Message Font: Serif | Sans-Serif
No. of Recommendations: 21
I continue to be stunned by the vitriolic response to the Paulson proposal and Tom's appeal. Fools seem to blinded by anger and political ideology. I am a strong free market proponent - I teach Economics - but I recognize that the free market REQUIRES some government rules to enable it to operate to everyone's benefit. People must be responsible for the consequences of their actions or risk decisions will be flawed.

We all allowed and even encouraged that essential responsibility to be eroded. Lots of ordinary people took on debt they knew they couldn't afford, gambling that rising home prices would bail them out. Democrats (Clinton, Congress) pushed Fannie and Freddie (Government created monopolies) to encourage and fund such shaky loans. We all supported home mortgagte interest tax deductions that encourage people to buy more than they should. A Republican administration failed to adequately regulate all the exotic new mortgage products Wall Street sharpies were creating, and failed to recognize the risk that institutions buying them were really assuming. But fundamentally, we allowed a situation to develop where shady mortgage lenders could make loans and immediately offload the risk to someone else at a profit, and do it in a way that the buyer was not fully aware of the risk they were taking on. This extended to the credit default swaps, the unregulated insurance against losses that mislead financial institutions into thinking they could be immune to risk and turned out not to be there when needed.

AS to the FACTS that most of you seem to be overlooking.

1. This is NOT a bailout of those on Wall Street (or the irresponsible mortgage sellers on Main Street) who contributed to and who profited from this mess. They are long gone. Either they took their big profits and bailed, or if they waited too long, have been wiped out. The CEO's are all fired. In case you haven't looked lately, there ARE NO INVESTMENT BANKS LEFT IN THE US. The last one standing, GS, who survived because they were the only one that did NOT play in toxic mortgage securities, now (with Buffett's help) is becoming an ordinary commercial bank, and a small one at that. WALL STREET IS GONE FOREVER.

2. The depression threat is not a panic scare, it is REAL. I'm old enough to remember it. Look at the rate the Fed has been hemoraging cash to frantic bank borrowing this weekend. Just read your history about the bank runs of 1930-31 when Herbert Hoover opted to let the market recover by itself and did nothing. Roosevelt's bank holiday (shutting down the entire banking system for government restructuring and creating the FDIC "bailout") finally stopped the freefall. To their credit, President Bush, Secretary Paulson and the Democratic (and hopefully now the Republican) Congressional leaders learned from that history and not condeming us to repeat it. I am old enough to remember the recession: nobody is immune when there is 25% unemployment. The depression lasted 10 years.

3. This is NOT a bailout of the evil rich guys that caused the mess. Most of the banks, pension funds, etc. that are now stuck with these toxic mortgage securities are not the ones who caused the problem. While they certainly should have done better due diligence, most thought they were buying safe investments, bacause the bond rating firms they relied on fell down on the job. But these banks cannot lend the money necessary to keep main street businesses running in the US until they get this stuff off their books.

4. The taxpayers will NOT have to pay all this cost. The assets will be purchased by the government for a discount and resold. Once the government establishes a market for these there is a lot of private equity ready to step in and purchase them at enough discount so they can profit. The details of how this is done will be important, but we do have intelligent people in Treasury and banking that will tune this process. Hopefully, once these securities are broken down and regrouped into like components, an automated auction market can be implimented and the governmenmt may be able to back out altogether. The key point is once banks are relieved of these toxic mortgage secutrities they will not have to keep all their reserves to back them and can resume normal lending to business.

5. The "little guy " benefits, wheether he deserves it or not. Not only will we keep our businesses and jobs, but people with mortgages they can't afford will be able to renegotiate them at affordable rates so they become sound and the government can easily resell them.

There will be plenty of time later to assign blame, and more importantly to restructure our financial and regulatory system so it does not happen again. People being people, it will happen again in another unanticipated way, but hopefully not for a while. RIGHT NOW THE IMPORTANT THING IS TO GET REAL AND TELL YOUR SENATORS AND REPRESENTATIVES TO SUPPORT THE PLAN.
Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.