Just Say NO
Posted by notauthoritative on Sunday September 28, 2008
Congress and the Administration have announced a bailout package for Wall Street which they hope to pass as soon as possible during the week of 29 September 2008. Here’s why the bailout still is a bad idea:
- It’s still not clear that private capital can’t purchase these “toxic assets” from the institutions that hold them. The rumours of a government bailout have distorted the market to prevent any incentive for private firms to assign any value to these shaky mortgages and their derivatives.
- The Treasure Secretary (Paulson) is authorized to purchase both mortgages and derivatives. Derivatives should not be purchased with taxpayer money; they’re crap, and should be allowed to stay underwater if the underlying mortgages can’t be rescued.
- There should be some ceiling/cap on the price the government pays for these poorly underwritten instruments (mortgages, CDOs, and the useless credit default swaps which underlie them). There’s no restriction on this being just another huge transfer of public money to private interests, rewarding them for absurdly risky behaviour.
- There’s no public shaming of the idiots who got themselves and the rest of us into this mess: in particular, the credit/risk analysis organizations which gave absurdly high ratings to aggregations of bad mortgages (Moody’s, Standard and Poor’s, etc), and there’s little identification of AIG and its ilk for hedging the risk of these mortgages without any intent to pay out (but every intent to collect their transaction fees and “premiums”).
- MOST IMPORTANTLY, there’s no requirement for transparency; we really need to know what the magnitude of the problem is, how many swaps have been underwritten, what their scope is and who the counterparties are, so we can truly evaluate the magnitude of the mess and determine which financial institutions are functionally insolvent.I don’t see how Congress and Paulson can assign market values to the crap they’ll be buying with our money, without knowing the outstanding inventory.
FREE MARKETS CAN ONLY WORK WITH TRUSTWORTHY COUNTERPARTIES AND GOOD INFORMATION. Without transparency and trust, this exercise is going to just waste $700 billion of our tax dollars. SO CONTACT YOUR FEDERAL LEGISLATORS AND TELL THEM THIS BAILOUT IS UNACCEPTABLE!
Valerie Curl said
My parents went through the Great Depression. I know a few of their stories–stories that negatively affected their entire lives and that of my brothers and mine. My mother’s parents lost their home and furnishings. They lived in a cousin’s barn. My grandfather walked miles upon miles throughout eastern Washington looking for a job. He drank too much. My father’s parents put their seven kids in a Catholic orphanage. The family moved in with my grandparents to save money. My grandfather lost his farm and everything. My dad quit school at 16 and rode the rails looking for job.
I don’t want a repeat of the same financial meltdown caused by the exact same policies and ideologies that existed then.
Imagine, if you will, China, Japan, India, the Middle East and Europe deciding to cash in their trillions of dollars in Treasury Bonds–which the US government currently does not have the resources to pay — all at once because they no longer believed in the financial viability of the U.S?
Where would this country be then?
notauthoritative said
Hi Valerie,
My parents also went through the Great Depression, and raised pigeons in the back yard to eat and sell for food. I’m not cut out for living in those harsh conditions either.
However, consider the source of the dire predictions of economic doom – these are the same people who stand to benefit from this massive transfer of wealth from us the taxpayers to them the financial speculators. Just as with the Iraq war, it behooves them to scare the US public with apocalyptic predictions so we give them what they want. I’m not as sure that avoiding a bailout would be as catastrophic; we certainly have seen private solutions take place over the past few weeks as JP Morgan Chase bought Washington Mutual and Bear Stearns, Bank of America bought Merrill Lynch, Warren Buffet bought into Goldman Sachs, and now Citigroup has taken over Wachovia.
Also think about the structure of the current bailout. At the very least, it should contain provisions that force the players in this situation to show their cards; we need to know how many of these bad instruments are out there, what their nominal values are, and who’s holding how much. The basically unrestricted plan in Congress right now lets the people who brought us this fiasco to hold all the cards while they’re trying to sell us their bad mortgages and their derivatives. It’s not a setup that gives me confidence that we as taxpayers will be paying reasonable prices for the mess they’ve made.