your ideological opposition to the idea of govt taking over banks is, i think, blinding you to the fact that in past instances (most notably the New Deal), such temporary takeovers have succeeded in stabilizing the banking system at least cost to the taxpayer.
This is a very good point and one that needs to be seriously considered.
Right now the system is more than "unstable". It is in chaos as traders wait for the next shoe to drop. And the shoes of late have been getting larger and larger (Fannie/Freddie, AIG). At some point the shoe would be so large as to crush the system.
This begs the question -- at what point does financial instability/chaos become intolerable? I don't think there's an answer for that but it's a good question.
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Here's my beef. I don't have a problem with taking extraordinary efforts to minimize panic/spiraling out of control scenarios. What I do object to is the free ride the people who designed this disaster are going to get.
Why not have congress create an Article 1 bankruptcy court in NY or DC. A financial institution could choose to initiate proceedings there, or state and federal regulatory agencies could inaugurate proceedings against such institutions there.
Once there, the financial institution would a) have it's books reviewed; b) have its tragic assets stripped; c) have all equity zeroed and d) have its management fired [and I'd be willing to throw in a provision that zeros out all retirement packages - but I might be being vindictive there).
The feds a) buy the tragic assets and b) recapitalize the banks which then leave the court under new management which presumably will recognize ponzi schemes when presented to them in the future.
As a taxpayer I'll assume some risk and take a hit, but benefit in the short term by no spiraling craziness and perhaps benefit in the long term if some of the tragic assets turn out in the light of a calm day to be not so tragic. I will also have the pleasure of seeing some measure of fairness operate in the rescue package which appears to be utterly lacking in the current Bailie May plan.
does money grow on trees?
when I was a kid my mother used to say that all the time to me,,,fuck now that I´m older it appears that it does!!!
America will need a $1,000bn bail-out
http://www.ft.com/cms/s/0/55e1f400-851a-11dd-b148-0000779fd18c.html?nclick_check=1
Hey BD, maybe they did it just right. They waited to do the RTC-type thing until after the biggest jerks went bust or got taken over.
Now if we could just get some money out of the quant geniuses who got $XXX millions in 2003-07 for designing the crummy models that led us to this, and the managers who paid them...
The New Deal was at a time when we didn't have a $9+trillion debt. So to try and borrow your way out of the problem this time around is silly. A short term loan only delays the inevitable. All that is happening is the shuffling of numbers. Like it or not we the taxpayers are stuck with the bill.
Violating the Constitution is never a good idea, regardless of the pressure to do so.
As demeur said, the fact that we have $9 trillion in debt makes this a much larger problem than the new deal-era buyouts. I don't see at all how the government taking over assets of a failing buisness is good. Instead of the buisness folding under the weight of the debts, the taxpayer now holds the burden. The debts that killed these companies are not going to magically turn into profits for the government. We are borrowing money to buy failing businesses. This is flat out poor economics.
I heard a Mid-Westerner (not a financial type) who had a good idea: "Extend the mortgages to 60 or 80 years at a lower rate so the folks that did something stupid can afford to stay in the house. At least there will not be almost a million homes not occupied and turning to less than dirt."
Some cash flow on a poisonous asset beats none. Besides, sooner or later appreciation will kick in again... this crap will not last forever.
tleddy
in my opinion the government should have bail out Lehman as well. There was many investors sold "guaranteed" products and now they go away with nothing as nobody have expected that the big investment banks can go down. This have contributed to the crisis of confidence.
In case Lehman is bailed out then the government would have time to find a solution under the radar screen. It is generally not good to have the media full of scary news. And now everybody were rescued only Lehman not. WHY?
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