The Coming Bailout of All Bailouts Bill: A Better Alternative
If you think the Bailout of All Bailouts (whose details will be worked out over the coming week) won't saddle American taxpayers with billions, if not trillions, of risky obligations, you don't know politics -- especially in an election year when members of Congress are eager to get home to campaign; when the incumbent lame-duck president (who was he?) has all but vanished, leaving his hapless Treasury Secretary, a former investment banker, to take the lead and the heat; when voters are in high anxiety over the economy and Wall Street is melting down; when the executives of every financial powerhouse in America have staked lots of money on campaigns in both parties and have indundated Washington with lobbyists.
In other words, watch your wallets. The tab here could be very high. If everything goes extremely well, markets move upward, and the risky loans become far less risky, it's possible that taxpayers (that is, the Treasury) might actually make money. But if the bottom falls out, American taxpayers could be on the hook for trillions of dollars. What then? The federal debt soars. What then? Interest rates go out of sight. What then? Foreigners lend us less money. What then? We're cooked.
Some Democrats will try to make the best of the emerging Bailout of All Bailouts Bill, seeking to tack a stimulus package on it. In my view, they'd be better advised to hold out for a different approach.
Paulson is right that it makes sense to allow the big banks to wipe their balance sheets clean of as many bad loans as they can identify, and put them into a special agency that then sells them for as much as possible. The agency would bundle or unbundle the risky loans, slice and dice them as needed, with the goal of getting the most for them on world markets by creating a market for them.
But there's no reason taxpayers need to be involved in this.
Whether you call it a reorganization under bankruptcy or just a hellova fire sale, the process should resemble chapter 11 under bankruptcy. Any big financial institution that wants to clear its books can opt in. But the price for opting in is this: Investors in these institutions lose the value of their equity. Executives lose the value of their options, and their pay (and the pay of their directors) is sharply limited. All the money from the fire sale goes to making creditors as whole as possible.
Meanwhile, policymakers work on a new set of regulations to ensure transparency on Wall Street -- governing disclosures, minimum capital requirements, avoidance of conflicts of interest, and better ensurance against stock manipulation -- so that, once the bad debts are off the books, the new numbers can be trusted.
I repeat: This isn't a crisis of solvency or liquidity; it's a crisis of trust.
In other words, watch your wallets. The tab here could be very high. If everything goes extremely well, markets move upward, and the risky loans become far less risky, it's possible that taxpayers (that is, the Treasury) might actually make money. But if the bottom falls out, American taxpayers could be on the hook for trillions of dollars. What then? The federal debt soars. What then? Interest rates go out of sight. What then? Foreigners lend us less money. What then? We're cooked.
Some Democrats will try to make the best of the emerging Bailout of All Bailouts Bill, seeking to tack a stimulus package on it. In my view, they'd be better advised to hold out for a different approach.
Paulson is right that it makes sense to allow the big banks to wipe their balance sheets clean of as many bad loans as they can identify, and put them into a special agency that then sells them for as much as possible. The agency would bundle or unbundle the risky loans, slice and dice them as needed, with the goal of getting the most for them on world markets by creating a market for them.
But there's no reason taxpayers need to be involved in this.
Whether you call it a reorganization under bankruptcy or just a hellova fire sale, the process should resemble chapter 11 under bankruptcy. Any big financial institution that wants to clear its books can opt in. But the price for opting in is this: Investors in these institutions lose the value of their equity. Executives lose the value of their options, and their pay (and the pay of their directors) is sharply limited. All the money from the fire sale goes to making creditors as whole as possible.
Meanwhile, policymakers work on a new set of regulations to ensure transparency on Wall Street -- governing disclosures, minimum capital requirements, avoidance of conflicts of interest, and better ensurance against stock manipulation -- so that, once the bad debts are off the books, the new numbers can be trusted.
I repeat: This isn't a crisis of solvency or liquidity; it's a crisis of trust.
posted by Robert Reich | 3:48 PM
85 Comments:
If banks lend high & collect low, insolvency results, and all the trust in the world won’t help. That’s just business.
1. These SIV is traded over the counter between banks. So nobody except the banks know the "notional" value.
2. These things are HIGHLY leveraged.
3. It is an UTTER nonsense that these SIV can be bailed out with $500Billion RTC fund, or whatever. (Very simple, everybody wants to bail out of these type of investment. So everybody will LIQUIDATE everything.) Translation: the total cost won't be the slight value erosion due to slowing economy, but EVERYTHING!!! Every bankers want to get rid of these useless puppies from their book. (And nobody else wants to buys it)
4. If the slickest, most criminal scammer in wall street can't unload these SIV, NOBODY can. If government takes over, tax payer will hold the bag. FOREVER. The entire thing. (not just the little price difference. not $500B. But $10-100Trillion of them)
5. Once these bad debt goes into federal budget, US debt rating WILL BE lowered. And cost of borrowing will increase exponentially. (and we live on chinse money with $400Billion debt a year!!!)
6. Ultimately, within few years, US government will start defaulting debt!
--------------
DO NOT transfer these SIV into government book!! They worth absolutely nothing! They cannot be sold in the open market.
Let the banks go bankrupt, and use the bail out money to pump the economy instead. DIRECTLY into the economy, instead of trying to buy useless paper!!!
I repeat. DO NOT let the government buy these SIV, they are truly toxic.
Robert,
I agree with your basic argument,but the SnL crisis related to linear assets,not derivatives.
how are these derivatives and derivatives of derivatives and SIVs to be valued and pulled off the books, this crisis in trust is about undervalued derivative exposure, unregulated leverage of 30:1 to 100:1, and a seized credit system. To date with only subprime the 15T financial sector has lost nearly 2T so far, alt-A, SIVs haven't really even hit yet.
I believe the FED is just beginning to appreciate the scope of the problem and quantity of derivatives in play, several times the US and global GDP...
the 0.5T RTC 2.0 fund, seems wholly inadequate and the effort rings of 'electioneering' more than systemic regulation and improvement.
so operation stealth....is to whisk exactly 'what value of these' into a federal 'holding agency/container'? before the the voters can understand and hope and pray....things remain 'contained'
Dr. Reich, you are exactly right. This is a crisis of trust and what has been done so far only increases my distrust of the government, its agencies and appointed watchdogs.
Until and unless I hear that those who presided over this scam as CEOs, congressional oversight members, and insurers of investment quality, I cannot trust my investments to be secure, much less to grow.
If all these tax dollars are "necessary" because these entities are "too big to fail," what will it take next time?
