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20 September 2008

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rc thweatt

If, as Alan Blinder says, the fall in housing prices is fundamental, why not just buy the houses? Given the horrendous leverage we're told is involved, it would be cheaper than buying all the toxic mortgage-backed paper-at prices which, if high enough to make their current owners solvent, we the people may never recover. Problem is, why did housing prices get so high in the first place? Why, all the toxic paper, of course. They are still too high, so maintaining their current level is unrealistic and undesirable in the longer run.

ISTM the root problems are, one, too much paper, and, two, nowhere to invest it that isn't actually destructive to the real economy. The Onion said 'we need a new bubble,and quick!'(readers of Paul Krugman's blog will remember this). What we need, of course, is something that creates actual wealth, physical stuff we can use. Like T Boone Pickens, I think the answer is obvious- we need a Green Power Boom(look for T Boone to point out that this $700B is one year's foreign oil bill).

Government will have to set the conditions for this, the market cannot, the risk is too great- in the '80s Eastern Airlines went bankrupt because their bet on higher fuel prices-a new fleet of fuel efficient aircraft- didn't pan out. Nothing new about this- at the end of the Civil War, the next order of business for the American economy was obvious to everyone- building the transcontinental railroads. Yet the market could not finance it. Enter that root of all economic and moral evil, that incompetent director of capital, the Federal Government(good short history- Stephen Ambrose's Nothing Like It In The World).

dan

Pat

Given the reality that there are probably trillions of dollars of losses sloshing around the system, the idea that there will be any "repayment" to taxpayers is, well, ludicrous.

The entire $700 billion will be wiped out by the losses that are currently in the system, and the US taxpayer will be further stiffed by either the interest on the debt ( assuming anyone will actually lend to the US - you're looking at 4% pa in perpetuity, so $28 billion per year for 30 years is another £840 billion in interest costs ) or, if the debt is monetised, then via inflation.

There are already large amounts of toxic paper that have zero value, and in some cases the paper actually costs money to hold ( ie its value is negative ) - there will be an overwhelming incentive for US institutions to get rid of this paper first.

The interesting thing to note is that there is no "paygo" element to the proposal - ie this is all going to be financed via the deficit.

Frankly, if the Dems had any spine they would at least force Bush to cancel his tax cuts, effective now, and make him deliver the message with a shit-eating grin.

arbogast

The proposal is deflationary and probably only mildly deflationary.

Anything, repeat anything else, is hyperinflationary.

It is a good proposal, and I support it.

jamzo

we have become accustomed to this kind of phraseology during the bush-cheney administration

"may not be reviewed by any court of law or any administrative agency"

despite the severity of the financial crisis their waning power, the bush-cheney's demand obsequience, they are remarkably consistent

they send two seemingly reasonable people out to handle the crisis but in the background the previously hidden footprint of bush-cheneyism is revealed in the paperwork

considering all of the implications of the phrase, we can probably consider ourselves lucky that they have not done more damage than they have

but then we really won't know everything they have done until they are replaced in govening by others

Curious

OK folks, this is how it gonna plays.

- The ultra giant blank check will be passed with minimum oversight mechanism.

- In the next few months, Bush/Paulson will do massive bail out and spending spree. moving bad debt into public budget. All at wall street premium price, instead of bargain price.

- This will cause MASSIVE inflation, while not exactly fixing the problem.

- Economy collapses. People wage can't keep up. So housing price will be lower, cutting down on purchase, ,.... unemployment, etc.

- Then the debt explodes. Government has to pay all the purchased debt...

- MASSIVE budget deficit. $1T/year for 2-3 yrs.

- Global confidence on US ability to pay debt utterly collapse. Cost of financing budget deficit becoming more and more expensive.

- ... then real fun starts. we have Korean or argentinian style economic crisis. Liquidate social security, sell government asset, contraction of economy by 10-15%, etc... utter.


-----------

They are not going to do what must be done:

1. Clean up banking by
a) properly appraising debt
b) putting back safe guard laws
c) massive hair cut in part of banks

John Howley

"Mark to market" is great when everything is going up. The other way, not so good.

Key info revealed in the Financial Times:

"The news came as it emerged on Friday that the value of securities held by investment bank Lehman Brothers, which filed for bankruptcy protection on Monday, had fallen to $47.4bn from $72bn – revealed in bankruptcy court proceedings. "

How many financial firms will have similar-sized holes in their third-quarter filings?

David W.

Tosk, thank you for responding, however, I maintain that it is not at all a hatchet job; McCain's health 'plan' as set forth in this article is the same old free market bs. that hasn't worked in Energy (Enron), or finance. McCain's plan as set forth here, essentially would give consumers a wider choice of lipsticks to put on this pig.

It is especially tone-deaf for the McCain camp to put this out at this time, when Americans have been told repeatedly over the past several years that national health care is somehow too costly, but yet, no check is too big for us to write the financial sector.

Don't forget that this was also the same rationalization that was set forth a couple of years ago to 'save' Social Security--how would everybody here feel if that had gone through, and our SS kitty was dumped into this sinkhole?

Cieran

Arbogast:

The proposal is deflationary and probably only mildly deflationary. Anything, repeat anything else, is hyperinflationary.?

Any chance you could "show some work" here? I can see several paths to serious inflation (we're on a couple of them right now!), but I can't see why all paths save for this particular proposal would be hyperinflationary?

Care to share your logic here? Thanks in advance for your thoughts.

dlb

All seem to assume this so-called "bailout" is going to work. Just stop and think a moment about the people proposing it and the people who will be implementing it. Personally, I see no reason to believe it will work. Sure, billions will be flushed down the drain and then...?

William R. Cumming

Gee Whiz! We should have privatized social security so all the retirement accounts could be bailed out by the Treasury just as with the Wall Streeters. I began to worry about all this when the daughter of friends graduated as a civil engineer from Princeton in the 90's and told me that not only was she going to Wall Street but the rest of the Engineering grads from Princeton. Greed is a motivator. No long-term thinking need apply, just continue to manipulate the hard-working man and woman on the street's life savings and largest investment (homeloans). By the way the language of Section 8 in the above post is definitely not "Constitutional." Who says there is no "Draft" by the government of our young people to serve the egos of our leadership.

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