Fear of Clowns

"Faith may be defined briefly as an illogical belief in the occurrence of the improbable."
- H. L. Mencken
gozz@gozz.com

Thursday, September 25, 2008

$700B bailout doesn't sit pretty with me 

Having only read the main articles in the NYT and WaPo for over a week, it seems to me a really shitty bad idea to buy $700B in shitty investments from the banks who made the shitty investments. I appear to mostly agree with Republicans in the House at the moment - as far as that the bailout is a bad idea. Their offered alternative that tax cuts are the solution is baldly ludicrous, but predictable. I can think of a number of better ways to spend $700 billion and government is still sort of by the people so I think my government should come up with a better idea.

Among my better ideas of what to do with $700 billion would be creating a single-payer health care plan available to all Americans, paying off 7% of our national debt, or even giving it to the banks who haven't gotten themselves in deep trouble by acting like imbeciles.

The roots of the problem are the mortgages that shouldn't have been issued and the banks that made those mortgages possible. These banks aren't Krugman's "marble building" banks, but investment banks - banks that have an army of actuaries that certainly could (and maybe did) advise that such-and-such a percentage the mortgages their employers were investing in would go into foreclosure. And these are the banks the proposal mainly aims at bailing out.

Secondly, the administration claimed we had to bail out Bear-Stearns to avoid something like this happening, then that we had to seize Freddie and Fannie to avoid something like this happening, yet it happened. I certainly wouldn't want a doctor who had two failed plans to prevent a catastrophic illness to do emergency surgery on me once the illness came.

Thirdly, there are a lot of homeowners currently behind in mortgages or in foreclosure; assuming the risk of the bad debt banks currently hold isn't going to do anything about the bad debt coming down the pipe. I find it dubious that the bailout would prevent an extended recession or depression.

I would support legislation allowing judges to rewrite the terms of mortgages along lines laid out in the legislation. I may also support creating a special fund and allowing investment banks offer debt to the government that the government could accept or reject - and some on the Hill are suggesting something along those lines. Making this $700 billion available "as widely as possible" as the White House is pushing appears ripe for abuse and smacks of free money for bankers who screwed up.

Almost forgot: we need to reinstate the regulation of banks that's been dismantled over the decades of Republican ascendancy in Washington.

So that's that I think now based on the limited reading I've done since the crisis exploded.

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