A Bad Bailout
Pending a more in depth analysis here, my sense of the economic bailout idea being considered in Congress is that it is a bad idea. Haste makes waste. Problems cannot be solved properly without being first understood. Instead of understanding, this bailout is being pushed with speculative hyperbole playing on fear. Consider the sources. Treasury Secretary Paulson is a Wall Street Investment Banker, which is totally skewing his view. Fed Chairman Bernanke is an academic, specializing in the study of the Depression, who lives in fear of being part of a repeat.
What is the hurry? Supposedly those of us on "Main Street" cannot get needed loans for our businesses and for our personal needs. Also, we have to act to protect the markets from lack of confidence. My sense is that we should have been lacking confidence in the inflated markets for some time and we also should not have been buying into the hype of being joyful that "the Dow was up today". Main Street concerns are more legitimate, but I think they can be met immediately at the local level. The first move should be to encourage people to put their savings in local banks and to encourage local banks to make local loans.
For the time being, let the sharks feed on one another. Some banks have been acquiring others, with little or no government assistance. With all the cash deposits they are acquiring, they should not have a problem loaning some of that back on good loans for immediate needs. The current crisis has been caused by mega banks gone wild and under regulated. We need to work back toward the micro finance model from Asia that won the Nobel Prize for Peace.
Once the new administration and Congress start up in January, thorough investigations and hearings should be held to help us all learn what the problem is and how we got into it. Then proposals for getting us out can be more intelligently considered.
posted by Tom Blake | 10:28 AM
3 Comments:
The bailout was voted down by the House. The Democrats delivered 60% of their members, but the Republicans fell short, delivering only 33% of theirs. Some more political tweaking might produce enough votes to pass a bailout, but the question is who to tweak it towards. Balking Republicans want to cure the problem with more of the illness - de-regulate more, privatize and lower taxes. Reluctant Democrats want to see more regulation, relief from home foreclosures, stronger oversight and application of any gains to public improvements. Democrats could pass a more Democratic oriented bailout, but then Republicans will blame the unpopular bailout on Democrats and use it to hide the fact Republicans caused the problem in the first place. I think Democratic leaders will make it more Republican to get it passed, and then if the Democrats still have Congress next year, and hopefully the White House, action can be taken to move things back toward the Democratic version.
Meanwhile, institutional depositors like money market and retirement funds who are parking money in some of these megabanks should put it in local banks instead and encourage local lending.
The bailout was approved by 3/4 of the Senate and just now by a decent margin in the House, with almost as many Republicans in favor as opposed. It was sweetened with some tax breaks and specific earmarks. I guess it needed to be done, according to most all fiscal experts of various stripes. The next President and Congress can try to make improvements as part of the monitoring process.
I saw part of the Warren Buffet interview with Charlie Rose, where he explained the need for Congress to act on the financial crisis, to take care of all Americans, and like many others, was impressed that Buffet believes it could turn out to be not a bad investment for the country and that his own company has actually now put money in to buy some of these investments at these low prices.
One thing you do not hear Buffet say, nor do you hear it from any legitimate economist, is that the economic crisis was caused by government mandates forcing lenders to loan money to unqualified poor people of color. Those who blame poor minorities disregard the history of redlining minority neighborhoods and ripping off minorities by steering them into more profitable sub-prime mortgages, even when they could qualify for loans at fairer rates.
This reprehensible slander is now being disseminated by many of the same unscrupulous people who actually did bring on this crisis, and their Republican surrogates - those who personally profited by pumping up the speculative fevers and hyping the supposed potential for patriotic profits, in order to milk excesses for themselves in these forms: speculative resale profits; real estate commissions; mortgage brokerage commissions and fees; mortgage insurance fees and commissions; mortgage servicing fees and commissions; mortgage resale profits, commissions and fees; mortgage collateralization commissions, fees and resale profits; commissions and fees on selling and servicing the mortgage backed collateral instruments; and excessive executive salaries, perks and golden parachutes for all those involved in the enterprises.
When de-regulation and lack of oversight are blamed for the crisis, the aforementioned villains say we should not waste time looking back, but rather should be working on solving the problem for the future, and then in their next breath, they blame poor minorities. And while either voting against the legislation or claiming to hold their nose while voting for it, they are already planning how to rip off more commissions, fees and profits from the program once it goes into effect.
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