The whole point, as far as I can see, is to get the really bad stuff off the bank's books. So while I'm sure the government will end up holding assets with some basis in reality, it's going to over pay for those, and then lots of other completely divorced from reality "mortage-related assets" will be worth nothing or even be underwater like your story. We already have a functioning market that would buy anything that is valued realistically. Paulson is coming to the rescue to specifically buy up all the crap.
Obviously I'm very skeptical about the people devising and executing this plan. But it probably is the case that some sort of bailout is necessary. I don't want the entire banking industry to collapse. That would hurt everyone. Two things though:
1. The taxpayer is going to assume a lot of risk (understatement of the year - "risk" is putting it mildly since we know already we're only buying things that the free market won't touch at prices they would never consider) so the taxpayer needs to somehow share in any possible upside. The way Paulson's bill is written now there is zero upside for the taxpayer. That is insane. It's just robbery.
2. More importantly though, it has to fix the problem. We can't just dump a trillion dollars into the same system without doing something to fix that system first. This is not just a liquidity problem - it's systemic. And the fix requires new regulations that reestablish transparency in the financial markets. The market has to know what things are worth; has to know the real value of assets on banks balance sheets; has to know who owes what to whom. The shadow banking system has to be dragged kicking and screaming into the light. Only government regulation can accomplish this.
I doubt it will go well in any case, but the Democrats had better get language in there to address these two points or, uh, um... or I'm going to be really mad or something! Yeah, that should do it.
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Obviously I'm very skeptical about the people devising and executing this plan. But it probably is the case that some sort of bailout is necessary. I don't want the entire banking industry to collapse. That would hurt everyone. Two things though:
1. The taxpayer is going to assume a lot of risk (understatement of the year - "risk" is putting it mildly since we know already we're only buying things that the free market won't touch at prices they would never consider) so the taxpayer needs to somehow share in any possible upside. The way Paulson's bill is written now there is zero upside for the taxpayer. That is insane. It's just robbery.
2. More importantly though, it has to fix the problem. We can't just dump a trillion dollars into the same system without doing something to fix that system first. This is not just a liquidity problem - it's systemic. And the fix requires new regulations that reestablish transparency in the financial markets. The market has to know what things are worth; has to know the real value of assets on banks balance sheets; has to know who owes what to whom. The shadow banking system has to be dragged kicking and screaming into the light. Only government regulation can accomplish this.
I doubt it will go well in any case, but the Democrats had better get language in there to address these two points or, uh, um... or I'm going to be really mad or something! Yeah, that should do it.
- jim 9-21-2008 1:20 pm