The biggest survivors are being allowed — even encouraged to merge — creating even bigger ones we can't allow to fail.
This "solution" is the biggest fraud ever! Paulson, Bernanke and Cox should be fired immediately. They are only protecting their buddies on Wall St.
Collective incompetence or strategery (as knucklehead Bush would say)
Paulson is an ex-investment banker.
I think Paulson was selected to resolve the impending wall street crisis by bailing out the good-old-boys in an orderly fashion.
Please vote for CHANGE !!!
HELP OUR COUNTRY !!!!
Anonymous says,
Dr. Reich:
The transparency of the motives behind your capitalistic solution are sickening.
Not only do you misapprehend what he’s proposing but your own transparency makes him look utterly opaque.
Frobes has a good article with 10 Questions for Paulson's plan
http://www.forbes.com/home/2008/09/19/banking-bailout-paulson-biz-wall-cx_lm_0919questions.html
What is ironic is that a lack of transparency caused this situation and now the remedy is lacking transparency.
I can only assume that htere is a larger body of wealthy individuals, above government, that really control this country.
Would it be possible to dig out the foreclosed or near foreclosure mortgages in the bad debt we've bought and return the homes to their owners under renegotiated terms? Collection agencies usually only get pennies on the dollar so taxpayers would probably get a better return from a refinanced mortgage.
I'd feel a lot more comfortable with a bailout package if they also connected it to regulatory changes to prevent this from happening again. A bailout without regulatory changes is begging wall street to just keep doing the same things they have been doing.
We need transparency in a big big way. Right now everybody is assuming that everybody else is toxic and about to go bankrupt. When people are seriously looking at pulling out of money markets, you know it's a BIG BIG problem.
Speaking of transparency, what really had me worried is that we haven't heard a peep out of the big hedge funds. You cannot tell me that these funds, leveraged to the hilt to try to make scads of money are immune to what's going on right now. That seems like a huge huge shoe waiting to land on all of us.
CNBC is stating Breaking News: Only US-Based Institutions to Be Eligible for Bad-Debt Fund; No Access for Hedge Funds (Story to Come)
Most short sellers don't like the 2 week ban on short selling, but the ban expires in two weeks.
One blogger on Naked Capitalism stated the big throttle came on 9/11, and wondered if terrorism was behind the throttle.
California sees a spike in tent cities.
Question: for all the zeroes that go into the Resolution Trust Corporation II, when trillions in wealth became zero, in reality, what was really lost? What's the difference between RTCII and just letting people stay in their homes and continue to pay the same mortgage payment?
Seems like the banks' only income streams now includes the reduce streams of auto loans, credit card debt, student education loans. I remember the lady on YouTube who stated when it comes to credit card debt, the banks' intent is to keep you in debt until you die.
Other people keep saying stop all purchases except food and gas. Bring down all retail stores. Show the power of the consumer.
Dr. Reich,
For good measure, you repeat again the phrase:
`This is not a crisis of Solvency or Liquidity, it's a crisis of Trust.´
Which comes first, the Loss of Trust or the cascading financial cases of Insolvency and Illiquidity? In my view, the Loss of Trust ensues from the complete lack of proper Oversight and strict Controls of our banking and financial system.
It´s the many years´long government and market structural dysfunctions of the financial system that has led to the Loss of Trust many rightly feel now ... not the other way around as you are mysteriously suggesting with some vigor.
I´m open to be corrected and enlightened here if you are trying to deliver a deeper message that´s not obviously coming through to this reader ... who has nothing but high praise for your thought provoking weekly writings.
The challenge now lies in the solutions to prevent the combination of clandestine and overt irresponsible financial breakdown surprises from Happening repeatedly and from being ... Surprises! Then system Trust will gradually return.
There are many to blame for the failures and, hence, the Loss of Trust. But I wouldn´t exploit the situation to suggest the proposed bipartisan interim solution to current crisis is something the public can´t Trust.
The American public has lived and been victimized in this world of mutual political Distrust for too long. It´s destroying the art of pragmatic and creative compromise in the interest of ALL Americans.
Time to be a little more open and patient how these shock wave changes of thinking can unite us to overcome such dangerous crisises.
How about funding the bail out with a sales tax on securities, rather than our income taxes or more borrowing from the Chinese?
Anonymous said...
"I can only assume that htere is a larger body of wealthy individuals, above government, that really control this country."
Despite systematic multi-layered smoke and mirrors schemes which include political front men, this is what we find when we can get a good glimpse of who's hiding behind the curtain. The group of wealthy individuals does change, however, from time to time.
Dr Reich,
I wish you were negotiating this deal. Although I am a constiuent of Senator Dodd's, his actions thus far have not inspired confidence in me. I am afraid the legislature is just going along with Paulson to avoid be blamed for a complete melt down.
Regardless of the outcome I do believe the leadership of this country will take a thrashing in the near future. The amount of anger I am seeing over this bailout is phenomenal.
From another blog:
jim writes:
I'd say Ben and Hank, docile tools of the Neocon reactionaries, used Iraq-war techniques to stampede the Congress into doing what they wanted. One should not forget the scare tactics (all lies of course) used to drum up support for the Iraq War. This is the same administration and so it isn't surprising they might well use scare tactics (and lies?) to frighten the Congress into a dupable condition. Just speculating, of course.
jim | 09.19.08 - 7:13 pm
could this be their final grab and golden parachute as their administration fades?
Yup, we are all socialists now. What the Dems could not achieve in a generation, the GOP has accomplished in a single week. I'd like to see a more detailed comparision between now and the time of the Keating Five, which we may get to look upon with some wistful nostalgia compared to this debacle. Thanks for your crystal clear explanations of a complex issue.
A crisis of trust. So true.
Notice how no one, I mean no one, is talking about putting people in jail. No one is talking about making the people who made the money, give it back.
But I like your direction Dr. Reich. Put these companies in Chapter 11 and let them sell off the bad stuff in an orderly manner-if they can.
Putting this on taxpayers backs is the biggest gangster theft in the history of this country. It does nothing to solve basic problems, other than delay the inevitable for a few weeks (more time for Pauson's friends to dump stocks and protect their ASSets).
You talk about trust, nothing Paulson & Bush said restored my sense of trust. Obama should get as far away from this as he can.
This massive, epic Ponzi scheme has to fall on those who participated and benefited from it. That's what a plan should focus on.
