“It should never have been called a “Bailout” in the first place. Who would it bailout ? Nobody.”
The plan is not being very well explained, but that’s probably unavoidable since so many have need to cover their own rear ends and it’s very political.
But any business that would otherwise have failed is being bailed out. When a business fails the assets are liquidated, but it sounds like a number of banks and others holding the bad mortgages will be saved from failure.
What people seem to fail to realize is that MOST businesses rely on credit. They do not have a pile of cash sitting around doing nothing. They have ASSETS to borrow against. If something — a Moody’s or S&P rating or something systemic — causes those ASSETS to be viewed with skepticism, then that business can be bankrupted in short order.
The current situation is that mortgage ASSETS that have real value — with real land and real buildings mortgaged — are being valued at ZERO by a market that is nonfunctional. This sort of systemic problem has already ruined Bear Stearns, Fannie and Freddie and AIG — as well as wiping out half the value of Bank America, Wells Fargo, Citigroup, etc. If left alone, it will ruin the rest of the financial industry and then it will ruin manufacturing, transportation, healthcare, etc. as nobody will be available (and willing) to lend the money needed to do capital improvement and even short-term operating expenses. Home Depot doesn’t pay its suppliers cash on the barrelhead — it expects the supplier to extend it credit and pay its bill 30 - 60 days later. We are on the brink of those suppliers refusing to do that because they can’t get the short term lending to produce the products it is supplying. When Paulsen says it will “cost more if we don’t do this”, that is what he’s talking about.
In the sense that some companies will be saved from “failing”, you may have a point. But on the other hand, if the market was being rational — rather than valuing their assets at zero — they would not fail.
What Paulsen contemplates is really having the government be a “rational” buyer when the nonfunctional market is being irrational.