The Bad News Bailout

EconomicPolicyJournal.com ^

[Kozman]

There is nothing good to say about the Paulson Bailout Plan. Nothing.

From a short-term technical perspective, from a government oversight perspective, from a conflict of interest perspective, from a political perspective, and from a long-term perspective, serious problems exist each step of the way.

On a short-term technical perspective, problems begin at the price at which mortgage paper will be bought in the bailout. Treasury Secretary Paulson claims the paper will be bought at market rates. This is a myth, since if the Treasury were to only buy at the market price, the bailout would be superfluous. If there was a market price, banks would simply sell at the market price...

[Always Right]

There are numerous things good about the bail out. It will free up financial instutions so they can loan to business again, so the economy can start growing again. It will help keep property values from going into a freefall, which would wipe out millions of people’s life savings.

[Always Right]

This is a myth, since if the Treasury were to only buy at the market price, the bailout would be superfluous. If there was a market price, banks would simply sell at the market price

Not a myth at all. There is a market price, the problem is liquitity. There is not enough capitol to buy up all the troubled loans.

[Kozman]

A “Market price” is the price where you can sell something at, end of story. Anything else is a wet dream.

[Cyclone59]

I had an interesting discussion with an EVP of a big insurance company about this bailout. She was against it for the reason of that it is one section of the company that is to blame. She likened it to GM getting a bailout because the Pontiac division is going down the tubes. If that were the case GM would deal with it internally by making improvements within that division and/or cuts elsewhere in the company and worse case scenario dumping the line all together.

[Kozman]

There are numerous things good about the bail out. It will free up financial instutions so they can loan to business again, so the economy can start growing again. Oh yeah, after $700 billion is pulled from the economy to give to incompetents. Great plan!! "It will help keep property values from going into a freefall, which would wipe out millions of people’s life savings." The plan doesn't protect houses. It protects the mortgages that will be owned by Paulson's old firm now that, just n time, they have become a bank holding company.

[raybbr]

This is NOT a bailout. It is a deferment of debt. It’s the same thing as taking out a second mortgage on a house to help pay off the first mortgage. When do I get to do that?

[Daveinyork]

What worries me about the whole bailout scenario, from fan and fred, to AIG, and now the Paulson plan, is that the US government is taking on a huge amount of debt that will eventually have to be paid off. I’m afraid that, while it may prevent a run on banks, it could cause a run on the dollar.

[AndyJackson]

Q. When there is a shortage of money for the goods available what happens in the market place?

Ding,ding,ding,ding Times up.

A. Prices drop to the market clearing price. That is the market price. Any other price anyone else had in mind is a fiction. A market price for a basket of goods that consumes more money than exists in an economy is not even a fiction. It is the delusional raving of a lunatic.

[Always Right]

A. Prices drop to the market clearing price. That is the market price.

The feds control the money supply. If there is not enough money in the system, it is their responsibility to fix that to keep the economy healthy. Like it or not, we have a debt based currency that requires growth in lending to keep the economy growing. Our money supply is not market based, it is controlled by the fed. If you want to engineer a bad recession, we can follow your policy.