Bailout Common Sense?

I am a simple man.  I do  not understand all of the ins and out of the financial markets, but I am an intelligent man.  Given enough information I can come to an intelligent decision.  This leads to a couple issues about the bailout plan and what I think are common sense ideas to get the financial situation under some sort of control.

First, if anyone expects to get the support of the people, then we, the people, need more info.  What are the "dire" consequences if there is not bailout?  What are potential "dire" side affects if the bailout does go through.

I have seen some talks about alternatives and wonder if they may be more effective, but if a bailout is needed then I think it has to have much more far reaching, permanent impact than proposed.

First, the alternatives.

Why do these investment banks need to be bailed out?  Haven't they all been absorbed by or turned into commercial banks?  

Lets put away money, billions, to guarantee against defaults, but not guarantee profits for millionaires and billionaires.  When the government guarantees my investments, and the investment of every other American, will make a profit, is when we should guarantee Wall Street profits.  (I think my next comments will excite some people).  Then again this is no different then the guarantee a lot of states and communities give to professional sports owners.  They have received billions of dollars of subsidies and cash from the American people. Of course Wall Street will try the same thing.

There is a fear of the economy failing and a credit crunch.  Lets take a portion of that $700 billion - $1 trillion+ and set up systems to guarantee the availability of credit to the markets.  If we are going to socialize the financial community, lets make it work for the American people not just for the people that already have the money.

Another portion of this money they are asking for - $100-200 billion-  could be used to assist in the main street mortgage crisis.  The so called conservative republicans can not see further than their noses.  But then again the reality of their convictions is much different then what they claim.  

They want the poor and minorities to suffer and to lose their homes.  This helps them to justify their beliefs that the poor and minorities are bad people and need to be kept down.  Then in a couple years after vast parts of small towns and inner cities have been foreclosed they can say "I told you so".  This is just like their stands against head start,universal health care and anything that has a potential for providing long term solutions.

All this said, it looks like there will be a bailout.  Since that is going to happen we need to fight for the best plan there can be.  The House repugs have floated a plan with more tax cuts and less regulation.  At first I thought I was watching MADTV when I heard that, but then again why shouldn't they.  The Dems have given them things just as or even more ridiculous.

Barack Obama's four principles are a good start. But these principles need to be backed with teeth.

  1. Taxpayers should have equity, not just debt. This means they will have an upside as well as a downside.

This needs to be real ownership of these companies.  A nonpartisan board of professional economists and financiers with no conflicts of interests.  If there are any upsides the money needs to go to programs that improve America.  Health care, public works, education.  Ok, who we kidding, there will be no upside.  I guess a guy can dream.

  2. Oversight will be bipartisan and without conflicts of interest.

Real oversight, with real power.  How this is set up is beyond my simple capabilities, but I have read some proposals that make sense.  The decision makers need some autonomy, but ultimately they must answer to someone and must be able to justify their actions and decisions.

  3. Homeowners must be helped as well as their lenders in this mess. This means a moratorium on foreclosures involving principal residences. This could be done without infusion, but with non-cash backstopping and would help stop the property price crash.

I agree with the moratorium, but if Wall Street is going to get cash, why not Main Street.  One issue here is determining who truly should receive help and who is just trying to game the system.

Is it possible to separate the people that were cheated or misled from those that were knowingly trying to play the system?  Any real cash support for homeowners would have to exclude investors and the majority of people that refinanced.  If you refinanced your house and took out a cash lump sum and now can't pay your mortgage, I have little sympathy for you.  This is going to be a tough program to define and administer, but it needs to be done to save a lot of communities that are seeing a lot of foreclosures and homes on the market.

  4. Caps on salaries and other compensation will be strictly imposed on any institution that receives tax dollars.

This is key to any groundswell of support.  Not only should it be implemented going forward, but compensation going back 5 years needs to be looked at.  The age of the new Robber Barons must end.  The key word in this is "strictly".

There are other proposals I would like to see.  Senator Sanders proposal for a 10% surtax on those making of $500,000 and couples making over $1 million.

As a matter of fact all of Senator Sanders proposals make sense and would make sense to most Americans

http://sanders.senate.gov/petitions/?pet ition=Financial_Crisis_1

The ball is in the Dem court.  The rethugs have drawn their line.  They have proven they are removed from the American public.  This is the moment that the Dems can prove their progressive principles and push through real legislation that makes real, concrete improvement to the USA and the people of the USA.  Force the rethugs to oppose legislation.  If the Dems back down they lose.  If they stand strong and include real reform they win.  This could be this final straw that breaks the republican party or it could be the beginning of its resurgence.  The Dems have plucked defeat from the jaws of victory in the past.  Please don't blow it again Speaker Pelosi, Senator Dodd, Representative Frank and Senator Obama.

Tags: bailout, Dodd, Frank, obama, Pelosi, Wall Street (all tags)

Comments

4 Comments

Logically Speaking... Why Not Eminent Domain?

If these banks are really bankrupt, they are effectively worth nothing. So the banks themselves should be seized under the eminent domain Takings Clause of the Fifth Amendment. Since they are actually bankrupt, they should cost the taxpayer $1.00 per bank. That's a lot less than $700,000,000,000.ºº, I should think, bit at least the public would own them.

by blues 2008-09-26 07:21AM | 0 recs
NPR radio show explains mortgage backed securities

Listen to this radio show, it explains how this happened.

http://www.thisamericanlife.org/Radio_Ep isode.aspx?sched=1242

by architek 2008-09-26 08:17AM | 0 recs
Kill the Bailout

I'm a nerdy former liberal economist, and I say kill the bail out plan.

You are absolutely right, the best way to save the economy is from a bottom up approach rather than a top down approach. The best way to save the economy is not to bail out the fat cats, but to institute a social safety net that will protect individuals from hunger, homelessness and health care crisis.

The New Deal policies such as FDIC insurance prevented meltdowns in the financial sector to spill over in the over all economy. That's why the stock market crach of 1987 and the subsequent savings and loans disaster in the 80's did not cause a recession in the United States. Neither did the dot.com crash in 1999 cause a recession.

The Federal Reserve already has enough tools to put out the current financial fire. The Democrats should let the very very very unpopular bailout plan die, and comeback in January with bills that will improve long term economic growth.

by Zzyzzy 2008-09-26 09:51AM | 0 recs
Re: Bailout Common Sense?

Separating out the "good" homeowners from the "bad" is not that hard. First, owner-occupants only. Second, the assistance is in the form of a loan, a "silent second" backed by a lien on the property.  Third, interest accrues throughout the life of the loan, but with no prepayment penalty. The interest rate should be enough to discourage borrowers who don't really need it.

I could go on...it's just an application process with a set of criteria. The government does way more complex things all of the time by the millions. Look at the immigration process.

by dmc2 2008-09-27 08:05PM | 0 recs

Diaries

Advertise Blogads