POLITICS - On the Bailout '08

"Obama's bailout smartest and fairest" by Diane Francis, National Post

The Bush regime put about as much due diligence and thoughtfulness into this $700-billion bailout scheme as it did when before invading Iraq. When Treasury Secretary Henry Paulson testified at the Senate this week it was appalling: He had no detailed plans but a simple three-page bailout proposal to take to Congress. That’s why the pushback that’s roiling markets and politics this week.

Within a day or two, I think it's highly likely there will be the announced adoption of the four smart and fair conditions as have been suggested by Barack Obama:

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



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



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.



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

In other words, taxpayers should own, not merely bail out, America’s financial institutions. And borrowers as well as lenders should be given breathing space. Equity with strings attached and an upside or downside is what happened in 1994 when Mexico hit the proverbial wall after terrorists attacked in Chiapas and after years of terrible fiscal and financial sector management by former President Carlos Salinas.

An overnight rescue of $60 billion was cobbled together in a matter of hours by then-President Bill Clinton and his team of advisors in partnership with Canada and the European Union stopped a financial panic in Mexican debts and equities and the money was repaid in half the time allotted, netting rescuers a tidy profit.

Clean up Dodge City

But to create trust in American “paper” going forward, the yanks are going to have to clean up their act. I would guess that thousands will be fined, RICO’d, sued and jailed over their roles in the fraud that has characterized the U.S. financial sector for years.

Germany’s Finance Minister Peer Steinbrück said in der Spiegel today that the effects of the financial markets crisis would be felt in economies and labor markets worldwide for years to come.

The world will never be the same as it was before the crisis," the Social Democrat said, adding," the US will lose its status as the superpower of the global financial system.

He blamed the current crisis partly on Wall Street's "blind drive for double-digit profits" and massive bonuses for executives and bankers. He also called for greater regulation in financial markets and a ban on short-selling, and he suggested a role for the International Monetary Fund as a global markets watchdog. He said the unbridled "race for profits" had to be stopped, and that banks should only be able to conduct high risk transactions if they have sufficient capital resources and they report the risks in their balance sheets.

Consensus is that the global economy will be ugly for many months.

Note, the "equity" link to Wikipedia has an accurate explanation, I cross-checked with Encyclopædia Britannica.

As to my personal opinion? I really do NOT like bailing out these companies.

BUT, I also realize the sad fact, they hold so much of the monetary assists of our nation's economy that letting them fall would be disastrous. I suspect it would lead to a Depression Era crash of our economy (at least in relative terms).

We, as a nation, have violated a very, very old adage that is applicable in this context; "Don't but your eggs in one basket." We have allowed individual big companies to hold much too much of our national wealth. This is just what we get when Freddy Mac, Fanny Mae, and the Investment Banks hold so much of our wealth.

Then add the GOP's Lazy Fare Economics (aka no regulation) and "buyer beware" (the seller has no responsibility in offering there products to an unsuspecting buyer), you get this mess.

Now, are Americans willing to endure the long-term hurt of a new Depression Era or not? Willing to absorb the impact on jobs, income, savings, investments (IRA and other retirement schemes), and their personal net-worth?

Whatever, we're in allot of hurt.