My biggest problem with the plan is the deception. There are obvious reasons to oppose the initial "blank check" plan, but it's not so obvious when Congress is voting on a new, 110 page plan that has supposedly addressed the issues of oversight, executive compensation, and equity participation (partial government ownership - so taxpayers share in any gains in the bailed-out bank stocks).
I mentioned the farce that was proposed as an oversight board in this post. Now consider this statement from Rep. Brad Sherman (D - California):
Click on that link to Mish's site and read the whole post. This is a pretty big deal, these are words coming from a sitting Congressman, not a blogger (not that I encourage anyone to denounce the words of bloggers). He's basically saying that this was a bailout plan for foreign-debt holders.
Anyway, I had a much bigger post lined up but couldn't put together a cogent argument. There's a lot that is wrong with this whole process and there's reason to believe that any bill that comes up in the next few days will be guaranteed to not solve our problems. The more time that passes the more people are realizing that we've got big problems in our economy that won't be solved by bailing out Wall St. or others that have seriously underestimated risk in their investments. There are options for ensuring that businesses with legitimate credit needs are able to get that credit, and consumers with good credit should have no problem getting more of it. Helping people that bought too much house or that didn't understand their mortgages can and should be addressed on it's own merits.
Paulson has made it clear he will recommend a veto of any bill that contained a clear provision that said if Americans did not own the asset on September 20th that it can't be sold to the Treasury.
Click on that link to Mish's site and read the whole post. This is a pretty big deal, these are words coming from a sitting Congressman, not a blogger (not that I encourage anyone to denounce the words of bloggers). He's basically saying that this was a bailout plan for foreign-debt holders.
Anyway, I had a much bigger post lined up but couldn't put together a cogent argument. There's a lot that is wrong with this whole process and there's reason to believe that any bill that comes up in the next few days will be guaranteed to not solve our problems. The more time that passes the more people are realizing that we've got big problems in our economy that won't be solved by bailing out Wall St. or others that have seriously underestimated risk in their investments. There are options for ensuring that businesses with legitimate credit needs are able to get that credit, and consumers with good credit should have no problem getting more of it. Helping people that bought too much house or that didn't understand their mortgages can and should be addressed on it's own merits.
2 comments:
So what, if anything, should be done?
migou said...
So what, if anything, should be done?
October 1, 2008 7:55 AM
I'll try to get a whole post on this today or tomorrow, but briefly:
I would prefer to see nothing than anything like what's been presented so far. Bankers/traders have made some horrible decisions, seriously underestimating risk (or worse, acting as if they knew they would be bailed out when things went bad). The banking industry (really the entire financial services industry) is too large and needs to get smaller.
Since it's such a large part of our GDP, this means a slow down or recession is inevitable to some degree (it's a matter of how hard and how quickly it's over). Since consumers are over-leveraged, and consumption drives our economy, there's bound to be some contraction in GDP from a slowdown in consumer spending as well.
Anything that props up Wall St. or debt-driven consumer spending cannot be sustained, so these problems will just resurface down the road (or we'll be dragged through a decade-long (or more) slump where things aren't like the Great Depression, but it'll be tough to get a decent job, buy a house, etc.
Politically, it is very unlikely that we'll see this happen. So if something has to be done the focus should be on shoring up the credit markets. This is where businesses are running into trouble with short term financing and what is meant by affecting Main St.
A decent start is here: http://www.nakedcapitalism.com/2008/09/why-bailout-bill-will-not-solve-credit.html
Another alternative is here:
http://www.itulip.com/forums/showthread.php?p=51160#post51160
I think the second one from itulip is pretty easy to grasp.
Nothing is guaranteed to work (we still have the underlying problem of too much leverage/credit in our system), but the Paulson plan and every derivative of it so far are guaranteed to fail.
They do not address the main issue of banks willingness to lend and business and consumer willingness to borrow. The system cannot function without those two things.
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