Should we urge Congress to reject the bailout proposal?

[IndianaGreen]

This bailout will do nothing for homeowners! There is an emerging consensus that the bailout must be rejected, and it is being posted on the internet as we speak:

Published on Sunday, September 21, 2008 by the New York Times
No Deal
by Paul Krugman

I hate to say this, but looking at the plan as leaked, I have to say no deal. Not unless Treasury explains, very clearly, why this is supposed to work, other than through having taxpayers pay premium prices for lousy assets.

As I posted earlier today, it seems all too likely that a “fair price” for mortgage-related assets will still leave much of the financial sector in trouble. And there’s nothing at all in the draft that says what happens next; although I do notice that there’s nothing in the plan requiring Treasury to pay a fair market price. So is the plan to pay premium prices to the most troubled institutions? Or is the hope that restoring liquidity will magically make the problem go away?

Here’s the thing: historically, financial system rescues have involved seizing the troubled institutions and guaranteeing their debts; only after that did the government try to repackage and sell their assets. The feds took over S&Ls first, protecting their depositors, then transferred their bad assets to the RTC. The Swedes took over troubled banks, again protecting their depositors, before transferring their assets to their equivalent institutions.

The Treasury plan, by contrast, looks like an attempt to restore confidence in the financial system — that is, convince creditors of troubled institutions that everything’s OK — simply by buying assets off these institutions. This will only work if the prices Treasury pays are much higher than current market prices; that, in turn, can only be true either if this is mainly a liquidity problem — which seems doubtful — or if Treasury is going to be paying a huge premium, in effect throwing taxpayers’ money at the financial world.

And there’s no quid pro quo here — nothing that gives taxpayers a stake in the upside, nothing that ensures that the money is used to stabilize the system rather than reward the undeserving.

I hope I’m wrong about this. But let me say it again: Treasury needs to explain why this is supposed to work — not try to panic Congress into giving it a blank check. Otherwise, no deal.

http://www.commondreams.org/view/2008/09/21-2

Published on Sunday, September 21, 2008 by The Politico
'Taxpayer Ripoff': Many Economists Skeptical of Bailout
by Avi Zenilman

Many of the same economists and opinion-makers who'd provided a bipartisan sheen of consensus to Treasury Secretary Henry Paulson's previous moves have quickly begun casting doubts on the wisdom of a policy that would allow Treasury to purchase without oversight hundreds of billions of dollars of difficult-to-price assets from financial institutions.

Under the proposal, Paulson would not have to report to Congress until December, and the only safeguard for taxpayers was a provision that the “Secretary shall take into consideration means for — (1) providing stability or preventing disruption to the financial markets or banking system; and (2) protecting the taxpayer.”

Skepticism toward the plan reflected more than the predictable desires of the left to spread the wealth to Main Street or of the right to reject government bailouts, although those sentiments were also expressed.

"We need to take a bold move. In that sense I think Paulson is right," Luigi Zingales, a Professor at the University of Chicago School of Business who wrote a widely circulated short essay titled "Why Paulson is Wrong,” told Politico.

Zingales fears that the Treasury bailout would effectively turn the entire financial sector into a Government Sponsored Enterprise, complete with the same murkiness and moral hazard that sunk Fannie Mae and Freddie Mac. “It might achieve the final outcome, but it will do so at an enormous cost," he said. "All the troubles we’ve seen with Fannie and Freddie would be seen again and again across the entire financial sector."

President Bush is “asking for a huge amount of power,” said Nouriel Roubini, an economist at New York University who was among the first to predict the crisis. “He's saying, ‘Trust me, I'm going to do it right if you give me absolute control.' This is not a monarchy.” (Roubini told the New York Times that despite these concerns, he also thought the plan could help stave off a recession.)

http://www.commondreams.org/headline/2008/09/21-4

Should we urge Congress to reject the bailout proposal?

[Alhena]

1. We need some bailout, just not the one Paulson proposed

last Wednesday banks were hoarding cash in huge quantities instead of loaning it, just like during the Great Depression. Banks have to be able to trust the financial system enough to loan money or else the economy will grind to a halt.

