There is one thing I would like to add and one thing I would like to respectfully disagree on. It's Friday night in Asia, so forgive me if I am not as lucid as I think I am.
The one thing I have noticed is that our biggest detractors under the Bush administration all have lurched to the right. Canada now has an overwhelmingly conservative government. Italy, Germany and France have elected center right governments. England most likely will in the next year. Israel may elect the Likud to run the country.
It seems to me the world likes a weak America, but they shit themselves when it may actually happen.
The point where I disagree is on the bailout. To my very fibre I wish it didn't need to happen, but it did. Bank failures are 4-5 times more expensive than bank rescues. The unwinding of a bank is so monumentally complicated and costly. Lehman, as bad as it was, was nothing compared to a domino effect. The US would be bankrupt if Lehman, Morgan Stanley, Merrill Lynch, Goldman Sachs, Wachovia and Washington Mutual all failed. The costs would be compounded to the extent it would be 100 times more costly to us.
The depression wasn't caused by the massive deleveraging of the financial system, it was caused by bank failures. People's savings evaporated. The FDIC was created to stop bank runs. Wamu alone would've bankrupted the FDIC.
Bush and Paulson failed to explain this bailout properly (shocker). The US has determined which banks are worth saving and which ones need to be married to the ones worth saving. They gave them the money they think the banks need to remain solvent. The banks in turn have issued the Treasury (tax payer) preferred stock with, I believe, a 10% coupon).
By any measure the Treasury has structured a capital investment no different than other foreign banks, sovereign wealth funds and Warren Buffet have. The other parties are not expecting to lose money on their investments and neither is the US.
This is where the public needs to be informed. The profits made from this, and there will be profits, can not be used for anything else but to pay down US debt.
In the next year or so, the banks will be more solvent and can pay down this debt and make whole the loans. The congress, republican or democrat, will try and spend that windfall on garbage. We need to make sure that it is used for one thing and one thing only, and that is retirement of US debt. That is the only way the US taxpayer will see the benefits of their investment. Politicians will try and tell you otherwise. Do not believe them (as if I need to tell freepers). This is the danger of the bailout. Sorry for ranting. Hope it was informative.
I’m pinging this only because I would like some feedback on my views of the bailout.
Maybe this wasn’t the proper post for it, but I am interested in people’s informed opinion. And yes I know it sucks hard.
Thanks.