When the actors in this classic Greek tragedy emerge with their plan and refer to each other as "comrade", then I will start to worry.
ahh imobiliarias santa maria
As a former Clinton Cabinet member and a vocal Obama supporter, I wonder if Mr. Reich would like to pontificate on:
1) Who caused this housing mess?
Hint: The Clinton Administration & their “enhancements” to The Community Reinvestment Act (aka even GREATER Socialist Stupidity on Housing & even MORE Counterproductive Social Engineering).
2) Who saw this coming, sounded the alarm early on and fought for concrete measures to prevent it?
Hint: Bush & McCain.
3) Who was in bed with the Fannie & Freddie lobbyists, taking loads of their money and looking the other way while their prominent Democrat buddies made millions upon millions through outright fraud?
Hint: Obama
Would Mr. Reich like to address the facts of the matter?
"Any big financial institution that wants to clear its books can opt in. But the price for opting in is this: Investors in these institutions lose the value of their equity. Executives lose the value of their options, and their pay (and the pay of their directors) is sharply limited. All the money from the fire sale goes to making creditors as whole as possible."
Helloooooooo, shareholder derivative suits! Solvent companies voluntarily entering the equivalent of chapter 11? Seriously?
Wait, at least let me catch up on the duty of care caselaw and move to Delaware before you go any further with this.
How many banks have to collapse before the chief lobbying group, American Bankers Association, runs out of money?
Ban lobbying. Unregister the registered lobbyists. I know the statement in Supercapitalism for why lobbyists exist, but consider the natural business cycle.
Let businesses compete for customers based on offering superior products at competitive prices. Bow to Schumpeter's creative destruction theory.
Ban lobbyists. Let them find real jobs.
I had one econ class something like 30 years ago, so I'm not at all an expert, but what you're saying makes a lot of sense to me. I have 6 adult children and 4 grandchildren so far and I don't want them burdened with debt because of my generation's greed. That's not the type of legacy we should be leaving.
For God's sake, will you and your contacts get on the phone and stop Congress from this lunacy. We need to do something but any plan should first protect the people. We have enough time to think clearly rather then letting the football player ramrod a boneheaded plan through the fear coursing in Congress. Wake up Congress. Appoint an emergency committee of subject matter experts to hammer out a framework in a week or two.
I just cannot get over the fact that I invested wisely, bought a simple house with a fixed rate mortgage, and drove used cars.
Now, I pay inflated property tax because the masters of the universe sold junk mortgages to anyone, inflating the value of my house, and therefore my property tax.
Now, I have to pay to bail out Wall Street fat cats. I think I would rather let the chips fall where they may, because this bailout is just going to create another mess down the road.
Meanwhile, by law, I cannot touch a quarter of a million dollars of my HARD EARNED MONEY without quitting my job. That money is going down in value as the government prints more to bail out their rich patrons.
Dillinger was a piker compared to our "government" and their Wall Street bosses.
Snap-point is here. The rich, the middle class and the poor will all be feeling the sting of the the rubber band hitting them in the face.
I've tried to spread your post on the Daily Kos. Maybe you could post it on that blog yourself. I'm getting tired of posting about it, but your viewpoint needs to be heard.
Don the libertarian Democrat
Why should the taxpayers prop up a housing bubble? it is just idiotic. Let it burn.
Shut down the Fed, arrest Paulson. Let the banks crash and burn. When its all over, we will have affordable housing once again, and a future for our children.
kayxyz: I want to stress that I know and understand very little. That's why I'm here. But I don't understand why the "bring down retail" part would be a good idea in terms of small and/or local businesses. If you are going to take action this way, wouldn't it be better to make any necessary purchases you can, beyond food and gas (e.g. new shoes/clothes) at these places? I hear they are going to be just as hurt by the credit crunch as individual consumers, and they do contribute to local revenues.
Let my dollar go! To say Bush has been a disaster when it comes to monetary policy is an understatement. Why has Paulson worked so ahrd to keep the dollar low against the Chinese currency, the RMB? This has been nothing but inflationary. Now as they orchestrates the biggest bailout in history, Bernake the academic, and Paulson the new Socialist they are printing money instead of letting these poorly run businesses go. What a legacy for Bush. I never thought he was a fiscal conservative, and now he proves it. Robert Reich, you nailed this. Now just tell your candidate that there will be now money for those programs he is waving at us that he cannot possibly pay for. And yes, if you need to work off a bit of stress, www.bop-o-rama.com!
Pigs apparently can fly in today's economy.
The solution is very simple - sell foreclosed houses with this stipulation: buy this foreclosed house for cash (or maybe 50% down)and move to the front of the citizenship line.
Clearly those who control the most leveraged money stand to lose the most money in nominal terms if the unwinding of toxic financial paper investments is not manipulated to be as "orderly" (stretched out)as possible.
An orderly process might save average Americans some immediate pain, but will probably result in long term pain unprecedented in this country. I do not care how much pain the wealthy suffer and agree with other comments that all salaries. bonuses and stock gains for the "bailed out" should be forfeit. This of course, will not happen.
The current "orderly" process orchestrated by the Fed in concert with Wall Street is a travesty, but letting the free market correct on its own would be a catastrophe as well.
The real financial losses are being felt the most by those who have the least and what is left of the quickly degrading middle class.
The concentration of wealth in this New "Gilded Age" is unprecedented and we are truly in a two class society once again. Good riddance to the "perception of parity" created by easy credit, but once people realize there is no parity, what will they do?
My guess is that most will look to the government for personal handouts. I wonder what level of pain it will take for people to once again take personal responsibility for their actions and results.
It is hard to feel sorry for someone who was worth $10 Billion last week and is now only worth $6 Billion. Let them eat cake.
It is not hard to feel something for the "average" American who bought into the ("Why save for the future when I can use my ever more valuable home or investment property as an ATM?) But what should we feel for anyone who abdicates all responsibility for their financial future to the failed promises of Corporate Retirement Plans or Social Security and opts for "living for today"?
For a time I thought the OBN (Old Boy Network)on Wall Street and the NeoCons would pull off an election year miracle and forestall the market from complete collapse until after the election. They may pull it off yet, with the complicity of many Democrats.
I remain amazed that the average American remains blissfully unaware of the rape and pillage of their pocketbooks for the forseeable future of generations.
Everyone should read Kevin Phillips newest book, "Bad Money", but I suspect those who do will be in the minority. Lookout America if the masses realize just how badly their futures have been impaired by the sophisticated coin clippers that are still running the show.
The TAF and other Fed windows taking toxic garbage from banks and investment banks for treasuries? Where is the constitutional authority for this strategy? Buying an Insurance Company? Bailing out GM?
