Make the Banks Pay the Government Back or Foreclose on Them

Among the many details, actually more like major foundational points than details, that have not been disclosed in the huge socialism for the banks program is the price that the government is going to pay for the "troubled' assets that these Einsteins bought.

If the problem, as "Hank" Paulson repeated all over the Sunday morning shows, is that there was no way to value the assets, the price is obviously going to be arbitrary. So, why don't we consider it a loan?

Whatever the banks get now is a provisional advance against the collateral of the assets. If the government can sell them for the price it paid, then all is square, except the banks should pay some interest on the money they are using. How about 2% for the first year and then, oh, LIBOR plus 5% after that.

If the assets are not worth what the government paid, then the banks should pay the difference, over time, with more interest. If the banks cannot pay it, then the government forecloses on the banks. No bonuses either.

Sauce for the goose.

Follow Stephen Kaus on Twitter: www.twitter.com/stephenkaus

Comments

[RobinSeattle]

I totally agree Stephen.

The charge by people such as Steve Forbes that the government is pulling a loansharking scam on AIG is so ridiculous I hardly know where to begin.

I also want to see a 90% tax on the salaries and bonuses of CEOs, CFOs and members of boards of directors of companies that lay workers off, go bankrupt or ask for bailouts.

I also want to see CEO and CFO pay capped at $5 million a year, which is John McCain's definition of being middle class and any benefits given to executives also made available to even the lowest man on the organizational chart, including the janitorial staff.

[mjtaylor22]

WE NEED A WELL THOUGHT OUT PLAN NOT A RUSH TO JUDGEMENT
AMERICAN HAS NEVER BAILED OUT THE INDUSTRIES WITHOUT FURTHER REGULATION AND OVER SIGHT.NEVER NEVER NEVER..............
IT IS NOT GOOD BUSINESS
WE NEED TO REVIEW THE PREVIOUS MODELS OF THE 80'S S&L CRISIS
AND THE 1930'S DEPRESSION AND MARKET CRASH.
IT IS A SHAME TO HAVE TO GE THRU THIS AGAIN AND AGAIN AND AGAIN.
WE NEED A BALANCE OF REGULATION AND BUSINESS TO KEEP OUR COUNTRY RUNNING SMOOTHLY.
NO REGULATION NO BAILOUT.
IT WOULD BE CHEAPER TO BUY THE COMPANY IN PIECES ANYWAY
HAVEN'T YOU EVER SEEN THE MOVIE WALL STREET

[RedondoBeach]

We are told by Paulson that the taxpayers will turn a profit when, down the road a little, the Treasury sells the securities it bought at a higher price than it paid for them.

This is the biggest joke of all. The market for derivatives such as the now-infamous "credit default swaps" is OVER. No one will ever buy them. The financial gangsters who came up with this trash should be made to swallow them whole.

At least with the Mafia and the Columbian cocaine cartel the customer got what he paid for.

[Dialogue]

In Congress, Calm and Patience should rule the day. A legislative solultion will not be easy, if incentives are created for the taxpayers to take on excessive, unimagineable risk, a bailout. Apparently, the magnitiude of the problem is off the charts. A huge bailout, may lead to run-away inflation, similiar to what Germany experienced in 1923. The Federal Reserve, and it member banks, would then initiate a restrictive round of credit tightening, unlike anything Americans have ever seen, which could lead, and then exceed the calamity of the 1930's Depression. Therefore, Congress could implement a debt forgiveness chart, wiping all debt slates clean, effective immediately. A debt free society, would reinvigorate the economy. The legislative branch can initiate and pass debt forgiveness, instead of a complicated bailout matrix, that could lead to a "Mad Max" economic scenario for the American people. The bottom line - KISS (Keep it simple stupid), is the way to go. Forgive debts, or foreclose, It's not rocket science.

[MEC43]

Regulators could develop a series of conditions for the loan documents. Some conditions could be universal while others could kick-in with larger bailout loan amounts or particularly appalling bank behavior/balance sheets. One universal condition could be a cap on executive compensation until the loan is repaid. Another condition could be requiring that the bank demonstrate that is has reworked a percentage of its non-performing underlying loans to consumers. The percentage could vary depending on the bank's history and/or the size of the bailout loan to the bank. If the bank fails to meet the conditions, the government could foreclose on the bank, subject the bank to increasingly onerous regulation, take some sort of equity interest in the bank, etc.

