And They All Fall Down
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Glad to get confirmation that my years as a financial analyst weren’t for notta. A few days ago, I wondered aloud whether it would be feasible and helpful to create a federal entity with oversight for home loan refinancing, an entity modeled on federal student loans program. Well… |
All five big investment banks have disappeared or morphed into regular banks. Is this bailout still necessary?
The point of the bailout is to buy assets that are illiquid but not worthless. But regular banks hold assets like that all the time. They’re called “loans.”
With banks, runs occur only when depositors panic, because they fear the loan book is bad. Deposit insurance takes care of that. So why not eliminate the pointless $100,000 cap on federal deposit insurance and go take inventory? If a bank is solvent, money market funds would flow in, eliminating the need to insure those separately. If it isn’t, the FDIC has the bridge bank facility to take care of that.
Next, put half a trillion dollars into the Federal Deposit Insurance Corp. fund — a cosmetic gesture — and as much money into that agency and the FBI as is needed for examiners, auditors and investigators. Keep $200 billion or more in reserve, so the Treasury can recapitalize banks by buying preferred shares if necessary — as Warren Buffett did this week with Goldman Sachs. Review the situation in three months, when Congress comes back. Hedge funds should be left on their own. You can’t save everyone, and those investors aren’t poor.
With this solution, the systemic financial threat should go away. Does that mean the economy would quickly recover? No. Sadly, it does not. Two vast economic problems will confront the next president immediately. First, the underlying housing crisis: There are too many houses out there, too many vacant or unsold, too many homeowners underwater. Credit will not start to flow, as some suggest, simply because the crisis is contained. There have to be borrowers, and there has to be collateral. There won’t be enough.
In Texas, recovery from the 1980s oil bust took seven years and the pull of strong national economic growth. The present slump is national, and it can’t be cured that way. But it could be resolved in three years, rather than 10, by a new Home Owners Loan Corp., which would rewrite mortgages, manage rental conversions and decide when vacant, degraded properties should be demolished. Set it up like a draft board in each community, under federal guidelines, and get to work…
– James K. Galbraith – A Bailout We Don’t Need – washingtonpost.com
For a review of Galbraith’s book by The Journal of Economic Issues, go to the Economist’s View, a blog by Mark Thoma, Professor of Economics at the University of Oregon. More information on Galbraith’s book can be found at:
- Global Investment Watch
- Mefeedia Podcast – The Predator State: How Conservatives Abandoned The Free Market And Why Liberals Should Too – Posted using ShareThis
David Frum on Equality – “Never Can Be or Should Be a Conservative Goal.”
Question to David Frum. Do you really want to assert the following on record?
Equality in itself never can be or should be a conservative goal.
The Vanishing Republican Voter: Why income inequality is destroying the G.O.P. base.
– David Frum, The New York Times
WTF?
I reread it and the surrounding passage repeatedly to make sure I hadn’t misunderstood that the author was asserting that conservatives should not prioritize equality in itself as a worthwhile objective. I didn’t misread it.
Wow, really? Somebody needs to brush up on his civics lessons:
“We hold these truths to be self-evident: That all men are created equal…”
The Declaration of Independence, 2nd paragraph
I opine 
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