more complex, and incorporate unwise punitive terms and conditions that will seriously impede the intent of the Paulson plan. Further, I believe the process of pricing the assets purchased under the legislation will be much more complex and contentious than many appreciate at this time, which means that this program will get off to a much slower start than many anticipate, just as the RTC started quite slowly. If the Paulson plan starts slowly, market forces may sweep past the plan. It will be extremely interesting to see how this plan evolves over the next year, particularly given that a new Administration will come to power on January 20.There is a lot of meaty stuff in this article. Note that this analysis, even if correct, does not conclusively disprove the need for a bailout bill. The Paulson proposal, as revised over the weekend, now extends to foreign banks and hedge funds. A hedge fund crisis, which Nouriel Roubiini says is the next shoe to fall, would hit prime brokers like Goldman and Morgan Stanley particularly hard. The Lehman bankruptcy nearly deep-sixed the financial system. Goldman and Morgan are bigger firms. If either were to look wobbly, even after their pending capital infusions, it would roil the markets. But it sure puts a crimp in the thesis. .
There's 350 million of us living in this country. The bailout is 700 billion. I suggest each of us receive 2 billion each instead of giving the whole amount to the fat cats. Problem solved.