[Senzasord]

Perhaps the government should use its power of eminent domain to seize the personal assets of the overstuffed CEOs whose greed for profit precipitated this catastrophe and use that to finance the bailout. They are the ones who are guilty. Let them pay the price.

[allwrite]

Great idea. I am writing my congressional reps to advocate it.

(Save big bucks. Bring the troops home now.)

[NoMoFearNoMoHate]

BUT, if we, the people, loan them the money to loan back to us - wait, what!? WTF!? Why don't we just cut out the middle man and admit that we're playing a big game of peek-a-boo with ourselves!

well, have it your way.

if we give the banks a 'loan' (so they can loan money to us) then no one will invest in those banks because their returns would be diminished compared to those who were not bailed out because of the loan repayment - nice thought... won't work. Too many people gaming the system in the their own interest. Only a fundamental change in the outlook of humanity itself would make any difference.

[NoMoFearNoMoHate]

this is the best idea yet...

http://www.huffingtonpost.com/rep-bernie-sanders/billions-for-bailouts-who_b_127882.html

[allwrite]

Bernie has got it and definitely covers more bases.

[DanteLabon]

Couldn't agree more. It just burns me up to think how fast the entire government jumped to action when the big, banks and wealthy people therein are in trouble, but not so much as a flinch in these years that the American people have been losing their homes, and watching their jobs go overseas with the help of our government in the form of tax cuts to those companies. I'd go a step further and insist on dividends to the American people (who are putting up the money) when these banks start raking in the bucks again..just like with any other stock. Bet that don't happen either.

[kgb999]

I like it!

[NTO08]

If banks screw up, TOUGH.
If some Lehman people get a bonus they don't deserve, seize the funds.
All golden parachutes should be terminated and money used to help average Americans with their mortgages...
Bail out those who deserve it, not Wall Street fat cats.

[Carolab]

Yeah, and if it's a loan, can we sell shares of it off as derivatives?

[RobinLandseadel]

Sounds fine to me.

Can we find a way to jail and divest of funds all those pirates who left with golden parachutes? Starting with Carly Fiorina?

[Ddayv825]

Check out the Lehman Bros. bonuses -$ 2.5 billion !! This bail out is going to make Americans even more furious when they see the real results.

[NTO08]

You are exactly right...people are sick of struggling or losing their houses, working two jobs to put food on the table. These s--m bag CEOs and Wall Street barons need to have their collective a--es handed to them.

[DanteLabon]

I hope it does, but it's going to be up to people like us to let most people know about the bonus disgrace. Because you KNOW it will never hit the front page of any paper, or any primetime news coverage except maybe Countdown. Keith rules!!

[TXfemmom]

If the government takes on some of the bad debt, then the banks should have to give up as much in GOOD DEBT, as in solid assets, until they begin to pay back the bad. They would not be able to liquidate the GOOD DEBT without the permission of the government, and the government would get the percentage off the top. The same with AIG, etc. AIG should have to give up $85 billion in their ASSETS before they get the guarantee, once again, in a time where they have to get permission of the government to sell.

Twelve years ago, I had an old employer close out their defined pension benefit plan and they put my portion into an AIG annuity, claiming they couldn't find me although I still have the same telephone number I had when I worked for them. AIG has refused to give me a copy of it although they verify it exists. I have never received a statement. The State of Texas Insurance Commissioner ruled twice that they must give me a copy, as had the Federal Guaranty Pension. AIG and the employer have sneered at being ordered to respond twice by a State Agency and once by a Federal Agency. We are having to go to Federal Court to even get the copy. Think what they would do over $85 billion.

[DaCoach]

The facts show that the problem was caused by allowing the market to operate without regulation. So logically, Paulson's solution is to allow him to make thing right by not regulating his actions. Only in Alice's Wonderland would anyone suggest such an idea.

Make certain that oversight is accomplished by a majority of non politicians. Let's include 1 Republican, 1 Democrat and 3 others. The other three will have to be agreed upon by both parties. Guys like Buffett would do nicely.

Finally, and most importantly, drop the word bailout. Change it to loan. All of us know that when we go to the market for money, it's always expected we will repay the loan. Whether that is in the shape of ownership or preferred stock, we must insist on being made even. Make certain that bankruptcy won't avoid repayment. Insist that executives pledge their company stock and pension guarantees to insure the debt is repaid. Bottom line. This isn't a bailout. It's a loan. Limit executive compensation until the loan is repaid. We'll be told that's unfair by some. Tell them to go somewhere else for a loan then.

This is a defining period for America. We must adhere to the American principals that business understands. There is no free ride. Take it or leave it.