There is no simple answer to a problem of this magnitude and letting the market decide the correct value of assets could cause our society to implode in the short term.
Remind me again who decided that financialization and free markets were the light to nirvana for the American Empire? Aren't many of the same players now part of the process of the largest Socialization of (financial) business we have ever seen in America?
Well the OBN boys have their money (probably in foreign currencies and gold) and our esteemed politicians are part of a well funded private pension plan, so no worries about Social Security or Medicare deficits there...
Intellectually I cannot see either Obama or McCain effectively changing the status quo, or resolving this crisis without a major recession or depression, but as a wild card, Obama will probably get my vote.
If there is no easy credit, housing prices will stabilize when the long term relationship between annual median income and home prices reverts to the historical mean of about 3 to 1. Depending on how much hot air supports the high end enclaves, we could see some real losses there too.
I would love to track the job hunting efforts of the Lehman Institutional Sales (shown on a national news channel) rep who managed to survive for 23 years there. How much of a pay cut will he take to get back to work? Will he lose his overpriced Manhattan Co-op? Has he actually saved any of the ridiculous compensation he earned selling Synthetic CDO's to pension funds and banks?
I saw a statistic this week that 21% of Americans making at least $100K live month to month and save nothing.
The housing market will not hit bottom for some time yet. American financial history seems to indicate that it takes several years for the unrealistic hopes of sellers (wanting to sell for peak dollars) to align with buyers who want to pay bottom dollar.
Big hedge funds and SWF's want at least 20% IRR and an equity kicker as incentive to buy properties or loan pools. In a forced fire sale, they will get the returns they want and more, but the gains will stay within the OBN.
Wake up America! Get angry about what is happening and do something to create change. Can you remember the last time Americans filled the streets in protest of a national shame?
I went into Wells Fargo on Monday to make a deposit. They had a Wall Mart style greeter at the door (in a three piece suit, no less) asking me if he could be of help and thanking me for coming. I have never seen this before. Later I was wondering if it was because they wanted to see if people were starting to panic, thus starting a run on the bank. FYI: Wells Fargo did not purchase risky derivatives as far as I know. I guess we are now officially living in interesting times.
Doc:
This whole thing is making my hair hurt. To bail, or not to bail: that is the question...
I am confused by your proposal. In net I'm not clear why it is less risky than a new Trust unless you are proposing that the government would merely be acting as a bankruptcy referee, corralling the available assets and then seeking buyers; then collecting the proceeds and disbursing them to the creditors. In that scenario I'm not sure the government can be as effective as private industry could be unless there is to be a government guarantee of some sort attached to each asset package: Are we at a different end point yet?
While I understand the punitive nature of your proposal regarding investors and executives, what of those investors who are not "fat cats"; those who through pension funds or mutual funds, via 401Ks or IRAs; those with meager portfolios approaching retirement who just happen to be invested in the wrong stock at the wrong time? I am inclined to go along with you on executives. Most of them are complicit in the problem and many have been rewarded, significantly, in years past. Is it not possible to create those kinds of conditions in a contract with a new Trust? Cumbersome no doubt, but maybe through a recourse clause.
Economics of Contempt has a good point regarding shareholder lawsuits. Will we be shifting huge salaries and bonuses from executives to lawyers fees?
Your premise about this being a "crisis of trust" rather than solvency or liquidity appears somewhat myopic. It seems to me that "trust" is predicated on solvency, liquidity and integrity. Forget integrity, that began declining at the time of the Industrial Revolution and the decline continued until it was replaced with one-upmanship. That gets us back to "trust" being defined as the old banking adage: "I'll loan you the money if you prove to me you don't need it".
It has long been held that nothing is more disturbing to economic players than uncertainty. If many large companies hold assets, on or off balance sheet, with questionable or zero values and especially if those companies are highly leveraged, solvency and liquidity would seem the entire basis for "trust". Keep in mind, perception is reality.
Are there huge risks in any of the solutions floating about? Duh! There are good reasons for concerns about conspiracies and many posters here have asserted them but we too, citizens and taxpayers, have to have "trust".
The players driving the new Trust concept can give us pause but they are bright people and I doubt they are interested in seeing the entire government crumble. There is a big difference between "starving the beast" and bludgeoning it to death. It would appear that the many economic advisors advising Obama are in favor of the basics of the new Trust proposal and there are conspiratorial limits.
I do get concerned that the need for this final(?) resolution came out of nowhere, after months of piecemealing patches, but am guessing that it became evident that the piecemeal approach was getting out of hand and would end up being far less manageable than creating a central enitity to deal with all the issues collectively.
I am concerned that we Dems will attempt to make hay from the fiasco by encumbering any legislation with reams of stimulative amendments, prolonging action and muddying up the legislation, maybe less for aiding the less fortunate than for gaining political points. Every bill coming out of Congress does not have to be an Omnibus bill. For an issue so important it would be best to stay focused and solve this problem first and revisit other issues later. With the likelihood that the composition of Congress will change dramatically after the elections a more favorable resolution to many of the working class problems is probable.
We are, "damned if we do and damned if we don't". Their approach, your approach, nobody's approach, the risks are huge and there is no guarantee that any approach will yield better, safer results than any other.
To Frank's point, we need to involve the best minds we have, across the entire political spectrum, and get a solution with the best chance for success. I also have concerns about your opt in option. If some don't opt in, probably claiming their assets are solid, "trust" will be a longer time in returning.
I see lots of irrational hysteria over bank failures. Here are the facts:
1) Just yesterday (9/19/08) CNN reported the 12th bank failure of the year.
2) According to the FDIC:
A) There were 534 bank failures in 1989 (and yet, we survived without the second coming of The Great Depression).
B) There were 98 bank failures during 8 years under Clinton, compared to 37 under 8 years of Bush 43 (including yesterday’s failure). And yet, the media get FAR more hysterical under Bush 43 (anybody wonder why?).
3) As to the solvency of banks, once again, data from the St. Louis Federal Reserve proves that conditions were FAR worse in the early 1990’s.
Listen up folks - so-called “journalists” DISTORT THE TRUTH!
P.S.) According to the data presented by CNN, 1/10th of 1% of the banks insured by FDIC have failed this year (12 failures, 8,451 insured).
GET A GRIP!
Sbvor,
Look, you moron. It's not the number of bank failures that is an indication of the seriousness of this crisis, but the size of the current banks failing. You degrade this blog with your hyper stupidity.
