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
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What is happening in the global macroeconomy? 11/27/22/15 of 16-17 months
The global macroeconomy is likely but several weeks away from the greatest of all lower high saturation valuation areas that the world has ever known. It is a 150 year event whose expected nonlinearity will be nearly unimaginable. This is the time area where all of the particular investor-buyers interested in commodities and equities will be fully invested and where those interested in safer markets will have their resources during the same time period squarely placed there. The equity, commodity, debt, and dollar indicies are moving in a quantum fractal manner toward that pretransition saturated area.For equities and commodities the lower high saturation day will be followed by a day or market-halted days where there are simply no more next day buyers. That is the nature of the lower high valuation saturation area - where the transition could be a 70-80 percent drop in valuations from the prior night to the next morning of trading. All of this event's epiphenomena - of world bank and treasury interventions - are puny and nonmeaningful news events occurring tangentially in the shadow of this total debt-wage contracting money supply end point.
Mind if I translate?
The underlying economies will not support the demand for commodities and investment vehicles whose prices have been driven up by huge concentrations of cash seeking a high return. People will stop buying gasoline if it is $15 a gallon and will even stop eating if bread is $15 a loaf. The wealth of the global economy will disappear overnight as prices for commodities and any and all investments collapse to what the underlying markets, real consumption, can afford. And the lower peoples wages are, the less the value the investment will ultimately have.
Everyone will be broke. Fortuantely for the poor it will be business as usual, living and dying on crumbs. Rich people will be jumping out of their high rise windows.
This has been the utter falacy of Reagan and Friedmanism, that concentration of wealth creates prosperity, when the truth is shared prosperity alone creates wealth and that wealth cannot exist for long without shared prosperity.
I remember when the automakers all got in trouble and we bailed them out. The deal in that case was that they each received government loans, however, the loans were convertible to stock based upon the stock price at the time of the loan. The automakers subsequently recovered and not only did the government get back the loan amount, it actually did much better because it converted the debt to stock and sold the stock for a huge profit. The automakers through a fit at the time, however, it's still a better deal then they could get from the private sector. It seems to me that this is the solution, if the government provides 1 billion in loans, the loans should be convertible into 1 billion dollars worth of stock in a set period of time (like 5 years). This will give the taxpayers at least a chance to recover some profit on the surviving companies to offset the almost certain losses from those companies that still go under. It also offers a definitive exit stategy for government ownership of major financial companies.
there is little reason to expect the cowardly Dems to stand up and save this country.
I detest the meme they are putting out...even Obama...what's the hurry in solving this crisis...shameful and as craven as the Repubs...both sides had their hands in this disaster.
Thats not a bad idea. I think they should have to abide by the new bankruptcy rules.. if we have too. Same rules for all of us..
One problem no one is talking about is the fact that people don't want to be bailed out so that they can continue to pay for overpriced homes. Most people will opt for bankruptcy as that will save them a lot more money in the long run. The government is pretending that everyone who is given a chance to meet their obligations will do so. They will not. I don't blame them. After all who wants to pay one million dollars for a home that is only worth 350,000? Consider the interest on this also. It is much easier to walk away from it and let the government and wall st. burn on this one. After all the government and wall st. both wanted deregulation and boy are they going to get it in spades. The average suckered homeowner has a few tricks up their sleeves also.
Plenty of room in FEMA camps.
Amen! It's about time for the "wise men" to f
Excellent, succinct post Mr. Kaus. I think that there should be civil lawsuits by shareholders against the golden parachute EXOs et al. based on their fraudulent business practices.
Rewarding incompetence, failure, and criminality is *not* a principle we should be teaching our children.
Yeah. But how about teaching our children abstinence in school? You want that, don't you? How about teaching them that it's OK to foster a child out of wedlock as long as it is . . . loved (unless, of course the child is black and a democrat)? How about teaching them that repeating a lie like, "I stopped the bridge to nowhere" when you haven't is honesty in it's purest form?
We've got so many Christian values to teach our kids and so little time . . .
Republicans under Phil Gramm forclosed that route. Shareholders aren't allowed to sue corporate executives for fraudulent business practices..
That is a really good simple plan. Make it a loan.
