Why the bailout is bad

[widebody911]

http://www.cnn.com/2008/POLITICS/09/29/miron.bailout/index.html

...
Thoughtful advocates of the bailout ... argue that a bailout is necessary to prevent economic collapse. According to this view, lenders are not making loans, even for worthy projects, because they cannot get capital. This view has a grain of truth; if the bailout does not occur, more bankruptcies are possible and credit conditions may worsen for a time.

Talk of Armageddon, however, is ridiculous scare-mongering. If financial institutions cannot make productive loans, a profit opportunity exists for someone else. This might not happen instantly, but it will happen.

Further, the current credit freeze is likely due to Wall Street's hope of a bailout; bankers will not sell their lousy assets for 20 cents on the dollar if the government might pay 30, 50, or 80 cents.

The costs of the bailout, moreover, are almost certainly being understated. The administration's claim is that many mortgage assets are merely illiquid, not truly worthless, implying taxpayers will recoup much of their $700 billion.

If these assets are worth something, however, private parties should want to buy them, and they would do so if the owners would accept fair market value. Far more likely is that current owners have brushed under the rug how little their assets are worth.

The bailout has more problems. The final legislation will probably include numerous side conditions and special dealings that reward Washington lobbyists and their clients.

Anticipation of the bailout will engender strategic behavior by Wall Street institutions as they shuffle their assets and position their balance sheets to maximize their take. The bailout will open the door to further federal meddling in financial markets.

[competentone]

Originally Posted by widebody911

http://www.cnn.com/2008/POLITICS/09/29/miron.bailout/index.html

The costs of the bailout, moreover, are almost certainly being understated. The administration's claim is that many mortgage assets are merely illiquid, not truly worthless, implying taxpayers will recoup much of their $700 billion.

If these assets are worth something, however, private parties should want to buy them, and they would do so if the owners would accept fair market value. Far more likely is that current owners have brushed under the rug how little their assets are worth.

When it cost more to repair a house than the house can be sold for, or if it costs more to tear down a condemned structure than the resulting vacant lot will be worth, there is no money to be made on the deal!

(Our government doesn't understand that -- the "bankers" pushing for the bailout do!)

[Wickd89]

I agree the bailout is a bad thing, but we have no choice at this stage.

I believe in a free economy, but why is everyone so against regulations (on gas, banking, etc...). We need oversight on things, as we have always had on utilities (e.g. Public utility boards, etc.)..

I just hope the government takes equity in everything so they can make money on the upside. Our government and financial institutions are extremely interlaced. We are a capitalist system and there is no escaping the mutual benefit of the two.

IF we become a poor country, even for a few years, the government would not be able to have the influence it needs around the world. CHINA is going to kill us in this century; and the way our politicians behave, we kind of deserve it..

p.s. -moved nearly everything -96% to bonds/treasuries, and only suffered a 1.2% drop in a week.

[widebody911]

>I just hope the government takes equity in everything so they can make money on the upside.

If there was money to be made in this turd sandwich, the banks wouldn't be inviting the gov' to take a bite.

[Tishabet]

Further, the current credit freeze is likely due to Wall Street's hope of a bailout; bankers will not sell their lousy assets for 20 cents on the dollar if the government might pay 30, 50, or 80 cents.

+1
Prolonging the agony, IMHO.