Anonymous,
The most notable trait of the so-called Liberal is extreme arrogance combined with extreme ignorance. You just showed both in spades.
If you were half as smart as you think you are, you would have noticed that the data from the St. Louis Federal Reserve is a ratio based on assets.
Now, get back to studying for your G.E.D.! You have a long way to go!
This post has been removed by the author.
Anonymous,
From this FDIC page, you can (as I have) produce a detailed report including the total assets associated with each failure for each year. You can then (as I have) copy and paste that data into a spreadsheet and easily tally the amounts.
Here are the FACTS:
1) 2008 - 11 Bank failures totaling $40,443,315,000 in assets.
The 12th failure, reported just yesterday, is not yet in their database.
2) 1989 - 534 Bank failures totaling $164,180,003,000 in assets.
Note: The assets are reported in thousands of dollars.
So, by YOUR PREFERRED METRIC, 1989 was MORE THAN 4 times worse than 2008 (YTD).
Next Red Herring?
I've just read the bill. It's an open check book, no strings attached. At least during the S&L crisis, the RTC took over institutions, and could sell good assets along with bad. This bill has the taxpayers buying only bad assets, letting the firms we're bailing out off the hook. Biggest executive power grab I've ever seen.
Prof. Reich, you were my prof at the Kennedy School. It's good to see you again, especially on the Obama team. PLEASE TELL HIM NOT TO VOTE FOR THIS BILL AS CURRENTLY DRAFTED. Thanks.
Bob, Give me a hand here. I've been blogging about your post all day on Kos. We need to make it viral! You need to be heard. Don the libertarian Democrat
Dr. Reich,
Wish you would do a little research writing on the next possible financial calamity lurking in the background, namely the "Trillion Dollar Credit Default Swap" market.
I recall George Soros warning weeks ago about the considerable financial risk exposure in CDS derivatives.
It's another of those exotic financial instruments where nonone knows the true risk insurance firms are carrying with this product. As most know, a currency default swap contract is a form of insurance against the possibility a company will default on its obligations.
Historically, this insurance has been relatively cheap because of low risk of company defaults happening on a grand scale. But significant defaults are occuring now. But it's a big mystery exactly how well the insurance firms have made adequate capital reserve provisions for a potential flood of defaults. Hence, an insurance firm's liabilities here are incomprehensible.
Just another non-transparent financial product where downside risks could also be in the hundreds of billions. It's one of those Known Unknowns, or "one of those things we Know we don't Know."
The curtain hasn't gone down yet on the financial drama of our times.
The bailout needs to be structured so that the financial institutions are only paid what the junk they have created is worth. And they broke it. Let them sell it, or sell pencils on Wall Street.
We should put our money into building a stronger and well regulated economy--education, alternative energy, infrastructure investments, not propping up reckless and irresponsible gamblers.
The Republicans are trying to rush this through because they are not going to be around come January. Time is on our side and when time is on your side in a negotiation, you win.
We cannot hand them the rope they want to use to hang us.
Just say NO to corporate bailouts.
Isn’t it “funny” how neither the commentators nor the host of this blog is even remotely interested in what REALLY led to this housing mess?
Dr. Reich,
The current credit crisis, like the 1929 crisis, reveals how unstable the foundation of our financial system is. In 1929, the banks worsened the crisis by giving out too little credit, and now the banks have instigated the crisis by giving out too much credit.
One lesson is clear, product innovations in the financial sector can be dangerous without first understanding the innovations and designing immediate Oversight structures at the same time. The impact on the public is too great if things go wrong.
A return to simpler, overseeable financing with instruments everyone understands wouldn't be a bad idea.
Mr. Thomas,
There you go again (whipping up the 1929 hyperbole).
How could banks have been MORE THAN 4 times worse off in 1989 and yet we did not, at that time, see the second coming of The Great Depression?
Are you merely a shameless propagandist?
How about commenting on what REALLY led to this housing mess?
Is that too much of an “Inconvenient Truth”?
Dr. Reich,
I love your commentaries because you explain complex things so clearly.
I am a lay person, but I believe your solution is infinitely more fair than what the Bush administration is suggesting and will be better in the long run for the world economy.
What can be done to advance your proposal? Are you speaking to everyone in power that will listen? What can individuals do?
Mr. Reich,
I've been listening to every "expert" out there for the past week. I have also been studying this problem non-stop for the last 2 years. Of course many thought I was crazy, they don't think I'm too crazy now and now they are in a state of PANIC. I do tell them to calm down.
Anyway, I do not want ONE penny of my taxes going to these crooks. Not one. I can't believe how most of the American people are in a fog and have no clue what is at stake here.
So I want to ask you a question. We get to bail out these banks and buy this insurance company and these crooks STILL get to foreclose on the homes? So they end up with EVERYTHING and we get to end up OUT ON THE STREETS?
No way, and as soon as the American people figure this out I do believe that every representative in office right now WILL be voted out.
So now that we are paying every mortgage and all the insurance in the country does that mean I can park my happy butt in any home I want?
The American people need to wake up and start educating themselves. I constantly run into people who are in a fog and can no longer think for themselves. This is a national disgrace and I hope everyone is out there writing to their representatives.
Mr. Reich,
One more thing. I did not elect President Paulson! I didn't vote for the sorry excuse for a president we have in there now either. I saw this coming. I had a very bad feeling and then started looking into all this and what I found blew my mine.
So, I went and started taking accounting and economics courses. This is so bad. I think we are going to go into an inflationary depression if President Paulson and Vice President Bernanke are not careful.
I have much respect for you Dr. Reich. You are one of the few that seems like you are smart enough to get us out of this mess. There are a couple others also.
Do you have a youtube channel where you upload your interviews? I know I'm not catching all of them. Thank you and PLEASE keep speaking for us.
Good Luck everyone.
Anonymous,
You want to know what caused this housing mess?
Read it and weep.
@ svbor,
You are SPREADING DISINFORMATION. It is people like you who are getting all the sheep out there even more confused.
I have a massive headache right now from reading all the news out today but I will come back and GIVE YOU a much needed education.
What you have on your blog is utter bullsh*t.
It was BOTH parties. And I even know ALL the people!
Does anyone really believe Pelosi and Reid can do anything other than get steam-rolled by this?
Anonymous,
Care to substantiate your assertions?
Can you?
No, you cannot.
Otherwise, you would have already done so.
Read the very latest entry (5th in the series) and weep.
