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So if you've been following the news at all, you'll have seen reports of the plan to bail out the banks (and, well, everyone else) to the tune of at least US $700B dollars. It's really quite amazing seeing the wide range of people who think this is a terrible, terrible idea. Conservatives, liberals, and libertarians have all looked at this, and it stinks. Here's a few reasons:
1. The proposed legislation is a complete blank cheque for the Treasury to do want they want. It eliminates all potential checks and balances on any actions that the Treasury takes. Does anyone think that giving these clowns $700B worth of play money and no restrictions is a good idea?
2. There is no penalty or constraints on the companies accepting the money. Even something as obvious as putting limits on executive pay at the firms who accept this money is a non-starter, with Paulson going so far as to call that a "poison pill" for the legislation. The proposed plan will allow the idiots at the financial firms to get away with their actions of the last 8 years without penalties. Instead, the US taxpayer will end up eating an enormous shit sandwich. The people in charge of these businesses get to keep up their existing behaviour.
3. The government will end up grossly overpaying for the assets. The problem isn't that no-one wants to buy these toxic assets, it's the the price the market is willing to pay for them isn't very much. If the banks were to accept fair market rates, they'd lose a fortune and probably have to declare bankruptcy. So the only way this plan works is if the Treasury ends up paying over the fair price. And bear in mind that the current market price is by no means as low as these will go - there's a fair way to go before we hit bottom. So the US taxpayer will end up with vast piles of worthless assets on the books. Say goodbye to the US economy.
4. For a counter-example, the Resolution Trust Corporation (set up to repair damage from the Savings and Loan disaster back in the early 90s) only bought assets from failed institutions. They had to fall over first, then the RTC picked up the pieces. A much fairer approach.
5. The plan does absolutely nothing to fix the underlying problem - that is, massive risky game-playing with other people's money by the large financial institutions. No additional regulation or oversight is proposed.
6. There is zero upside for the US taxpayer from this. If the bailout succeeds, and the banks start making huge piles of money again, there is no advantage to the taxpayer. As bad as the AIG bailout was, at least a result of it was that the government ended up owning 80% of AIG. So if AIG recovers, the government can sell those shares and make their money back.
7. The plan does absolutely nothing for anyone but the financial industry. If you're screwed with a bad mortgage, you're still screwed.
Anyway, it's a terrible, terrible plan. If you're a US voter, on Monday you need to be ringing your congress-creatures and saying "NO! Please stop and think about what you're doing".
1. The proposed legislation is a complete blank cheque for the Treasury to do want they want. It eliminates all potential checks and balances on any actions that the Treasury takes. Does anyone think that giving these clowns $700B worth of play money and no restrictions is a good idea?
2. There is no penalty or constraints on the companies accepting the money. Even something as obvious as putting limits on executive pay at the firms who accept this money is a non-starter, with Paulson going so far as to call that a "poison pill" for the legislation. The proposed plan will allow the idiots at the financial firms to get away with their actions of the last 8 years without penalties. Instead, the US taxpayer will end up eating an enormous shit sandwich. The people in charge of these businesses get to keep up their existing behaviour.
3. The government will end up grossly overpaying for the assets. The problem isn't that no-one wants to buy these toxic assets, it's the the price the market is willing to pay for them isn't very much. If the banks were to accept fair market rates, they'd lose a fortune and probably have to declare bankruptcy. So the only way this plan works is if the Treasury ends up paying over the fair price. And bear in mind that the current market price is by no means as low as these will go - there's a fair way to go before we hit bottom. So the US taxpayer will end up with vast piles of worthless assets on the books. Say goodbye to the US economy.
4. For a counter-example, the Resolution Trust Corporation (set up to repair damage from the Savings and Loan disaster back in the early 90s) only bought assets from failed institutions. They had to fall over first, then the RTC picked up the pieces. A much fairer approach.
5. The plan does absolutely nothing to fix the underlying problem - that is, massive risky game-playing with other people's money by the large financial institutions. No additional regulation or oversight is proposed.
6. There is zero upside for the US taxpayer from this. If the bailout succeeds, and the banks start making huge piles of money again, there is no advantage to the taxpayer. As bad as the AIG bailout was, at least a result of it was that the government ended up owning 80% of AIG. So if AIG recovers, the government can sell those shares and make their money back.
7. The plan does absolutely nothing for anyone but the financial industry. If you're screwed with a bad mortgage, you're still screwed.
Anyway, it's a terrible, terrible plan. If you're a US voter, on Monday you need to be ringing your congress-creatures and saying "NO! Please stop and think about what you're doing".
