Why bail out at all?

[The Traveler]

I'm an engineering type, not a economist type, but this thought has occurred to me.

Since the threat to the economy lies in the clogged credit pipelines, does it make sense to address that issue directly? In other words, instead of healing the investment class to the tune of $700 Billion, take half of that and put it in a fund. Allow selected qualified lenders to broker loans against this fund, subject to some significant regulation, for businesses and individuals with good credit ratings.

This would, it seems to me, have three effects.

First, it keeps the wheels turning in the short term. Business can get the loans they need to keep operating.

Second, it applies competitive pressure to the financial markets. Suddenly, certain qualified brokers and the government are making money based on interest. The regular financial markets will want to compete for that business as soon as things stabilize, providing a segue path by which the government can exit.

And finally, it allows free market consequences to take down the greedy mo-fos who leveraged the crap out of the housing bubble. The tax payer is risking money to keep the economy going, not contributing to the golden parachutes of financial parasites.

Can someone explain to me why this is a bad idea? Or why something along these lines has not been at least mentioned by political leadership? Like I said, I am not claiming to be an economist.

Trav

**edited for a typo**

[msongs]

1. evidently you dont buy washington politicians for a living :-) nt

[The Traveler]

2. No, I build stuff for a living

Sorry. I was being naive, I suppose. :)

[Eric J in MN]

3. A professor of political economy at Carngie Mellon agrees about loans...

...instead of a bailout.

Allan Meltzer:

And if they're going to do something, then what they ought to do is make loans, which the financial institutions have to repay with interest. And if you think -- that's an idea which the Chileans have used in a bigger crisis than this for them in 1982, and it worked for them.

People paid back the loans. They weren't allowed to pay dividends until they repaid the loans. They weren't allowed to take bonuses until they repaid the loans. I think that's the way -- if we're going to do this, then that's the way we should do it.

http://www.dailykos.com/story/2008/9/24/133422/858/388/608797

[The Traveler]

8. Thanks

Maybe I'm not as stupid as I feared? :shrug:

[sinkingfeeling]

4. The only reason for the 'administration's bailout plan' is to reward their 'base'. I trully believe

that since Bush failed to get Social Security into their hands, this is the best he can do on his way out the door!

[The Traveler]

11. I think you are right about that

This is a swindle. Pure and simple. A raid on the finances of the common man. When will the common man stand up, look these ass clowns in the eye and say, "Are you nuts? Hell, NO!"

Trav

[Romulox]

5. You don't understand. The system will collapse unless trillions of taxpayer dollars

are given to the self-same people who are unable to correctly value financial investments. Oh, and no new regulations whatever! :P

Apparently, Jack merely bought the wrong sort of beans last time; he'll be happy to continue using your life savings until he located the magic one!

[ixion]

6. I agree with you... no bailout

it will only make things worse in the long run.

[glowing]

7. Do better, make it a regular bank.. accept deposits.. lend to borrowers

who loans for college, homes, etc... no reason not to.. Banks are in business to make money.. why not the Govt, US, be a bank.. Now, we own 2 mortgage co's and an ins. agency.. why not go the distance..

[The Traveler]

10. I could live with that

Some people might regard that as kinda socialistic or something, so I was trying to come from a different angle. But, sure, that makes sense to me.

Thanks,

Trav

[predfan]

9. The foreign investor chickens have come home to roost.

The American taxpayer be damned..........we have to reassure the foreign investors, present and future.IMHO.

[wtmusic]

12. Not convinced there is any credit "crisis" at all.

What exactly would happen if there was no bailout? Banks would file bankruptcy because they couldn't guarantee loans?

Of course not. They would find a way to do it, if they wanted to stay afloat. They have more at stake than the consumer, and the ones that will fail will just fail. That's what the FDIC is for.

[Romulox]

13. More to the point, if the American economy is already overleveraged...

giving it more credit is like giving an alcoholic more booze. A very short term "solution" indeed.

[The Traveler]

14. I'm not convinced there isn't

Cars, computers, rockets, steam based power plants ... I understand that stuff. Economics is not my table. So I will keep a question mark over that item ... is there a credit crisis at all?

But presuming there is ... does a bail out of this sort represent the best strategy for dealing with it?

Thanks for playing,

Trav

[wtmusic]

15. Let's look at the chronology of the "crisis":

What was it that triggered this sudden need for bank credit? Did something new happen? Lehman went south, but they weren't a bank. Savings and loans are, except in a few circumstances, doing business as usual.

Republican polls started sliding, and the GOP realized this is their last chance to take the American public to the cleaners.

[The Traveler]

17. I see two cases

First case --- you are correct, there is no crisis. In which case, a crisis is being synthesized through propaganda. The purpose must be nefarious ... separating the American people from both representative power and billions of their dollars.

Second case --- there is a crisis. If there is a real crisis, the bail out solution may well serve a nefarious purpose like that outlined above. In either case, I still have no clear answer as to why a more direct approach (providing funds for providing credit) is inferior to providing a bail out ... which reinforces my suspicions that a crisis (real or synthesized) is being used to do exactly what you suggest ... take the American people to the cleaners.

Trav

[Popol Vuh]

16. If I lose my life's savings in Vegas they won't bail me out.

They've been leeching off us working folks for centuries. They treat our needs with contempt. There ain't no way in hell I am ever going to agree to bail them out. Period.