So what are your thoughts on this. I keep hearing the media saying how this money would grease the machinery in the credit markets and free up lending deals. My view on that is that if a bank can trade garbage for cash then banks are going to sit on the cash in order to raise keep there capital position higher. I mean in this environment it would seem stupid for them to do anything else I would think. How do you feel?
The media may be right, but I don’t think there is any evidence to back them up. I agree that the banks will prefer cash to investments whose value is declining even more rapidly. I truly believe that the underlying problem is one of perverse incentives for the decision-makers. That is, the rewards promised to officers and directors are based on quarterly or possibly yearly profits. There is no !@#$ to pay if things tank later. Similarly for fund managers and investment bankers: as long as they don’t lose anything now for having counseled purchase of assets of precipitously declining value, they take their paychecks and their bonuses in the expectation that we, the taxpayers, will pay any amount needed to keep the Dow from tanking or retirement funds to diminish greatly in value. Maybe the Congress will make us taxpayers the guarantors, but it will be over my opposition and that of millions of others.