A Bailout for America?

[marmar]

from OurFuture.org:



A Bailout for America?
By Terrance Heath

March 31st, 2008 - 12:12pm ET


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Bear Stearns has been rescued, and its shareholders have been placated. Wall Street has several invigorating injections of billions of tax-payer dollars. Now that a great deal of public wealth has gone to prop up private wealth, maybe some of that public wealth can be used to help, well, the public. But only if the free market fundamentalists in the Bush administration stay out of the way, or trip over themselves while hurrying to offer their idea of a remedy.

Clearly something's up, because both the White House and Congress are racing to present plans to (finally) bail out homeowners stuck between impending forclosure. Congress is considering proposals. The Bush administration has ideas of its own. Treasury Secretary Henry Paulson's plan to overhaul regulation of Wall Street is coming under particular scrutiny, because of how much it probably won't accomplish.

The proposals would, for the first time, create a set of U.S. regulators with the authority over all players in the financial system, be they banks, insurance companies or other entities like hedge funds and private equity funds, which now operate virtually without regulation.

But that authority would be limited. The Fed, which Paulson proposes to make the "market stability regulator," would be given explicit authority to limit the risks financial institutions take regarding "certain asset classes" and to "address liquidity and funding issues."

Broadly speaking, those are the problems that have cost the largest U.S. banks and brokerage firms tens of billions of dollars. They took risks trading an alphabet soup of unregulated products cooked up by financial engineers, like CDOs (collateralized debt obligations) and CDSs (credit default swaps).

But the Fed would not be able to act simply because one bank or brokerage house was taking excessive risk. Instead, the Fed's "authority to require correction actions should be limited to instances where overall financial market stability was threatened," the proposal states.

...Under the Treasury proposal, while the Fed would have some authority to stop financial institutions from taking on too much risk through the use of exotic financial instruments, it appears that little would be done to limit the flow of such new products.

The Treasury says that it and other U.S. regulators still believe a principle it enunciated a year ago, "that market discipline is the most effective tool to limit systemic risk."

You're kidding me, right? Wasn't "market discipline," or the lack thereof, what got us into this mess in the first place? And it would do little to limit the flow of new "products"? (And I use the term loosely, because we're talking about "products" that don't appear to have any real value and don't seem to be of use to anyone.) ......(more)

The complete piece is at: http://www.ourfuture.org/blog-entry/bailout-america

[sharesunited]

1. There are some great new products.

Ones that give small investors an opportunity to benefit from bad times. But deregulation is not in the public interest, and you are right to be skeptical that Republicans are just rearranging the deck chairs on the Titantic.