There may (or may not) have been some Republicans involved. If so, how many were blackmailed with the usual threat of being branded a “racist” if they did not go along with the race based Cultural Marxist madness?
I have a sneaky suspicion that the Community Reinvestment Act was ALSO the primary driver behind the S&L failures of the late 80’s and early 90’s. If so, this is the SECOND disaster directly resulting from this utterly INSANE Community Reinvestment Act.
Repeal the 1977 Community Reinvestment Act, NOW!
Why is it that only the Democrats are talking about helping homeowners, laid off workers, and the poor? There are two competing economic polices, the supply side, trickle down, and the consumer, bottom up, models.
For the past 30 years, Republicans have reduced taxes and subsidized the wealthy and big businesses in the hopes that the wealthy and big business will create jobs and supply goods for consumers. In reality, this has not happened. In a global economy, money can be invested and companies can create jobs anywhere in the world. The wealthy and big businesses have money to influence government to their advantage legally. As money is taken from the many to give to the few, the rich have gotten richer and the middle class has gotten poorer. The wealthiest 1- percent has more net worth than the bottom 95 percent. When the consumer can not afford the goods, it does not matter how many goods are available.
One of the rolls of government is to provide for the general welfare. The bottom up policy purposes that all citizens should share in the prosperity of the country they help to build. When consumers purchase goods, they create jobs to replace the goods and make them available to other consumers. Of course this transaction generates profit and taxes to support society, therefore money travels from the bottom up to owners and investors. Since people need food, water, housing, and other consumables, this is the base of all economies. It is the responsibility of government to provide a fair playing field and care for the unfortunate. Which brings us back to the question. Most Democrats believe in the bottom up policy whether they know it or not.
Ross Perot has said, “ When you destroy the middle class in this country you destroy America.” The Republican Party’s trickle down policy has not helped the middle class. It has only helped the wealthy and big business. We have seen the Republican Party’s trickle down policy to solve the economic slow down due to real estate, and mortgage problems. After a year of tinkering, trickle down does not work. It is time to implement a bottom up solution that will work.
Dr. Robert Reich has said, “The only way Wall Street's meltdown doesn't spill over to Main Street is if policymakers begin to pay adequate attention to the people whose wallets really keep the economy going, and who merit more help than the Wall Street tycoons whose carelessness and negligence have put it in such jeopardy.”
I will be very disappointed if Dr. Robert Reich is not in President Obama’s Cabinet.
We have seen the Republican Party’s trickle down policy to solve the economic slow down due to real estate, and mortgage problems. After a year of tinkering, trickle down does not work. It is time to implement a bottom up solution that will work.
Senator Charles Schumer suggested that government inject funds into financial companies in exchange for equity stakes and pledges to rewrite mortgages and make them more affordable. House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, this week proposed Congress create a federal entity to buy bad loans. Senator Hillary Clinton of New York, a former candidate for the Democratic nomination for president, proposed resurrecting a 1930s-era agency to stem foreclosures. ``We need a modern day Home Owners' Loan Corporation,'' Clinton said in remarks at the Senate today. ``There will not be any semblance of a normal or orderly market'' without ``quarantining'' the devalued loans outstanding, she said.
However it is done, the policy is sound. Rewrite mortgages and make them more affordable. For example, suppose a homeowner has a $100,000 adjustable rate mortgage at 7 percent and will reset to put the monthly payment out of reach. Congress should create a federal entity to buy bad loans, such as, a modern day Home Owners' Loan Corporation, or Fannie and Freddie. The federal entity could rewrite the mortgage, pay the original mortgage holder 50 percent, $50,000, and make the remainder a second lien. PMI could kick in for the second lien. Which means the home cannot be sold until the second mortgage is paid off. The homeowner would agree to a 30 year fixed rate first mortgage at an affordable, appropriate interest rate, say 5 percent and a second mortgage at 0 percent. The homeowner could stay in the home but would still pay the full loan amount at reduced interest rate. His neighbor’s home value would not go down because of a foreclosed house next door and also fewer houses on the market. The federal entity could sell the first mortgage to investors and the second mortgage holder could sell the second mortgage to investors at a reduced amount. The value of the original loan now has a known value.
By buying troubled mortgage debt from major banks, the government can help make more money available to borrowers — and maybe at lower interest rates. However, buying a troubled mortgage debt does not save one homeowner from foreclosure. It only helps the bank. It does not take one foreclosed house off the market which would reduce supply and raise prices. Falling home prices nationwide have acted like dominoes, knocking homeowners into foreclosure and taking down lender after lender, until the entire global financial system is in jeopardy. The bottom up policy will keep homeowners in their house, take houses off the market, and stop troubled mortgage debt at the source.
Welcome to the "Peoples Republic of Wall Street"
It is the middle class proletariat of this country that is straddled with accepting the mistakes of our current aristocracy
Marx would be proud to see how the lobby system’s corruption of democracy (blocking regulation) has eroded a global super power into socialism.
Of course, McBush sees this as “fundamentally sound”.
sbvor:
Is always amazing that someone, like you, who blogs so much is so clueless.
The term "bank" being used by most in discussing this fiasco is used generically. The biggest failures occurring are not in traditional, technically defined "banks". Bear, Stern, for instance, was not a "bank" in the technical sense and thereby, one of the biggest problems, was not subject to normal banking regulations. They also were not allowed to fail - tell that to their shareholders - being acquired instead. For both reasons they would not be included in your fancy charts and spreadsheets.
Bear, Stern, as of November, 2007 had total assets of $395 billion or a value equal to 40% of all the total assets of "bank" failures since 1980. Lehman Brothers filed bankruptcy with over $600 billion in assets. Between the two of them they exceed the total assets of all your selected "bank" failures since 1980. I believe that is what anonymous was referring to.
All "bank" failures are important, 2,982 of them since 1980, but the figures you present are a pittance when compared to the magnitude and worldwide scope of the failures of the Wall Street Investment Banks. This is what drives the parallel to 1929 and the Great Depression.
All of us who have been subjected, repeatedly to your fatuous arguments and inane interpretations of graphs and spreadsheets are well aware of your lack of knowledge. Even more hysterical is your everpresent inability to ascertain cause and effect. In net you fill up a lot of server space with hot air.
Perhaps it is you who should pursue a GED. Can't hurt and could be a giant step forward.
Is the common sense answer just reinstate Glass-Steagell?
Why does the Treasury Secretary get "nonreviewable" power in the United States?
good post
Art,
Read this comment. It is typical of many such comments I have (sorry to say) read in this blog over time.
