The Bailout Plan...

I'll give you two posts that point out the inanity of the bailout scheme that Hank Paulson, Helicopter Ben, and the Bush Administration have proposed. The first, from Glenzilla, analyzes the bailout from the higher level, noting that it is the most naked example of Republican hypocrisy that we'll see in our lifetimes, perhaps.

Second, whatever else is true, the events of the last week are the most momentous events of the Bush era in terms of defining what kind of country we are and how we function -- and before this week, the last eight years have been quite momentous, so that is saying a lot. Again, regardless of whether this nationalization/bailout scheme is "necessary" or makes utilitarian sense, it is a crime of the highest order -- not a "crime" in the legal sense but in a more meaningful sense.
What is more intrinsically corrupt than allowing people to engage in high-reward/no-risk capitalism -- where they reap tens of millions of dollars and more every year while their reckless gambles are paying off only to then have the Government shift their losses to the citizenry at large once their schemes collapse? We've retroactively created a win-only system where the wealthiest corporations and their shareholders are free to gamble for as long as they win and then force others who have no upside to pay for their losses. Watching Wall St. erupt with an orgy of celebration on Friday after it became clear the Government (i.e., you) would pay for their disaster was literally nauseating, as the very people who wreaked this havoc are now being rewarded.

The second is from Krugman, in this blogpost here, who points out, quite succinctly, why this thing just won't work.

Here’s the thing: historically, financial system rescues have involved seizing the troubled institutions and guaranteeing their debts; only after that did the government try to repackage and sell their assets. The feds took over S&Ls first, protecting their depositors, then transferred their bad assets to the RTC. The Swedes took over troubled banks, again protecting their depositors, before transferring their assets to their equivalent institutions.

The Treasury plan, by contrast, looks like an attempt to restore confidence in the financial system — that is, convince creditors of troubled institutions that everything’s OK — simply by buying assets off these institutions. This will only work if the prices Treasury pays are much higher than current market prices; that, in turn, can only be true either if this is mainly a liquidity problem — which seems doubtful — or if Treasury is going to be paying a huge premium, in effect throwing taxpayers’ money at the financial world.

And there’s no quid pro quo here — nothing that gives taxpayers a stake in the upside, nothing that ensures that the money is used to stabilize the system rather than reward the undeserving.

I hope I’m wrong about this. But let me say it again: Treasury needs to explain why this is supposed to work — not try to panic Congress into giving it a blank check. Otherwise, no deal.

What Krugman is correctly noting is that we are at cross purposes here. It is in the interests of the taxpayers to pay the least amount possible for the shitty loans on the books of the banks (broadly defined). If we overpay, we receive no potential upside and simply own a trillion dollars of garbage. It is in the interests of the banks (and the bailout, by the way) for the taxpayers to grossly overpay for those loans. If the government (ie, us) doesn't overpay for the loans, the bailout itself does no good.

And thirdly, a question that cuts to the heart of the flailing about that has defined the past two weeks...namely, what do we do if the bailout doesn't work? Again, what is plan B here? I hate to draw specious parallels to our misadventures along the Tigris and the Euphrates, but didn't we all agree that we needed to do a bit of "postwar planning" next time?