Bailouts and Lynching

Depression

30’s Depression

I’ve been reading a little, here and there, to get a feel of what people think should be done with the proposed Paulson-Bernanke bailout.
Its been very interesting, from professor Sheehan who does not see the bailout as a requirement imperative, Buffet’s support with an advice to sell a few of the toxic papers to learn and pay market price, Krugman’s leaning on a traditional approach which warrants buying the securities of troubled companies to privatize later on, to a flooding of mail and telephone calls to lawmakers from enfuriated taxpayers whose majority outright oppose any bailout and a minority agrees to a very restrictive one, with a healthy dose of wall street exec lynching.

So, will the elected lawmakers approve this necessary piece of legislation, with 99 out of 100 taxpayers opposing the bailout?

I’ve kept on reading, and the discussion goes on and on…here and here.

I think most would agree on the bailout if two conditions were met:

  • taxpayers do not lose any money
  • and the responsible wall street execs get a lynching…

And, I would have to add that most of the economists I’ve read agree that the bailout is necessary –even a disgruntled Sheehan…

On a more anecdotal note, I hear from friends that know friends that the credit card, and mortgage client is either paying less and less, or outright turning in the keys of the house to the bank –not a pretty picture.

It also still resonates in my mind, one of Sheehan’s statements: there is an estimated $45 trillion in toxic derivatives out there. And, nobody really knows how close the flame is to the powder.

Taking either Krugman’s securities approach,

The logic of the crisis seems to call for an intervention, not at
step 4, but at step 2: the financial system needs more capital. And if
the government is going to provide capital to financial firms, it
should get what people who provide capital are entitled to — a share in
ownership, so that all the gains if the rescue plan works don’t go to
the people who made the mess in the first place.

That’s what
happened in the savings and loan crisis: the feds took over ownership
of the bad banks, not just their bad assets. It’s also what happened
with Fannie and Freddie. (And by the way, that rescue has done what it
was supposed to. Mortgage interest rates have come down sharply since
the federal takeover.)

or by lending with appropriate collaterals, we accomplish the first requirement, to guarantee the taxpayers’ investment in the bailout.

As to condition number 2, I’ll get the rope…

For a contrarian and constructive view, I also reccomend reading Galbraith here.