The facts stand.
The moment you attempt to describe “the parallel to 1929 and the Great Depression” you lose all credibility.
Show me the DATA! I know you won’t. You can’t.
Now, how about admitting that the Dems caused this housing mess and Obama is at the white hot core of why the mess was not prevented.
Repeal the 1977 Community Reinvestment Act, NOW!
Art,
P.S.) If my figures were adjusted for inflation, the gulf between the conditions of 1989 and 2008 would be even WIDER!
sbvor:
P.S.) If my figures were adjusted for inflation, the gulf between the conditions of 1989 and 2008 would be even WIDER!
Notwithstanding that you can't grasp that your data has nothing to do with the issue, all I need to do is add Merrill Lynch and my figures double.
Even using your meaningless figures if we do a simple average we see that your 1989 numbers come to an average of $307.5 million per bank. Your 2008 figures come to an average of $3,676.7 million per bank. Should give you pause.
Repeal the 1977 Community Reinvestment Act, NOW!
You are forever confused with cause and effect. You're in good company for I see that this is becoming the rallying cry of the conservative dimwits on some of the Sunday talk shows. The legislation was meaningful and necessary. At the time there were extreme inequities in the process of making home loans. What the greedy business world did with the legislation is what caused this problem not the legislation itself.
I would agree that often the problems with legislation is that Washington tends to be very naive in its view of private sector behavior. You can make a weak argument that allowing "securitization" of the mortgage backed deals was poor judgment but again had it been done with ratings agencies acting independently and ethically and with buyers and sellers following good risk management practices, "securitization" in and of itself would not have been a problem.
The business world operates on the theory of, never let good sense get in the way of making outlandish profits.
If we were to follow your logic of cause and effect, especially in searching history to find the origin of problems, we could easily get back to the Revolutionary War as the cause. Had we not become an independent country and were still part of the British Empire, it's likely none of this would have happened. Even if it did we could blame the King.
Best if you keep spewing your nonsense and avoid attempts at reasoned argument. You appear very ill-equipped for that exercise.
Doc:
A minor adjustment to my earlier views. As written, the proposed legislation is sorely lacking. It seems to establish a King _____, (fill in the blank) Secretary of the Treasury. Without some extreme fleshing out I am less favorably inclined.
One interesting thought; what might be the effect on the markets if the legislation is enacted as written but the activities are never commenced? Would the existence of the facility ease the credit crunch?
Let us see what Congress comes up with as addendums and modifications.
Art,
1) The Boston Fed study which, long ago, purported to have proven “redlining” has been proven wrong over and over again. It was pure propaganda rooted in Cultural Marxism.
This 1996 study concludes:
“most, if not all, statistical evidence of racial redlining based on aggregate loan data is at best inconclusive, and more likely, misleading.”
The concept of “redlining” was absurd on it’s face. The notion that mortgage lenders were more interested in pursuing a racial agenda than in making a buck on a mutually beneficial loan is utterly preposterous.
2) Does your term “dimwits” apply to:
A) Dr. Stan Liebowitz?
B) Dr. Thomas J. DiLorenzo?
Must they also kneel before your superior intellect?
3) The 1977 CRA required lenders, through force of law, to meet government mandated quotas for handing out bad loans. If they failed to meet those quotas, there were penalties. It does not get any more direct than that.
There is no question that the 1977 CRA caused this mess. I am rather certain it also caused the S&L crisis of the late 1980’s and early 1990’s.
How many MORE such disasters must we endure before the STUPID LAW is REPEALED?
4) My blog is often out in front of the Sunday talk shows (among other media outlets).
Meanwhile, it looks like Canada's PM, Stephen Harper -- a Conservative/Tory (their version of "Republican") -- is refusing to transfer Canadian taxpayers' money to the persons whose buccaneering ways caused the crisis:
http://www.cbc.ca/news/canadavotes/story/2008/09/19/harper-quebec.html?ref=rss
Meanwhile, Paulson won't allow a dime to be spent to help out out the homeowners caught in the traps sprung by Paulson's buddies, but he will funnel hundreds of billions to foreign firms:
http://firedoglake.com/2008/09/20/more-and-more-surreal-paulson-can-buy-non-american-non-mortgage-assets/
So-called “Liberals” caused this mess with a nutty idea for “helping” the poor.
As ALWAYS, the greatest harm was done to the very people these so-called “Liberals” purported to “assist”.
Shall we send more good money after bad with the same intent?
sbvor:
Along with all your other failings your ability to comprehend what your read ranks right near the top.
“most, if not all, statistical evidence of racial redlining based on aggregate loan data is at best inconclusive, and more likely, misleading.”
Now are the authors positing that "redlining" didn't exist or that its existence cannot be supported based on existing statistical evidence of aggregate loan data? Their review was of data already collected and presented they did not undertake to create new data from scratch. Does the suggestion that the statistical data was inconclusive or misleading extrapolate to it was flat out wrong? Your intuitive and analytical abilities are severly wanting.
If one assumes, since you are retired, that you have been around a few decades, one can only surmise that you spent much longer in the womb that most of us or you lived some sort of sheltered existence that shielded you from the real world. Whether you want to call it "redlining" or just plain ol' discrimination it existed for years and across a broad spectrum of business activitities.
If the 1977 law was so detrimental and the cause for all that ails us why did it take 20 or 30 years for it begin to become such a problem? The folks defaulting on mortgage loans are not doing it after paying those mortgages for lo these many years. Could it be that some inventive businessmen found a way to use the law to stiff some of the population intended to benefit from the law? In fact many of the subprime mortgages are not limited to areas considered problematic in the original "redlining" mortgage practices.
As for academics, some of them are dimwits. Your frequent critiques of Dr. Reich, sometimes vitriolic, would suggest you don't hold the highly educated in some sort of hallowed venue either.
Dr. Liebowitz's article does not zero in on the CRA as the prime culprit. Rather he focuses on regulators and community action groups as the real problem.
Dr. DiLorenzo does attack the CRA as more causal but he also focuses blame on the Fed regulators and community groups. An interesting quote from the good Dr., written in September, 2007:
"A U.S. Senate Banking Committee staffer told me about ten years ago that at least $100 billion in such loans had been made in the first twenty years of the Act."
Are we to believe that many of these $100 billion in loans are just now going into default or is it possible that the legislation worked until banks and mortgage companies decided to bilk the system?
Let us not forget that PhDs, as all of us, have political bents and frequently those political bents drive their public proclamations far more than their educated, supposed, objectivity.
