BAILOUT: Yes or No?

**drone** · 09-26-2008, 23:23

Here's a good plan from the ex-FDIC chairman. Looks much more palatable than free cash to Wall Street.
http://www.washingtonpost.com/wp-dyn...l?hpid=topnews

Spoiler Alert, click show to read:

I have doubts that the $700 billion bailout will work if enacted. Will banks really be willing to part with the loans, and will the government be able to sell them in the marketplace on terms that the taxpayers would find acceptable?

To get banks to sell the loans, the government would need to buy them at a price greater than what the private sector would pay today. Many investors are open to purchasing the loans now, but the financial institutions and investors cannot agree on price. Thus private money is sitting on the sidelines until there is clear evidence that we are at the floor in real estate.

Having financial institutions sell the loans to the government at inflated prices so the government can turn around and sell the loans to well-heeled investors at lower prices strikes me as a very good deal for everyone but U.S. taxpayers. Surely we can do better.

One alternative is a "net worth certificate" program along the lines of what Congress enacted in the 1980s for the savings and loan industry. It was a big success and could work in the current climate. The FDIC resolved a $100 billion insolvency in the savings banks (had they been marked to market) for a total cost of less than $2 billion.

The net worth certificate program was designed to shore up the capital of weak banks to give them more time to resolve their problems. The program involved no subsidy and no cash outlay.

The FDIC purchased net worth certificates (subordinated debentures, a commonly used form of capital in banks) in troubled banks that the agency determined could be viable if they were given more time. Banks entering the program had to agree to strict supervision from the FDIC, including oversight of compensation of top executives and removal of poor management.

The FDIC paid for the net worth certificates by issuing FDIC senior notes to the banks; there was no cash outlay. The interest rate on the net worth certificates and the FDIC notes was identical, so there was no subsidy.

If such a program were enacted today, the capital position of banks with real estate holdings would be bolstered, giving those banks the ability to sell and restructure assets and get on with their rehabilitation. No taxpayer money would be spent, and the asset sale transactions would remain in the private sector where they belong.

If we were to (1) implement a program to ease the fears of depositors and other general creditors of banks; (2) keep tight restrictions on short sellers of financial stocks; (3) suspend fair-value accounting (which has contributed mightily to our problems by marking assets to unrealistic fire-sale prices); and (4) authorize a net worth certificate program, we could settle the financial markets without significant expense to taxpayers.

**CountArach** · 09-26-2008, 23:43

A bailout? Yes.

The Bailout? No.

Those who made the mistakes should pay for it.

**seireikhaan** · 09-27-2008, 00:01

No.

Process- Person gets drunk. Person falls asleep. Person has massive hangover.

Sub in "financial sector" for person, and that's my opinion. Not saying that it won't absolutely suck, it will. However, the debt is getting ridiculous, we need to send the message that all businesses are equal. If you fail, too bad, you're fault. After a bout of horrible vomiting, the econ will eventually recover.

Besides, its been shown in the past that foreign companies will invest in American businesses which are in tailspin because they can make a profit on it.

**TevashSzat** · 09-27-2008, 02:24

No, the market will work everything out eventually. Sure, it would be a rough couple of years, but its nothing the "invisible hand" can't handle. Anyways, thats what a free market is anyways....

**Reverend Joe** · 09-27-2008, 02:28

Originally Posted by TevashSzat

No, the market will work everything out eventually. Sure, it would be a rough couple of years, but its nothing the "invisible hand" can't handle. Anyways, thats what a free market is anyways....

The Great Depression was a "rough couple of years" too. That invisible hand spanked our asses red. I don't want to go through anything like that.

But the problem is, like someone else said, inflation, which has already been bothering us recently. We need to do something, but it needs to be nice and steady, not just bum-rushing the economy with a wad of money. I vote no bailout; something else.

Edit: Damnit, Div, I can't vote "no bailout" because the other option says "Let the market work itself out!" Sneaky bastard.

**TevashSzat** · 09-27-2008, 02:34

Originally Posted by Reverend Joe

The Great Depression was a "rough couple of years" too. That invisible hand spanked our asses red. I don't want to go through anything like that.

Well, I don't think it ever will happen because politicians won't let something as big as the Great Depression happen nowadays.

But think of it, in a purely economist point of view, there is no thing wrong with great depressions. It is merely the market trying to correct itself and it will teach a TON of lessons. Just look at how much government changed due to the Great Depression.

That is, after all, one of the prices of being in a more or less free market economy. You either go along during both the good and the bad times or have the government intervene and hopefully, things will get better without a much bigger debt

**Jolt** · 09-27-2008, 02:43

Originally Posted by TevashSzat

Well, I don't think it ever will happen because politicians won't let something as big as the Great Depression happen nowadays.

But think of it, in a purely economist point of view, there is no thing wrong with great depressions. It is merely the market trying to correct itself and it will teach a TON of lessons. Just look at how much government changed due to the Great Depression.

That is, after all, one of the prices of being in a more or less free market economy. You either go along during both the good and the bad times or have the government intervene and hopefully, things will get better without a much bigger debt

WON'T? As far as I'm aware, the Great Depression only got "Great" because one of the "measures" the current president at that time did was letting the market work for itself.

**Reverend Joe** · 09-27-2008, 02:49

Originally Posted by TevashSzat

Well, I don't think it ever will happen because politicians won't let something as big as the Great Depression happen nowadays.

But think of it, in a purely economist point of view, there is no thing wrong with great depressions. It is merely the market trying to correct itself and it will teach a TON of lessons. Just look at how much government changed due to the Great Depression.

That is, after all, one of the prices of being in a more or less free market economy. You either go along during both the good and the bad times or have the government intervene and hopefully, things will get better without a much bigger debt

Well, to be fair, any major mistake should logically lead to people learning. The problem is a lot of people get hurt in the process. And besides, who's to say it can't happen again? The economy is really a lot like an 18-wheeler: you can put all the energy in that you want, but you can only control it with the brakes up to a certain point; past a certain speed it's just not going to obey. In our case, it all depends on if we caught this one early enough to stop the crash.