This guy Robert Peston puts it the best I've seen it put so far. The question with the 7-800Billion dollar institution is in the long term profitability to the taxpayer.
http://www.bbc.co.uk/blogs/thereporters/robertpeston/
If this debt is bought up at the price the banks have been labeling it as being worth, then we have a taxpayer issue. We can't really come out even unless we make it up in interest over time, but we almost certainly won't make a profit.
I could deal with breaking even to get us out of this mess, but that does one other substantial thing. It sends a strong signal to all the banks that have had poor lending practices for years, that have overvalued the price of homes, and stock, and played it fast and loose, that it is all A-OK, they'll still get their paycheck at the end of the day, complete with golden parachute attached. That is wrong.
The counter argument is that if we buy all this bad debt at fire sale prices we aren't really helping the economy now. These banks still might fold, it still might ripple through the economy and all we did was incur a whole lot of bad debt.
Chris Dodd has it right this go around, we need to see the details. And I strongly suggest that you and I as taxpayers insist on seeing the details. Schumer, Clinton, and Towns will all be getting a phone call from me.
The only way for this to work is to tie it in with simple oversight. A few rules tied to this money and I will sleep well at night.
A) Define a metric on what makes 'Too big to fail', and prevent it in some way shape or form that from occurring again. In short, no one should be able to hold the American taxpayer hostage. Furthermore, Letting Lehman collapse while A.I.G. doesn't creates a foul moral soup. Did Lehman just not collectively screw America enough?
B) Define future criteria for the government to get engaged earlier. If anyone is interested I've been tracking parts of this issue since 2002, and the REAL time for government intervention was somewhere between Aug. 2007 and March 2008.
C) Push predatory lending laws.
That's all I got for ya right now.
Look at Lehman closer
By John Y. (not verified)Hey there,
Lehman v. AIG isn't really a question. AIG insured so much of Lehman's debt that had it gone under instead of Lehman, it would have brought Lehman down with it anyway.
http://www.concurringopinions.com/archives/2008/09/the_loophole_th.html#more
Not that I necessarily agree with these policies. If not financially troubling to taxpayers, the legality of the government outright controlling a private company is questionable at best. Either way, check out the link, some good perspective on this.
I should clarify
By TreslerI understand the difference between Lehman and AIG, but what about Bear Stearns, vs. Lehman?
When I say foul moral soup, I'm not saying that is is de facto wrong. I'm saying that it is unprecedented and puts an unfair level of choice without guidelines in the hands of the Fed. I am not at all comfortable with an unelected official deciding who lives and who dies in the financial world. If you are a de-regulationist, stay out. If you are a regulationist, lets make some laws to guide it, but this murky middle ground where we are deregulationist, ya know, unless things are really bad, then we are cowboys, doesn't work.
Hopefully the dems can tie enough strings to the currently debated bailout buy up.
It is the foul moral soup that the article you reference calls 'selective socialism'. Thanks for the pointer.
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