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Don't look now...
...but this bailout bill isn't nailed down yet.
700 billion...250 billion? What's a couple hundred billion between friends?
About the author
Kai Ryssdal is the host and senior editor of Marketplace, public radio’s program on business and the economy. Follow Kai on Twitter @kairyssdal.Well, if we listen to our president de-lect, it should make no difference at all how much is allocated for this bill. He tells us that most, if not all of the money is going to be returned to taxpayers (the treasury) when everything gets better, and the toxic assets are sold back into the market. We (the treasury) might even make a profit! So I say, up it to a trillion! Why not $1.5T? The more we invest, the more we stand to earn!
Last year, it seemed as if the financial system was about to collapse when two Bear Stearns funds lost about $4 billion. That was just peanuts. Now we're told that the problem will take trillions to fix.
Why are people mad as hell? It is because most of us are fully capable of understanding that if private capital is unwilling to buy these toxic assets, then it's absurd to suggest that the taxpayer is someday, somehow, going to "profit" from this "investment". If it were such a good investment, the government wouldn't have to step in. This is flushing money down the toilet, and we all know it.
Now, if the taxpayer can get the same terms as Warren Buffet - 10% perpetual preferred shares - we're all for it. Let's just call the bailout what it really is: "Welfare for Warren".
There are much better alternatives. It is astonishing that a Democratically-controlled Congress is willing to do this president's bidding.
If the credit markets are frozen because banks are too worried about their bad debts, and the Fed is apparently powerless in trying to entice freer lending practices, why doesn't Congress pass a temporary "Direct to Public" lending system from the Fed? Just for One Year. Let the chips fall where they may with the stingy banks. The banks then would have to start lending again, or go under, just to compete with the Fed.
The Fed is privately owned anyway, so its not some nationalized lending solution, and it preserves the free market spirit by allowing predatory lenders bear the brunt of their terrible decisions. It also saves the public several hundred billion dollars.
I seem to remember Greenspan BEGGING for just 100 billion dollars to jump start the economy after Sept. 11th, and by the time Congress got around to approving the bill, the markets were already recovered, and he didn't need it.
If the election wasn't so close, this money would never have been rushed through like this.
Profit? Paulson already told Congress we'll be paying top dollar for these toxic assets. Think of it; if we buy them at fair market value, then they still lose all their billions of dollars. There would be no point. Instead, Paulson plans on buying up the toxic debt at the highest price. How can anyone expect to make a profit if we're already buying at the highest price possible? The next problem is the defaults. The reason why they're so toxic is because people are defaulting so much. Nothing in this bill addressses that problem. So if we hold them full term, we end up eating all those defaults. How is one supposed to make a profit that way?
What I'm trying to figure out is what is going to happen when we hand 700 billion dollars to a bunch of investment banks whose SOP is to leverage their assets 10X to 20X. After leverage, that's about 7 trillion dollars being dumped onto a 13 trillion dollar economy. What do you think will happen?