PhDs are not exempt from dimwittedness.
You will forgive we posting here if we fail to pay any attention to your assertions and certainties. You have proven yourself particularly inept at understanding issues or mathematical data.
Post your insanity, collect your check, and be off to the next blog. In debate you are no where near the equal of most posting here.
1) If you think there is any empirical academic evidence that “redlining” EVER occurred, you’re living in a fantasy world. But, that’s what Dems do.
2) This is not the first time the CRA has bit us where the sun don’t shine. I am rather certain The S&L crisis of the late 1980’s and early 1990’s was also caused by the CRA.
3) The link from this post lucidly explains how the bubble was sustained for many years (as most bubbles are) before it popped. Remember the NASDAQ bubble?
These bad loans took a long time to pile up. Lower and lower interest rates sustained the illusion of solvency.
4) A friendly suggestion - More data, less ad hominem. Even your allies know you to be trollish.
These are the facts. Read them and weep. Your party can no longer hide from them! If enough Americans read them, your party will be in VERY serious trouble.
sbvor:
"You just keep thinkin Butch!"
Art,
Responding in kind to your entertainment metaphor…
It’s time to sing goodbye to your Obama Nation!
I REALLY love the phonetics of that phrase (Obama Nation).
The people will soon learn what it REALLY means to be a “community organizer” in ShyTown.
Write your congressmen people, and quick, and let them know how you think. It's your only chance to keep from getting saddled with the bill for this mess. Here's a link that gives the email addresses of every Senator and Representative in Congress by state and district.
http://www.conservativeusa.org/mega-cong.htm
The deranged idea that the CRA caused this mess is completely at odds with arithmetic.
Here are the tables of housing units with a dark or brown skinned owner:
http://www.census.gov/hhes/www/housing/ahs/nationaldata.html#jump3
There are in total 13m dark skinned households and around 11m brown skinned households, half of each owned, for a total of 12m owners.
Looking at the mortgage data on the same page:
http://www.census.gov/hhes/www/housing/ahs/05dtchrt/05cdtchrt/tab5-15.html
http://www.census.gov/hhes/www/housing/ahs/05dtchrt/05ddtchrt/tab6-15.html
there are approximate 4m mortgages owed by dark skinned people, and around 4m mortgages owed by brown skinned people.
The median mortgages are around $67k per mortgages owed by dark skinned people and around $100k per mortgage owned by brown skinned people.
But the average loss on the 8m mortgages is around $120k, assuming (optimistically) total losses of $1 trillion.
Thinking that the CRA created $1 trillion in losses (or any significant number of losses) is simply ridiculous. The arithmetic does not work.
sbvor:
You're always given to a lot of wishful prognostication. Appears consistent with your wishful "facts".
blissex:
Good analysis! Won't have much effect on sbvor because he doesn't really understand figures he just posts what he is told.
Perhaps we should all bear in mind the simple truth that the decisions being made right now should never be made under the kind of pressure that is being manufactured in Washington right now. When it comes to decisions of this kind; "There is no such thing as a good deal that can't wait". None of us would buy a used car under this kind of pressure. Right or wrong this country and our leaders have made too many decisions without such preparation and forethought. It has been prove again and again that we have been lied to and mislead too many times to allow this to happen again.
Please continue this discussion; it is exactly what is required to make an informed decision.
But above all, let's ask our leaders why we should risk the future of our nation and of generations to come with what amounts to a gun to our head. We should ask ourselves, why our nation's leaders would expect us to do so.
Demand more time. Let's make the right decision.
Handing over the anticipated baby boomer generation's expected transfer of wealth to produce $2,000 future bill for every resident doesn't seem a logical one except as an exit strategy for Bush and his buddies, leaving America worse off than it was before.
If equal to the War in Iraq bill that must be paid, as suggested, the double whammey of Bush's beginning and ending has the same effect on the American people - to separate them for their current wealth and their future wealth in the same measure - essentially, a charge for entry, and a charge for his exit.
If a bailout is necessary, it would seem logical not to give it to the same people who got everyone into the mess, and are now forcing people to pay to get them out. Isn't that extortion by any definition?
I too agree with you that this isn't a crisis of solvency or liquidity; it's a crisis of trust.
Superb!
MyLoanExpert - mortgage refinance rates, mortgage quotes, interest rates, mortgages loans, refinance, mortgage company, mortgage refinance
If we are to give these flim-flam men $700 Billion, let us at least take a scene from "There Will Be Blood" (a fitting and proper allusion for this scenario).
Make Bush, Cheney, Bernanke, Paulson, Greenspan, and any other prominent free market economist stand in front of cameras on national television and repeat, "Free Market capitalism and trickle down economics is a superstition and we are false prophets". Make them shout it the way Daniel Day Lewis made the preacher shout similar words in the movie...then club them to death the way he did, with a bowling pin!
I have a plan based on not understanding what the bail out intends. From what I can see the bail out will provide the companies whose consumer debt is not getting paid. The bail would take the consumer's (taxpayer) money and supplements the revenues for these companies with a loan to cover the owed debt. Then once the consumer can pay his debt the abil out intends to have this money repaid to the taxpayer (consumer). Folks these are the same people.
Why not have the IRS collect a predetermined amount of debt from each taxpayer. An equal amount to taxpayer up to thier debt (this amount would be isolated to the debt in credit cards and home mortgage principle). If you owe less then you get up to your debt or be capped to an amount of debt evenly across all taxpayers. This debt would then be paid to those companies that are failing becuase thier consumer based is unable to pay its debt. This is a bottom up bail out that eliminates the need to pay back the taxpayer in the future and will go to the heart of the problem, consumer debt that is not being paid.
I have a plan based on not understanding what the bail out intends. From what I can see the bail out will provide the companies whose consumer debt is not getting paid. The bail would take the consumer's (taxpayer) money and supplements the revenues for these companies with a loan to cover the owed debt. Then once the consumer can pay his debt the abil out intends to have this money repaid to the taxpayer (consumer). Folks these are the same people.
Why not have the IRS collect a predetermined amount of debt from each taxpayer. An equal amount to taxpayer up to thier debt (this amount would be isolated to the debt in credit cards and home mortgage principle). If you owe less then you get up to your debt or be capped to an amount of debt evenly across all taxpayers. This debt would then be paid to those companies that are failing becuase thier consumer based is unable to pay its debt. This is a bottom up bail out that eliminates the need to pay back the taxpayer in the future and will go to the heart of the problem, consumer debt that is not being paid.
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