

Why You Should Hate the Treasury Bailout Proposal - furiouslol
http://www.nakedcapitalism.com/2008/09/why-you-should-hate-treasury-bailout.html

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colinplamondon
The part I find ridiculous is that we're just giving the money away. Fact is,
these institutions would collapse without a bailout- thus becoming effectively
worthless, ala Bear Stearns.

If we're going to bail them out, we should nationalize them, that way we at
least have the potential of making money from the upside.

Otherwise it's just a continuation of our current fiscal policy: socialism for
the rich.

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furiouslol
_Anyway, I wanted to let you know that, behind closed doors, Paulson describes
the plan differently. He explicitly says that it will buy assets at above
market prices (although he still claims that they are undervalued) because the
holders won't sell at market prices. Anna Eshoo pressed him on how the
government can compel the holders to sell, and he basically dodged the
question. I think that's because he didn't want to admit that the government
would just keep offering more and more._

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steveplace
That doesn't make any sense. The current bagholders have much more motivation
to get rid of them. And since the US is the only buyer (unless they do set up
an auction) then they have all the power to set price.

Take each asset, calculate fair value, apply 30-50% discount, and put in a
limit bid. If someone wants to buy them, let them.

~~~
furiouslol
As noted in the article, there are plenty of private buyers for these toxic
assets. The problem is that the buyers want to buy them at $0.10 on the dollar
while the banks want to sell them at far above market value ($0.60 on the
dollar).

While the current bagholders have much motivation to get rid of them, they
won't sell them at market value because doing so would render many of them
insolvent. (Many of them are marking these assets at $0.60 on the dollar on
their balance sheets).

So the Treasury is planning to help out the banks by giving these banks what
they want - ability to sell the assets at above market price. (which results
in a transfer of losses from the banks to the taxpayers)

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quasimojo
yeah not only are the banks licking their chops knowing they have a guaranteed
buyer, they will likely go through other non-toxic stuff in their portfolio
that has simply become inconvenient and pawn that off too

this is the wall st scam of our lifetimes. its just starting

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gills
No, this is why you should hate it:

"Sec. 8. Review.

Decisions by the Secretary pursuant to the authority of this Act are non-
reviewable and committed to agency discretion, and may not be reviewed by any
court of law or any administrative agency."

Please folks, call your congress-people. This is the kind of tyranny that
caused the United States to form in the first place.

www.senate.gov www.house.gov

~~~
anthonyrubin
This is mentioned in the article.

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DanielBMarkham
Interesting article and source. Lots of material.

I've seen this criticized by both the left, right, and populists positions.

I DO think this article mischaracterizes the situation. The situation, as I
understand it, is a crisis of confidence and liquidity. The impact was
described to senior congressional leaders as being able to quickly spread to
the entire credit industry. That means retail credit, auto loans, bridge loans
-- everything that makes our system work was at risk of shutting down.

That's why the blank check: to buy unknown risk now and then auction it off
later. I'm not getting into the politics of it, aside from simply stating I
doubt Paulson is going off to buy his own country or moon base (which he could
probably afford!) and that the more complicated you make the deal, the more
you start defeating the entire purpose of an executive branch in the first
place -- some things respond better to a single-decision-making point instead
of a committee. But if you're worried, call your congressmen and by all means
tell him/her how you feel.

My concern is I'm just not sure the fundamentals of the problem are being
solved, and I wonder how you can fix something while keeping the system in
place that caused the problem in the first place. In my opinion, this problem
is just another normal swing in the capitalist system, whereby people looking
to game the system figure out something that can't work long-term and the
system eventually stresses out. We usually tweak the rules and we move towards
a new excess in 10-20 years. I'm concerned that I'm not hearing anything about
the "tweaking". As I understand it, Congress is going to be working through
all of that.

It's going to be really hard for a committee made up of political hacks to
publicly figure out what went wrong in the middle of an election cycle without
degenerating in schoolyard name-calling. Oddly enough, it's much easier just
to authorize Treasury to spend some money. That doesn't give me a warm and
fuzzy feeling, but I do think immediate action is necessary and I'm at least
happy that Congress can come around to getting this one thing accomplished.

~~~
gills
I admire your practicality about taking action. But...

Haven't we seen enough of this style of decision-making and 'action' from this
administration? Take a look at the record, at all the high-pressure-sales-to-
the-citizens executive actions they've taken. It's a lot like Iraq. Pump up
the fear in Congress and among the populace that 'something terrible' will
happen if we don't immediately cede rights and budget to the exec to do
'whatever trick is up our sleeve, don't worry we'll tell you all about it
later.' We've seen enough erosion of rights and we've seen enough power
grabbing. It's time to say no, take our medicine, and clean up the mess we've
all caused.

'No Mas.'

~~~
DanielBMarkham
I'll assume your point as proven.

So because the pattern up to now was flawed, we reject this instance, under
the assumption that it must somehow be flawed as well?

That's not logical, in my opinion. Each case has to stand on its own.

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quasimojo
these will continue while we let unassailable yet unsupported statements be
passed

 _this is too big to fail_

 _the alternative would be worse_

 _markets will never recover unless we act_

now that we've handed over a blank check once in response to these issues,
we'll be doing it again and again and again

fuck that, i'm liquid. put some of this shit on the auction block and i'll bid
on it, yeah, the seller will take it up the shorts. but it will sell. will i
buy ten bankrupt houses for $5k each without knowing if they are on a
landfill? sure. so would others.