The important thing is to have safeguards and oversight to make sure the taxpayers get the best possible value for their money. The Paulson plan doesn't have that, but we do need some plan. The situation is extremely serious.

[grantcart]

2. There has to be heavily discounted prices for the assets that the government buys

This move should be aimed at helping with a liquidity melt down and not a profit melt down.

The finance companies have to be willing to take a substantial loss on their profits in order to solve their cash flow problems.


Other issues as transparency, oversight, accountability also have to be solved.


The key is, however, that the government has to be getting a good value on what it buys and that long term recovery of those assets is a good possibility.

[Ichingcarpenter]

3. Obama Draws A Line In the Sand: No Paulson Deal

Obama has stepped up and stated what he needs a bailout plan to include in order to support it, and the Paulson plan simply can't meet his requirements. Obama has just announced his opposition to the basic principles of the Paulson Plan.

No Blank Check: Paulson doesn't get money without oversight or legal responsibility.

Must Be Regulatory Changes: The practices that caused the crisis have to be ended at the same time.

Taxpayers Need More than Consideration: If a huge bailout is to occur, it has to be done in the way that costs taxpayers the least possible.

No Bailout For Foreign Banks From US Money: Instead, all countries should work together to help everyone.

Ordinary People Get Help Too: It can't just be a bailout for Hank's friends, it has to help ordinary Americans too


http://my.barackobama.com/page/community/post/amandascott/gGg9zj

[IndianaGreen]

4. Since the Paulson plan is the only one on the table, it must be rejected

and we shouldn't be rushed into this massive debt as we were when Congress passed PATRIOT.

[IndianaGreen]

5. Democrats are being snookered by Paulson

Sanders is right on target, especially the part about taxpayers getting an equity stake in the investment firms they’re being asked to bail out. If the problem is defined as non-liquidity, there are at least 3 ways to inject liquidity into these firms, only 2 of which are being considered during this crisis, both of which let the private sector continue in control of the firms. The first way is to loan funds – this is being done with the $85 Billion loan to AIG. The second way is to buy “assets” from the firms – this is the $700 Billion purchase of bad loans Treasury Secretary Paulson (former head of Goldman Sachs – 1 of only 2 remaining large independent American investment firms) from the firms. The third, is to inject equity into the firms, i.e., to buy a stake, almost certainly controlling, in these firms. The government can own them, and hire out-of-work private sector investment gurus to work in them. After all, it will be the same investment guys working out the problem under the Paulson private-sector favored plan, so why not have these guys working for the taxpayer and the taxpayer getting the profits. Paulson’s proposal is a desperate attempt to prevent a real crisis which would result in a wide-spread uprising of the masses as they realized that the private sector had failed them, had lost their retirement annuities, investments, etc., and which would result in fundamental, pro-government, change in America.

Also, any salesman knows that one tactic to use on a potential mark (i.e. customer), is to create a “sense of urgency” in the mind of the mark that he must buy immediately. Isn’t that what Paulson is doing with his proposal – gotta adopt my plan immediately, this weekend, no time to think about it. Haven’t we heard all of this before, e.g., in the run-up to the Iraq war (Sadam has WMD – we’ve got to act now before the mushroom clouds start appearing over Podunkville America), e.g., in the rush to pass the Patriot Act in the middle of the night immediately after 911 to prevent another attack, and, and this may be a bit obscure, in the creation of the Federal Reserve System by private bankers back in December 1912 (?) when the legislation was rushed thru both houses of Congress in the early AM hours of December 22, and signed into law the next day? I can see why smart people often throw their lot in with the wealthy, not because the rich have smarter people than the poor or a higher moral ground, but because the rich have more smart people than the poor, and the poor are therefore more easily manipulated to act against their own interests. I believe that what’s happening now under the guise of “bi-partisanship”, is simply another snookering of the Democrats. I’m tempted to say “Unbelievable”, but, sadly, it’s all to “Believable”.

[Uncle Sinister]

6. The bailout will be the biggest theft in history, and the capstone of BushCo.

nt

[Balderdash]

7. Not only all of that but no accountabilty either

http://calculatedrisk.blogspot.com/2008/09/bailout-proposal.html

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