The financial bail-out of Wall Street after ignoring the crises for the last 5 years is just another sub-standard American Idiot
plan by Team Bush that now includes bailing out other nation's sub prime accounts. It doesn't get any dumber.
I think the American public is going to come out loud and clear when they hear about the details and explain to the White House we don't want to give away any more of our money then we have to( and if
other nations want their corporations paid off they can come up with their own plan).
Yes and it won't stop here. Not only do we feel sorry for whoever takes the throne, a doom encompasses all who care about this country’s future. It would not be out of line to demand Bush and his administration to come out and announce an immediate tax increase on all sectors. So that when Obama or McCain(God Forbid) take over, tax increase won’t be their fault. Even a miracle won't help our financial crisis.
Also, John McCain and Palin should apply for private sector health insurance and see how difficult or almost impossible it is to buy insurance with pre-existing conditions.
Finally is there anyone who sees that McCain and Palin keep repeating Obama’s message? Not surprising though, as original ideas take intelligence and time!
Knowing what happened to Gore’s votes, I fear for unethical practices from top to bottom. And it is not enough to come out of closet and write a book after the damage has been done. As a result of liars in leadership and practices that should bring impeachment, we are in recession. ..And still people think that financial bail out should continue and we really think that these McCain and Palin will do any better!! How stupid are we???
Still, literally no one is laying out the hard numbers.
Here's a fun way to think about it. So far, this year, the Fed has spent/promised over $3 TRILLION of taxpayer money to "save" their too-big-to-fail friends - that's $24,000 per taxpayer, THIS YEAR, assuming the most dishonest administration in our history is telling the truth for the first time.
Now, the highest initial entry pay-grade in the US Army is usually E-3, earning about $20K/year. This year, the Fed gave their criminal friends $25K per taxpayer - which means those soldiers who volunteered to defend America will LOSE $5,000 this year, because they have to "save" Fredie and Fannie and AIG and the rest of the Wall Street mafia (while defending "democracy" and "defeating all terrorism forever.")
Not fun enough? How's this: the Education budget is about $60 BILLION, or $461 per taxpayer. The 2008 Fed save-the-too-bigs scheme has already cost $8,000 per taxpayer.
Angry yet?
I was angry.
Now I am apoplectic, good thing I can still type.
Torches and Pitchforks.
Tar and feathers.
Actually, the highest initial entry pay-grade in the US Army is E-1. I was one in '65 (biggest draft call of the entire Viet Nam debacle) and got a whopping 35$ a month.
But I get your point.
Great idea! And I don't think we should use the 700 b to bail out our fanancial system which IS the problem. Dr. Stiglitz said that the bailout will not solve the problem. We have to stop making the financial market privileged over the "productive economy" (manufacturing and agriculture).
Yes, we have neglected manufacturing and agriculture since 1973. We used free-trade to ship our good factories and jobs to China so we could build a huge financial system. Well, sorry folks. This is not the way a real economy works.
Money can't make money. Making and growing things makes money. Financial markets have only produced losses. Read your economic history. So let's not feed the beast with our money.
If you want to do something good with the 700 b how about bringing back good manufacturing and agriculture jobs to America? For an economist's view on this, check out Angry Bear: http://angrybear.blogspot.com/
You're absolutely right Kaus. Why should the banks get off scott free when their victims--Americans--have to pay on mortgages etc ? No CEO should get a dime at the taxpayer's expense either. They funked business 101 and helped to put us in the catastropic situation we're in now and they don't deserve any payoffs at the taxpayer's expense.
I agree fully!! Excellent Post!!
We need a liquidity fix, not corporate bailouts. We can't afford the inefficiencies of bailouts.
The Bush/Cheney/Paulson plan can't be fixed, because it targets the wrong solution.
Paulson may be a great carpenter with a hammer, but the solution isn't nails and we need an architect and structural engineer.
We have to balk.
The terms of the "bailout" as proposed are ludicrous -- they would destroy the foundation of our country (checks and balances). We can't just hand over everything to Henry Paulson and his merry men (and Carly F.). Everyone must be accountable to the government, which is the taxpayers (except for really rich people and corporations), which is US.
It's going to be ugly, no matter what happens. Either ugly because the finance folks don't want to be held accountable and things fall apart, or ugly because the taxpayers balk and things fall apart.
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