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Teetering on the brink of the new Depression
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Edited Sep 23, 2008, 19:10
Re: Teetering on the brink of the new Depression
Sep 23, 2008, 19:08
grufty jim wrote:
. But there is one single factor that makes me think that something along the lines of my suggestion should be attempted... which is: I don't think this bail-out is going to work.

And let's face it, that's a good enough reason to try something -- anything! -- else.

So given the choice between two bail-out plans which may not work, I will choose the one that prioritises the homeowners, rather than the one that prioritises the financial sector.


I myself don't have that much faith in the current bail out plan, however it is much too early to say it will fail. We don't know how the fund is going to be managed, and we also do not know how the debt will eventually be sold back into the market (potentially making a profit for the govt).

What you seem to be arguing for is completely removing the debt from the market by allowing the govt to write it off completely (rather than the current plan of taking it out of the market to be reintroduced later).

What you seem to be arguing for is a completely no-risk mortgage market. Can you imagine how the market would behave in the future once you've set this precedent ? It's bad enough that no govt can afford the banks to collapse thereby assuring some kinda bailout, but to simply pay off the outstanding loans for those who hold them would be insane. The message would be 'don't worry if you cant pay your mortgage, the govt will pick up the tab'. This would completely overheat the housing market making things much, much worse. In fact, there would no longer be a market. You also cannot say 'oh, this is a one time deal', a market doesnt understand one time deals from it's govt, they always become precedents for it and they subsequently act accordingly.

No, we cannot allow this debt to vanish, it just has to be taken away, managed, then sold back.

If there was an alternative to this bail out then a set of small deals, for each bank, a la the AIG deal might work. The AIG deal is not a bail out, it is still going to go to wall and collapse. All the fed is doing is making sure it does it slowly, in a piecemeal fashion so it doesnt take the whole banking sector down with it. These debts, (noone knows which are good or bad), aren't worth a lot right now, without the underwriting of them by AIG nothing would be worth shit. As they are offloaded from the makret, a little bit more of AIG will be slowly buried.

If I've got what you're arguing for wrong though, I apologise, you'll have to set me straight.
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