Wednesday, September 24, 2008

Before You Rage at the Bailout Again

... read this.
Forget the ideologues. The bailout is absolutely necessary for most people's financial health.

First, all those commentators sputtering about the supposed $700 billion "cost" should take a look at ordinary Americans' savings.

On Monday, fears that this deal might be held up on Capitol Hill, or even abandoned altogether, caused the stock market to fall about 4%.

The amount wiped off share values? Oh, about $610 billion. In six and a half hours.

Indeed, since the start of this month U.S. shares have lost nearly $1 trillion in value, and since the start of May the figure is a staggering $2.2 trillion. This is the financial cost of this crisis to America's savers and investors. It has come out of 401ks, 403bs, IRAs, mutual funds, college savings plans and pension funds.
There's more.
Second: This bailout probably isn't going to cost the taxpayers anything like $700 billion anyway. That's the figure being bandied about. But it's just the tag put on the upfront investment. OK, no one on Wall Street knows how to value these subprime assets and related derivatives. And nobody wants to own them right now. But they aren't going to be worthless. If Uncle Sam buys them, holds them for a while, and then sells them in an orderly fashion, he should get a lot of the cost back – maybe even most of it.
Did you read the whole thing? Good. Now feel free to return to your talk radio, Daily Kos, Hot Air or Huffington Post and continue to hyperventilate.

4 comments:

Secular Apostate said...

A "bailout" is not necessary. What the government needs to do is threefold...

First, they need to buy the bad mortgages they invented. No institution has any problem whatsoever selling good debt (i.e., mortgages with 20% down etc.). No institution that holds such paper or offered such mortgages is in trouble.

Second, they need to avoid the temptation to "save" credit card deadbeats, student loan scammers, and every other type of debtor that skulks into the Capitol with his hand out.

Third, they need to avoid passing a bunch of draconian banking regulations designed to foist the blame for this mess on to "greedy CEOs". One of the problems we currently have is regulatory, insofar as there were only three "approved" rating agencies (e.g. Standard and Poor) to rate bonds, none of which had the slightest idea how to rate SIVs collateralized with real estate.

If they do this one thing, and hold on to this paper until the inventory in the housing market gets tighter and house prices begin to rise in a demand-driven market, they - we, actually - might even make money.

Otherwise, this is going to be one hell of a mess.

Foxfier, formerly Sailorette said...

I tend to think of this as kind of like managing forests.

See, we want forests around people, so we we put out forest fires when they start up-- to preserve the forest, and also because it's dangerous to people.

That results in the burnables building up, and then eventually there's a BIG forest fire.

You don't decide, in the middle of the forest fire, that you'll just let it burn out-- because the fire is so much bigger and hotter that it would sterilize the dirt.

So you put the fire out, and hope that when there ISN'T a giant fire in their face, people will let you start thining the trees and cleaning things up so that there isn't such a build up of fuel.

B-Daddy said...

KT,
This bail out is just too massive, with too much government control of the banking industry to pass muster. Does something need to be done? Yes, but it needs to be very narrowly tailored along with some structural reform built in, like the eventual break up of Freddie and Fannie.
Also, you've been linked.

Rose said...

They may even make a profit.

On the radio today they said that the dems are thinking of including credit card debt, and car loans in there.

If so - I am buying a Maserati tomorrow. No. I can't afford, it but, who cares?